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160 IRET Congressional Advisory 1 (2003)

handle is hein.taxfoundation/iretcgadv0157 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.
October 16, 2003                                                                   Advisory No. 160
PRESIDENTIAL POSTAL COMMISSION RECOMMENDS
COST-CONTROL REFORMS, NOT BUSINESS EXPANSION
Executive Summary
At the end of 2002, the President appointed a Commission to examine how to improve the Postal
Service's finances and consider what role it should play in the future. The President's Postal
Commission has produced a thoughtful report which explains that the Postal Service's financial
problems are correctable -  but only if costs are better controlled. Far more emphasis, the
Commission concludes, must be placed on restoring fiscal stability not by ratcheting up rates or
scaling back service, but by aggressively rooting out inefficiencies throughout the Postal Service.
Outdated statutory restrictions bear much of the responsibility for the Postal Service's excessive
costs. To help rationalize the agency's outmoded network of facilities, the Commission proposes
establishing a panel modeled on successful military base closing commissions. To help align postal
compensation with that in the private sector, the Commission recommends that a regulatory body
set a pay cap for new hires based on private-sector compensation. The Commission also suggests
that the Postal Service increase its use of worksharing and contracting out arrangements. The
Commission sees a smaller postal workforce in the future, and explains how this can be
accomplished entirely through attrition, not layoffs.
The Postal Service has often claimed that it must expand if it is to strengthen its finances and
better serve the country. Expansion was a central feature of the Commercial Government
Enterprise model the Postal Service proposed in its 2002 Transformation Plan.  The
Commission, however, finds that Postal Service expansion is not in the national interest and hurts
the agency's bottom line. The Postal Service should stick to its core market.
However, because the Postal Service would remain a government-owned monopolist in the
Commission's plan, more regulatory supervision should remain in some areas than the Commission
suggests. For example, if the Postal Service wishes to change the relative prices of its products,
it should continue to be required to obtain prior regulatory approval in order to ensure that the
inter-product price shifts would not favor its competitive products at the expense of its monopoly-
product customers. Similarly, if the Postal Service wants to grant a new worksharing discount, a
rate case should be held first to verify that the proposed discount reflects a real cost saving.
The Presidential Commission has built a strong case that a new business model based on sound
cost management can stabilize the Postal Service's bottom line and maintain or improve its level
of service. On the other hand, if politics trumps good business practices and costs are not brought
under control, the results will be a deteriorating bottom line and worsening service.

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