Feb. 20, 2003
Testimony before the President's Commission on the U.S. Postal Service
Good afternoon. My name is William Burrus. I am the President of the American Postal Workers Union, AFL-CIO. On behalf of our more than 300,000 members, I thank you for this opportunity to express our views on the important issues before this commission.
I will make three points today:
APWU accepts the fundamental economic principle that properly priced discounts --discounts that do not exceed the costs avoided by the Postal Service -- are in the best interest of our nation. It is sound economics that the most efficient provider should perform the service.
The Postal Service serves all Americans --individuals, small businesses and large mailers. It binds our nation together by providing service to every American regardless of age, economic status, or place of residence. It connects people of all means and all ages, including those who are not privileged to use computers or the Internet.
The costs incurred to provide these services are funded by the rates established by the Postal Board of Governors and approved by the Postal Rate Commission. Over the recent past, rate discounts have been set at artificial levels and have caused repeated deficits. The continuation of postal deficits while billions of dollars are arbitrarily transferred through excessive rate discounts cannot be sustained.
I want to bring to your attention an important article by Professor John C. Panzar of Northwestern University. Dr. Panzar clearly advocates pricing discounts at the costs avoided, in order to maintain the integrity and economic efficiency of the marketplace. It is critical that discounts be justified by costs avoided by the Postal Service, so the net financial position of the Postal Service is not adversely affected by the discounts. Dr. Panzar's work has been accepted as authoritative by the Postal Service, the Postal Rate Commission and the mailing industry.
I also bring to your attention a paper on the measurement of costs avoided and the size of discounts which was presented to the Commission by Economist Kathryn Kobe. As Kobe's paper demonstrates, the Postal Service's own numbers clearly show that many discounts for first-class and Standard A mail are excessive.
Based on the Postal Service's own calculations, discounts are approximately 1.5 cents per piece too large for both three-digit and five-digit first-class automation mail, and Standard A mail. discounts exceed costs avoided by as much as 160 percent. These excessive discounts cause revenue shortfalls that must be paid by future rate payers, and they threaten the economic security of the postal system.
We do not expect this Commission to take sides between economists who differ over the precise measurement of costs avoided. But we urge you to adopt the principle that sound economics should be the guidepost -- discounts must not be permitted to exceed costs avoided. Postal revenues cannot be predicated on the persuasive powers of lobbyists who do not include the American public on their client list.
Postal employee wages have been injected into the issue of work-sharing. Any analysis of postal wages and productivity, when compared to the discounts afforded, reveals that avoided postal costs are but a small fraction of the value embedded in the discounts. I will compare postal employee productivity and cost any day on a level playing field.
Dr. Joel Popkin has submitted an important paper to the Commission showing that postal wages are in line with private sector wages, and that since passage of the Postal Reorganization Act, bargaining unit wages have declined as a share of total costs. This has not been reflected in the value of discounts since their inception in 1976.
Work-sharing has become an integral component of product and process efficiencies. I repeat: APWU supports work-sharing that results in discounts, but only if they do not exceed costs avoided. Our interest is to preserve the institution.
The Postal Board of Governors, the Postal Rate Commission and postal management have demonstrated that they are unable to resist the demands of the lobbyists for major mailers in establishing the level of discounts. It is critically important that this Commission recognize and embrace "cost avoided" as the guiding principle. Excessively discounted postal rates -- which I should note are far below rates in any other postal system in the world, public or private --cannot be sustained. Even more important than competition from the Internet or the added burden of 1.7 million new addresses each year, the financial stability of the Postal Service and the continuation of universal service depend upon the cessation of gross subsidies through improper rate discounts.
You will hear from lobbyists who view postal discounts as corporate profits and advocate larger discounts or even wholesale privatization, along with the promise of lower rates through competition. You must consider these extreme positions through the prism of their interest -- for a viable Postal Service or the profits of the clients they serve. Universal service is not a private interest; it is the interest of the American public and our nation.