Postal Service to unveil transformation plan

In what could be the most important delivery of his career, Postmaster General John Potter today will outline plans to revitalize his ailing agency. During a highly anticipated lunchtime speech at the National Press Club in Washington, Potter will call on lawmakers to reform the Postal Service by letting the agency keep its profits and by giving it greater flexibility to set prices for its mailing services. He'll also ask that the agency's labor relations rules be revised, perhaps to allow for strikes and lockouts.

Potter's speech will be delivered as the agency rolls out its 450-page transformation plan. The agency's oversight committees and the General Accounting Office last year requested that the Postal Service develop the blueprint, which is supposed to put forth short-and long-term solutions for saving the financially troubled agency. At the time, GAO put the Postal Service's long-term outlook on its "high-risk" list, which identifies government agencies and programs vulnerable to fraud, waste, abuse and mismanagement .

Those concerns have only worsened in the aftermath of the recession and the terrorist and anthrax attacks. The agency's financial future is dire, GAO recently reported. As of late March, revenue was $1.5 billion below the agency's plan for the fiscal year while mail volume had slumped by 4.5 billion pieces.

"Based on current mail volume trends, we are looking at an endless series of postage rate increases," said Robert McLean, executive director of the Mailers Council, an Arlington, Va. trade association. "The only way, under the current system, to avoid that is to anticipate mail volume increases. That's not likely. This addiction to mail volume has to end."

McLean and other agency watchers said the agency must look at a new world order, one that calls for improved efficiency and reduced costs.

That is the vision Potter will lay out today, according to Postal Service sources. The Postal Service kept a tight lid on the report until it was shipped to Capitol Hill late Thursday afternoon. None of the agency's major stakeholders has seen the final version. However, a copy of the executive summary obtained by Government Executive, and interviews with Postal Service officials, indicate that the Postal Service wants to use pricing flexibility and short-term opportunities to reduce costs and improve efficiency.

The plan offers three alternatives to long-term structural changes, all of which require congressional action:

1. Reverting the agency back to an entirely government owned and run entity.
2. Making the agency a fully privatized service.
3. Making the agency a commercial government enterprise.

The Postal Service prefers the last option.

The agency is currently self-sustaining, meaning it receives little federal funding. As a commercial government enterprise, "Postal Service managers would operate under more businesslike conditions," according to the report's executive summary. "The Postal Service would offer both traditional and nontraditional products and implement market-based pricing, discounts and incentives, and business-based financing," the report said.

Universal service-mail delivery to every address in the country at uniform rates-would remain, but the agency wants some latitude in determining levels of service. For instance, the Postal Service wants the authority to curtail mail delivery to five days a week in various parts of the country.

Perhaps the biggest change in the transformation plan is the proposal to allow the Postal Service to retain its profits. Under current law, the agency is required to break even over time. Lifting that restriction would help the agency weather bad times without having to revert to rate increases, agency sources said. Profits could also be used to pay for capital improvements, employee rewards or dividends paid to the government. A reformed Postal Rate Commission, which oversees pricing activity, would ensure that a monopoly on first class mail is not abused to boost profits.

The model would also allow the agency to leverage its network of facilities and trucks to earn more revenue. Under one scenario, the Postal Service could rent vacant space on its trucks to ship products other than mail. Additionally, it could explore new business ventures in such areas as printing or logistics. Private sector companies, however, are vehemently opposed to the Postal Service doing anything beyond delivering mail. Gaining these new freedoms requires appeasing businesses that already offer the kinds of services the Postal Service wants to get in to.

Another change would create a more flexible rate setting process. Currently, it takes up to 18 months for the Postal Service to put in place new rates. Under the proposed approach, the agency would have the ability to change prices more rapidly. It would also create a process for affected parties to protest increases, albeit after they've been implemented.

The transformation report also suggests changes to the agency's labor relations program. Currently, contracts with the agency's four employee unions typically end up in binding arbitration, with a third party deciding wages. The Postal Service would like to see a collective bargaining process in which both sides have leverage-either a strike or a lockout-to force a settlement. Additionally, the transformation plan calls for more direct involvement from the Labor Department should the parties reach an impasse.

The Postal Service will also propose ways to become more efficient and reduce costs in the short term. For instance, the agency will work with the Postal Rate Commission to develop more targeted pricing initiatives. In essence, the agency wants to negotiate service agreements with some of it biggest customers. These agreements would allow the agency to offer discounts to large mailers who in turn would agree to presort mail and deliver it as far into the mail stream as possible.

Several of the ideas floated in the transformation report will encounter substantial resistance both on Capitol Hill and among various stakeholder groups. The American Postal Workers Union, for instance, opposes giving discounts to the Postal Service's biggest customers. When such discounts are allowed, first class mail senders wind up subsidizing large corporate shippers, according to the union's chief, William Burrus.

The agency also wants more flexibility to close and consolidate facilities, including retail post offices. Closing post offices, however, is never a popular idea on Capitol Hill.

"We are looking at an organization that is doomed to fail," McLean said. "If there is going to be an open and honest discussion, everything has to be discussed … Congress and the White House need to articulate what kind of Postal Service they want. The agency has to take a leadership role, but it is critical that the public, through its elected representatives, get involved."