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216 IRET Congressional Advisory 1 (2007)

handle is hein.taxfoundation/iretcgadv0213 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote growth and efficient operation of the market economy. January 8, 2007 Advisory No. 216 CONGRESS DELIVERS POSTAL SERVICE LEGISLATION Executive Summary Just before it adjourned in December, Congress passed significant Postal Service legislation, the Postal Accountability and Enhancement Act (Public Law 109-435). The new law gives the Postal Service greater flexibility to adjust postal rates, a power it had long sought; broadens oversight on nonrate issues by its regulator, now called the Postal Regulatory Commission; and resolves two issues regarding the Postal Service's pension contributions. The pricing discretion, which the Postal Service argues will allow it to operate in a more businesslike fashion, comes with the restriction that rates on market-dominant products are not to increase faster than the consumer price index. Mailers hope the rate cap will hold down future rate increases, and the Administration hopes the cap will promote financial discipline at the government-owned agency. The new rate-setting process will not affect the rate case now pending. Unfortunately, the legislation does little to relax Congressionally imposed requirements that push up the Service's labor costs. Rate-cap regulation is not a magic bullet. It would work much better if it were coupled with labor compensation reform. Congress has decided to transform the Postal Service's regulator from mainly a rate regulator to a full-fledged regulator, extending its oversight into areas such as service standards, in order to provide a check on the Postal Service's increased discretion. The regulator has shown itself to be highly competent in the past. The rules it develops in coming months and years to carry out its expanded responsibilities will help determine the new law's effectiveness. The pension-contribution changes are largely unrelated to the rest of the act and are a follow-up to 2003 legislation. The 2003 law retroactively recalculated - and greatly reduced - the Service's pension liability, but then locked up the annual savings after 2005 in an escrow account. The new legislation justifiably ends the escrow account and prudently directs that the Service use most of the funds to reduce its enormous unfunded liability for retiree health care benefits. Privatization and de-monopolization were not on the table in 2006. Congress will be loathe to consider these changes as long as the Postal Service delivers reasonable service at affordable prices. Congress wisely understood that the Postal Service should concentrate on its core mission and not wander into unrelated markets. The Postal Accountability and Enhancement Act removes the Service's authority to introduce new nonpostal products.

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