Saving The Public Enterprise Model - Who Pays?

Tomorrow, the House Oversight and Government Reform Committee will receive testimony on three reports detailing changes requiring congressional or regulatory action.  These reports are

• Ensuring a Viable Postal Service for the Postal Service: An Action Plan for the Future by the U.S. Postal Service
• U.S. Postal Service: Strategies and Options to Facilitate Progress toward Financial Viability by the Government Accountability Office (GAO)
• The U.S. Postal Service’s Financial Condition: Overview and Issues for Congress by the Congressional Research Service (CRS)

All three reports present changes that are designed to allow the Postal Service to retain its status as a self funding government enterprise.    The changes identified in the reports are significant and reflect changes that the authors believe (or in the case of CRS the author reports) will allow the Postal Service to operate in the new competitive environment in the document and parcel delivery markets.

The recommendations contained in the reports divide easily into two categories: those that have budget impact and those that do not.   All of the changes to Civil Service Retirement System liability calculation, retiree health care liability calculation, and retiree health care liability payment schedule all affect the Federal budget.   All other proposed changes do not.

Both employee and customer groups have argued that current methods of handling retiree obligations represent the equivalent of a stamp tax.   The Postal Service has testified that following the thinking on these issues of the USPS OIG would eliminate the need to cut a delivery day and just dealing with the retiree health care liability payment schedule is needed to hold off more drastic rate increases, service cuts, and reductions in the number of employees.  However the retiree issues bump up against the impact on the budget which is now one of the hottest of hot buttons in Washington 

Identifying who bears the costs of the recommended changes that do not affect the budget is clear.   Employees will see both reductions in their numbers, and new employees will face lower pay levels and the probability that many new jobs will be part time.   Customers will see less service and higher prices as one delivery day is eliminated and prices for classes receiving preferential treatment in the rate setting process lose their protection and prices for all customers lose the protection of the price cap.

Identifying who gains from the recommended changes that do not affect the budget is less clear.  Consumer and business customers will gain from greater access to postal services from a modernized retail network.   Employees near retirement will gain from retirement incentives if the Postal Service and unions agree to implement GAO's recommendations.   The federal government could gain if it does not have to rework retirement issues and eliminates any prospect of subsidies for postal services.

The costs associated with the recommendations are exactly the costs that opponents of corporatization and privatization have noted in actively opposing a private sector business model for the Postal Service.  What these reports show is that retaining a government enterprise model does not save employees and customers from the costs they must bear during the adjustment to the new postal market.

If the public enterprise model does not protect employees and customers from adjustment to the new postal market, it may be time for opponents of privatization to take a second look.  Privatization only makes sense with a resolution of the retiree benefit issues close to the lines projected by the USPS OIG.  Then the Postal Service would have a clean balance sheet and manageable costs for retiree expenses that would allow for profit levels that would be attractive to private investors.  Privatization could deal with the budget issues as the loss of Postal Service retiree benefit payments would be replaced with cash from the sale of stock to private investors, taxes, and while still owned by the government dividends.

Until now, privatization has only been the solution of libertarians and conservative economists.  Many of these advocates also hold strong anti-labor views that make union members and their leaders highly resistant to taking privatization seriously. These economists often also have a minimal understanding of postal markets that make larger postal customers wary of the impact of privatization could have on their ability to meet their document or parcel delivery needs.

Now that the public enterprise model no longer offers postal employees and customers any protections from the impact that they believed would be caused by privatization, employees, their union leaders and customers should take a second look at privatization.

In particular, privatization offers four important advantages for employees over the government enterprise models.  First, privatization offers the one budget neutral option for resolving the retiree benefit issues in the Postal Service's favor.   Second, privatization offers the possibility of employee ownership and gain-sharing similar to what employees of Conrail received when the company reversed decades of decline and adapted to the new role of railroads in a transportation market dominated by trucks.  Third, privatization, offers a framework would allow streamlined market-based prices for customers choosing between print and digital delivery while still allowing regulatory protection of the most vulnerable customers of the Postal Service.  Fourth, privatization offers the only option for expanding postal revenue beyond the physical delivery of documents and parcels without running into the issue of a public enterprise competing with the private sector.

Fleshing out a privatization plan developed from a perspective of analysts with a greater understanding of the mail market and more favorable to the interests of employees and customers could give postal customers, employees and unions an option more favorable to their interests than the public enterprise model that Congress may try to save.