When you step inside the post office at the Longworth House Office Building, it's hard to miss the Looney Tunes earrings, the Uncle Sam mousepad or the Tasmanian Devil necktie for sale. Make no mistake, this isn't your grandfather's post office.
Indeed, the U.S. Postal Service offers products and services that go well beyond its legal monopoly on traditional letter mail. Priority mail and express mail were introduced in the late '60s and early '70s, respectively. Credit card payment processing and international bulk shipping service were started in recent years.
But this expanding list of services is not all good news for the Postal Service. The agency has moved into these other areas because it needs to compensate for the revenue it's losing in the increasingly competitive mail delivery industry, which now includes Federal Express (FedEx), United Parcel Service (UPS) and technological innovations such as electronic mail and faxes.
As it now stands, the Postal Service is losing market share in first-class and international mail and is projected to have a total deficit of $228 million next year--even with the price of a stamp increasing to 33 cents.
At the same time, while it enjoys some enormous advantages as a governmental entity, the Postal Service is also restrained by some quirky, bureaucratic procedures that private businesses don't confront.
The outlook is troubling enough that Postmaster General Marvin Runyon told a House Appropriations subcommittee on March 19, 1998: "At risk is not only the heart of our business, but the underpinnings for the universal mail network that has served this nation so well for over two centuries."
Rep. John M. McHugh, R-N.Y., chairman of the Government Reform and Oversight Postal Service Subcommittee, has been working since January 1995 on legislation that addresses the changing marketplace and the Postal Service's place in it. Revised a few months ago, his legislation, the Postal Reform Act of 1997 (known as HR 22), seeks to reform the U.S. Postal Service and level the competitive playing field. It would provide the agency with a more flexible rate-setting process, but also dismantle many of its competitive advantages and chip away at its sacrosanct postal monopoly.
In the competitive arena, the Postal Service has some frustrating handicaps. Unlike FedEx and UPS, it can't make quick changes in prices, because it's burdened by a rate-setting process that takes at least 10 months. The sluggish procedure also makes it difficult for the agency to bid on large express-delivery contracts. McHugh's reform tries to fix this by permitting the Postal Service to set prices and offer discounts the way any private company would when dealing with competitive services (such as express mail and parcel post). "This bill . . . would provide them with a whole universe of new opportunities to derive revenues, to become more profitable [and] compete more freely in ways that they cannot compete now," McHugh said.
But while McHugh's postal reform is an attempt to reduce the Postal Service's competitive disadvantages, it also presents ways to trim back some of its built-in advantages. For years, its competitors have complained that the Postal Service is a governmental behemoth that doesn't play by the same rules as private companies. For example, it isn't required to pay taxes, obtain licenses for its delivery trucks or even pay parking tickets.
In addition, its archrivals, UPS and FedEx, say it is unfair that the Postal Service uses the large revenues from its monopoly on first-class mail to subsidize its other services--such as express mail and parcel post--and thus gains a huge competitive edge. "They should be held to the same standards that we are held to," said Tad Segal, a UPS spokesman. "Let's make sure that fair's fair."
To even out the playing field, HR 22 establishes a strict separation of the agency's competitive services from its noncompetitive services (such as its monopolized letter delivery and pickup). And it prevents the Postal Service from offering any competitive service that can't cover its own costs. In effect, this bars the agency from using revenue from the noncompetitive side of their activities to subsidize the other. The bill also subjects all Postal Service vehicles engaged in competitive activities to licensing requirements and parking fines. Moreover, when the Postal Service sells nonpostal products and services (the T-shirts, mousepads and ties), HR 22 requires it to establish a private company, responsible for all of the taxes, laws and regulations that other firms might normally encounter.
Another provision of the reform bill slices into the Postal Service's mail monopoly. Current law contains a loophole that allows private firms like FedEx and UPS to deliver mail as long as it's "urgent" and costs the customer at least $6. HR 22, however, would reduce this cap on the monopoly from $6 to $2, opening--at the most--13 per cent of the Postal Service's monopoly revenues to private competitors, McHugh said.
Politicians, economists and competitors have long argued that allowing private firms to enter the Postal Service's monopoly would spur the agency to better mail service. According to James I. Campbell Jr., a FedEx consultant, increased competition is "highly desirable for everyone." And Robert G. Taub, staff director of the Postal Service Subcommittee, says that the mail-delivery monopoly no longer needs to be as large, because HR 22 gives the Postal Service the tools to compete head-to-head with its rivals in other services.
It's this aspect of the reform, however, that has spawned much of the criticism surrounding the postal reform initiative. The American Postal Workers Union (APWU), the nation's largest postal union, with 360,000 members, charges that private companies would gobble up the country's more-profitable areas, leaving the less-profitable and more-rural ones to the Postal Service. In testimony before McHugh's subcommittee in 1996, Postmaster General Runyon said that the $2 cap could jeopardize more than $4 billion of its $60 billion business.
The APWU also contends that the reform bill seems to favor FedEx and UPS, since by opening some of the postal monopoly, it enables them to reap huge profits. Indeed, both FedEx and UPS are enthusiastic endorsers of the McHugh initiative. McHugh, though, insists that his bill is a "balanced and fair approach" to reforming the Postal Service, because it gives the agency much more flexibility in setting rates for its competitive services. With this increased flexibility, the Postal Service Subcommittee's Taub calls the initiative "right down the middle," but he adds that it is probably "skewed to the Postal Service."
Nevertheless, the APWU believes that the Postal Service doesn't need to be reformed. Its leaders point to a recent study by the Pew Research Center for The People & The Press, which shows that the Postal Service has an approval rating of 89 per cent--higher than any other government agency's. And there's more good news. At the end of fiscal 1997, 92 per cent of local first-class mail was being delivered overnight. Further, despite its expected future financial woes, the Postal Service made profits exceeding $1 billion during the past three years. "There's nothing for [McHugh] to fix here at all," said APWU president Moe Biller. "The more he patches it up, the more we are going to have problems."
But not all postal worker unions share the APWU's sentiments on HR 22. Although they voice many of the same concerns about the $2 cap, the National Association of Letter Carriers (NALC) and National Rural Letter Carriers' Association (NRLCA) support many of McHugh's provisions, including the increased flexibility. These unions, in fact, note that McHugh has listened to their opinions on postal reform. "We're not seeing doors being slammed in our face," said George B. Gould, the NALC's legislative political director. And Ken Parmelee, vice president of governmental affairs for the NRLCA, called McHugh a "thoughtful, hardworking legislator."
Fortunately for critics such as the APWU, since Congress is already thinking about the November elections and because the revised version of the reform bill won't even be written into legislative language until perhaps May, it seems unlikely to come to a full House vote anytime soon. Campbell, of FedEx, predicts that McHugh's postal reform will most likely be considered by the 106th Congress in 1999, although the legislator's staff is more optimistic.
With the Postal Service's looming financial instability and its competitive weaknesses, though, McHugh believes that one way or another, reform will be thrust on the agency. "Look, the Postal Service is doing a great job. I'd be the first to admit that," he said. "[But] those negative trend lines are going to continue. And the process of fixing this problem can happen one of two ways: We can do it now . . . or we can put it off and wait until the crisis hits. ... I happen to think that it is more sensible to do the former. And that is what HR 22 attempts to do."
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