COMMENTS ON RECOMMENDATIONS FOR POSTAL REFORM

by

Gene A. Del Polito

The following is a presentation by Gene Del Polito at the American Enterprise Institute on the future of the Postal Service. The views expressed here are solely the author's, and do not necessarily reflect the official views or policies of the Association for Postal Commerce.

By now, most of those who really care about postal reform have reviewed not only the recommendations advanced by the Presidential Commission on the Postal Service but also the provisions of the most recent legislative reform proposal advanced by Senator Thomas Carper (D-DE), S. 1285. The hand-out that is being made available today is a quick review and comparison of the major provisions of these reform proposals.

 

Rather than go through each recommendation step-by-step, I'll leave that task to those who are interested. Instead, I would prefer to focus my remarks on some of those provisions that prone to be controversial. I also offer some thoughts on how some of these contentious issues might be reconciled in a manner that could lead to rational accord.

 

Most who have read the Commission's report or S. 1285 concur with the premise that the U.S. Postal Service should be retained as an independent agency of the Executive Branch, and operated primarily as a self-sufficient service provided to the nation for the purposes of communication and commerce. Most also agree with the premise that the Postal Service should focus its energies and resources on providing essential "core" postal services and refrain from those that are not essential to its primary mission.

 

From recent postal chatter, it's probably safe to assume that the thornier elements of the Presidential Commission's recommendations and the provisions of S. 1285 are those that pertain to the definition of the Postal Service's monopoly, postal rates, postal services, and employee relations and compensation.

 

Let's begin with ratemaking, since that's usually where most business mailers would prefer to begin and end. First, though, a comment on the recommendations relative to the Postal Service's monopoly.

 

Both the Commission and S. 1285 seem to agree that the Postal Service's present monopoly over access to the mailbox should be maintained. The Commission goes a bit further and recommends a means by which questions regarding this monopoly could be raised before an independent third-party regulator. It makes absolutely no sense to leave such issues solely within the hands of the incumbent-monopolist. So, given the dynamic nature of today's rapidly changing marketplace, conveying authority for the review of the mailbox monopoly to an independent third-party regulator is a sound policy alternative.

 

Examination of the Commission's recommendations and S. 1285 also will reveal that while there are some similarities between them regarding the definition of the letter-mail monopoly, there are some differences. What should be covered by the monopoly, and what shouldn't?

 

I answer this question somewhat differently from either the Commission or S. 1285. From my perspective, it would be preferable to refine further in any future legislation the definition of the letter-mail monopoly as pertaining only to "mail sealed against inspection." After all, if the Postal Service as a governmental institution has a mission that could possibly be characterized as sacrosanct, servicing mail sealed against inspection most definitely is it.

 

Both the Commission and S. 1285 make reference to "non-competitive" mail services. From my perspective, it would make sense to include within this broad grouping not only mail covered by the Postal Service's letter-mail monopoly, but also mail not covered by the monopoly but for which there is no practical, competitive, service delivery alternative. This would encompass the delivery of most periodicals and advertising mail.

 

Both the Commission and S. 1285 make reference to what has been termed "competitive services." To me, this grouping should include all other mail services not included in the "non-competitive" category.

 

More importantly, however,I don't believe any real postal reform is possible until we jettison the anachronistic concepts of "attributable" and "institutional" costs. Instead, the concepts such as "marginal," "incremental," and "stand-alone" costs should be substituted as an economically more rational alternative. With this assumption, here is some of what I would recommend:

 

1. The rates established for monopoly-protected non-competitive services should be set on a stand-alone basis.

 

2. The rates for all other non-competitive products and services should be costed on a marginal basis and priced in accord with market-demand based characteristics.

 

3. The rates for competitive services should be costed on a marginal basis but the rates for competitive services in the aggregate must be sufficient recover incremental costs across all competitive services. This would give the Postal Service some of the rate flexibility it has desired, while still ensuring against the kind of cross-subsidies that could grossly distort competition in the marketplace for such services.

 

Here also are a few other suggestions that I believe could help harmonize some of the differences between the Presidential Commission's recommendations and the provisions of S. 1285.

 

1. The Postal Regulatory Board should be provided the authority to direct the Postal Service to terminate any or all competitive services if the USPS fails to earn sufficient income to recover competitive service-wide incremental costs.

 

2. The Board of Directors should be required to establish and publish service-related performance standards for all non-competitive mail services.

 

3. The Postal Service should be directed to propose methods that would be used to measure service performance by way of a public hearing conducted by the Postal Regulatory Board. The Postal Regulatory Board, though, would make the final determination on procedures for service-performance determinations.

 

3. The Board of Directors should be required to ensure that service performance measurements are made and reported to the Regulatory Board in accordance with the Regulatory Board's requirements. The Regulatory Board, for its part, should be required to certify the accuracy of all service performance measurements and reports.

 

4. The Board of Directors should be required by law to set executive compensation based, in part, on actual, measured, and certified service performance. Pay-for-performance should be the hallmark on any future compensation scheme for managers and executives of the Postal Service.

 

Finally, there is the matter of organized employee compensation. I've already gone on record in a previous forum with my belief that as well-meaning as the Commission may have been, the idea of compelling changes to the processes by which collective bargaining and arbitration takes place is the surest way of rendering Commission-suggested reforms to the legislative dustbin.

 

If organized labor has a "sacred cow," collective bargaining is it. I simply can't envision any scenario that compells labor to acquiese to many of the kind of changes the Commission has espoused. Furthermore, I believe the parties already have whatever flexibility is necessary to fashion the rules that should govern bargaining and arbitration. Up to this point, they've simply lacked any incentive to do so.

 

The one provision I believe users of the mail have an absolute right to expect is that future arbitration decisions must be rendered with full recognition of the Postal Service's fiscal- and service-related performance and with the actual marketplace conditions under which the USPS must operate. In other matters, the parties should simply be empowered to bring all other matters that need to be decided to the table.