Detailing the Postal Panel’s Report

The report from the President’s Commission on the U.S. Postal Service, released at the end of July, is first rate and quite readable. I highly recommend the 180-page document to anyone interested in postal affairs.

Its recommendations bear some similarities to H.R. 22, the postal reform legislation authored by Rep. John McHugh, R-NY. However, unlike H.R. 22, the commission did not duck any sensitive issues. But, first, let’s outline some of the major recommendations:

Governance: “a world class, business oriented postal service requires a world class, business oriented Board.” The commission suggests a 12-person Board of Governors, with eight independent members, three presidential appointees and the postmaster general. It established qualifications, including “significant financial and business expertise managing major corporate enterprises and other large organizations.”

The commission also suggests a three-year term with the possibility of reappointment and a mandatory retirement age of 70. Another recommendation is to reduce the monthly two-day meetings to six regular annual meetings. In other words, the commission wants the board to transform itself into one worthy of a $70 billion corporation.

A second key element of governance involves the regulator. A Postal Regulatory Board would replace the existing Postal Rate Commission. This regulatory board would have three members instead of the current five. According to the commission, board members should have “backgrounds in areas relevant to the regulation of large, complex business entities … selected solely on the basis of demonstrated expertise and professional standing.” The commission would expand the board’s powers, including to:

· Ensure the financial transparency of the USPS.

· Establish rate ceiling increases for USPS noncompetitive products.

· Ensure that competitive products are not cross-subsidized by noncompetitive ones.

· Guarantee that the USPS meets its universal service obligation.

· Keep the USPS focused on traditional products and services.

· Review the postal monopoly for its public benefit and, if circumstances warrant, narrow it over time.

Rate setting. Like previously proposed simplifications of the rate-making process, the commission’s recommendations would give the postal service more freedom to set rates as long as it stayed within guidelines set by the regulatory board.

For noncompetitive products, the USPS would be permitted to raise rates within ceilings set by the board based on an inflation index and reduced by an appropriate postal productivity target. The postal service would have freedom to raise prices for competitive products as long as there was no cross-subsidy from noncompetitive products.

Labor and compensation. The commission, to its credit, did suggest changes to the collective bargaining process. Most significantly, to the displeasure of the unions, it suggested that wages and benefits along with work rules be the subject of collective bargaining. The commission also suggested that the USPS take steps to improve labor relations, reduce employee grievances, introduce incentives into the compensation system and eliminate salary caps but tie executive compensation to performance.

Let me comment on a few key parts of the report.

· The USPS Inspection Service. The commission stated: “The cost of law enforcement operations that track broader crimes committed through the mail should be borne by taxpayers, generally.” I’ve made this point before: Cracking down on drug trafficking is the responsibility of the federal government, not UPS, FedEx or the USPS.

· Concentrate on the core business. “The commission recommends focusing the postal service on traditional mail services, leaving electronic products and services to a well-served and innovative private marketplace.” It is amazing that the USPS continues to offer electronic bill presentment and payment services. Management talent and resources are being spent on operations that are clearly not part of, nor close to, its core business. These operations should be shut down.

· Negotiating wages and benefits. Based on a statement by the AFL-CIO Executive Council, it seems to think that permitting the postal service and its craft unions to negotiate benefits would directly undermine the right of postal employees and their unions to engage in meaningful collective bargaining.

Perhaps we need to be reminded of two facts: One, benefits accounted for almost $20 billion of the $51.5 billion the USPS spent on its employees in FY 2002. Two, the postal service has $92 billion in debt and unfunded obligations, more than $48 billion of which is because of retiree health benefits.

Lastly, no one knows how the report will affect the Bush administration, Congress, the USPS and its employees, the mailing industry or the public. However, it’s clear that governance issues will be critical to the postal service’s future.

Let’s trust that those responsible for selecting members of the Board of Governors and Postal Regulatory Board (or Postal Rate Commission) heed the commission’s concerns regarding background and experience. If they don’t, mailing industry leadership must get much more involved in the selection and confirmation process than ever before.

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