Tuesday, November 23, 2010

Integrated Plan(s) for Financial Self Sufficiency

The Board of Governors and Congress requires an Integrated Financial Plan that illustrates the financial course necessary for the Postal Service to be financially self sufficient under both the current business model and regulatory framework as well as alternatives to the existing model.  The 2011 Integrated Financial Plan does not meet this requirement. 
  Alternative plans are needed reflecting what could be accomplished under different business models and regulatory frameworks.  These plans have to look beyond marginal changes in the business model that the Postal Service proposed last March in its Action Plan.    Those changes all assumed maintenance of the current business model and a regulatory framework that is not much different than the one that currently exists.  These plans should include financial plans that would allow the Postal Service to shrink to its "public service" obligations as well as financial plans that would allow the Postal Service to prepare for corporatization or privatization. 

A second failing of the plan for examining what is needed to ensure that a vibrant postal market exists in 2020 is its time frame.   The plan is a one-year plan, a time frame that is sufficient for budgeting purposes, but insufficient for either the Board of Governors of Congress to understand the best course for the future of the Postal Service.    For instance, a one year plan is insufficient for illustrating the financial and operating and rate changes necessary to ensure a self sufficient Postal Service.   At a minimum, the financial plan should illustrate financial forecasts for three to five years in order to illustrate the impact of management decisions that take more than a single year to complete.  

A third failing of the plan relates to Capital Plan included on pages 5 and 6.    The Capital Plan suggests that capital spending, with few exceptions is not limited to fixing a deteriorating physical plant, vehicle fleet, and replacing an information infrastructure that cannot meet the needs of the Postal Service or its customers.  The Capital Plan clearly suggests that the Board of Governors and Congress need an independent evaluation of the physical plant, vehicle fleet and information infrastructure in order to see if the plans in place are sufficient for the transition to the infrastructure required to ensure that a viable delivery network exists for 150 billion pieces of mail and parcel that the Postal Service will still be delivering in 2020 including the expectations of postal customers in regards to the information that the Postal Service provides about the real-time progress of mail delivery. 

A multi-year capital plan is critical as without it a key question in fixing the Postal Service's business model and regulatory framework.   Does the current business model and regulatory framework allow the Postal Service to generate sufficient cash from operations and debt to cover the capital needs required to serve the needs of the postal market?   If the answer is no, then there are four choices, raise rates, cut labor costs even further, reduce service, or restructure the Postal Service's retiree obligations as part of a process of transitioning the Postal Service towards a business model that would allow it to attract private capital.

Finally, a multi-year financial plan must include elements of an operating and business plan that is focused on providing a cost-effective service to commercial mailers and ensures that single-piece mail prices remain reasonable at the same time that they cover the costs of reducing the workforce and infrastructure that now exists to handle this mail which are not currently estimated as part of regulatory cost models.  The Postal Service's action plan illustrated operating and business plan changes that could be included in such a plan but as the rate increase in the plan was rejected, and the 5-day delivery proposal appears unlikely to be approved before FY 2012 if at all, the operating and business plan should illustrate options that would be available to a market-focused unregulated firms, railroads that are subject to limited regulation, European Post offices, as well as market-focused U.S.-based regulated utilities.

1 comment:

Anonymous said...

can't privatize and keep low rates/universal service NO COMPANY would do it period