Bush announces postal commission; privatization not a goal, officials say

Saying that privatization is not a goal, the Bush administration Wednesday named a commission to look for ways to reform the Postal Service.

The commission is charged with looking at every aspect of the agency's operations. The executive order creating the commission specifically calls for increased pricing flexibility to allow the agency to respond to market pressures. This is something agency officials have long sought. Under the current process, it takes nearly 18 months for the agency to propose and get approval for a rate hike.

Universal service-the requirement that the agency deliver mail to every address in the country at a uniform price-will also come under scrutiny. It's at the heart of the Postal Service's financial difficulties. Mail volume has not grown recently-in fact, it dropped by 4 billion pieces last year-while the number of addresses the Postal Service must deliver to has increased annually by 1.7 million.

The agency improved its financial outlook in fiscal 2002, losing only $676 million instead of the $1.35 billion it originally budgeted for. But most of those savings came by cutting 23,000 employees from the payroll through attrition. While the agency continues to look for ways to cut expenses, it is becoming increasing difficult to cover costs without additional revenue, according to Richard Strasser, the agency's chief financial officer.

"New technology, declining volume, and continued expansion of the delivery cost base, combined with competition from the private sector, pose a fundamental challenge to the Postal Service," Treasury Undersecretary for Domestic Finance Peter Fisher said at a press conference announcing the commission. "The way I look at it, there are just two things that are out of bounds: We don't want the commission to come back and suggest that the existing business model should be left in place and the costs all rolled up on the taxpayer. We also don't want them to come back and say that all of the existing costs should be rolled up on the rate payer."

When asked how far the commission is willing to go on recommendations for the agency, including privatization, commission co-chairman James Johnson reiterated Fisher's remarks, saying virtually every option is on the table.

Still, agency watchers took heart in Fisher's comment that privatization is not the administration's ultimate goal.

"That was the single most important statement he made," said Robert McLean, executive director of the Mailers Council, the industry's largest trade association. "The value of the Postal Service to mailers is that we can send our materials to everybody everywhere. If privatized, that advertising vehicle goes away."

And, McLean noted, with more than $11 billion in debt, it would be difficult to finance a privatization or find a buyer.

Postmaster General John Potter welcomed the commission, saying it is complementary to the agency's ongoing efforts to become more efficient. Earlier this year, the Postal Service released a 400-page transformation plan, which called for several operational changes, but also suggested that policymakers take a look at the agency's long-term survival.

The agency's largest employee union, the American Postal Workers Union, opposed the creation of a commission fearing that it is a precursor to ending universal service and moving closer to privatization. In an interview last week, the APWU President William Burrus said Congress, not a commission, is the place to debate fundamental changes to the nation's mail system.

Johnson, vice chairman of Perseus L.L.C., a merchant bank and private equity fund management company, and former CEO of Fannie Mae, said the panel does not have any predisposed positions. Rather, it plans to take a thorough look at the agency's operations and the mailing business. He added that now is the perfect time to do so.

"The postal system is not broken," he said, but added that future challenges could turn into crises if they are not addressed soon.

Johnson will co-chair the panel with Harry Pearce, chairman of Hughes Electronics Corp. Other commissioners include Richard Levin, president of Yale University; Dionel Aviles, president of Aviles Engineering Corp.; Don Cogman, chairman of CC Investments; Carolyn Gallagher, former president and chief executive of Texwood Furniture; Norman Seabrook, president of the New York City Correction Officers' Benevolent Association; former Rep. Robert Walker, R-Pa., chairman and chief executive of Wexler Group; and Joseph Wright, president and chief executive of PanAmSat, a company that provides global video and data broadcasting services via satellite.

Dennis Shea, former deputy chief of staff to retired Sen. Robert Dole, was named executive director of the commission.

The commission has a tight time frame. A final report is due to the president by July 31. Murray Comarow, the executive director of the Kappel Commission, which made a series of recommendations in 1968 that laid the groundwork for what became the modern-day Postal Service, said a commission typically requires two months just to get organized and then about a year to fully study the situation.

Fisher, the Treasury undersecretary, said the administration would wait until it gets the final report before speculating on how hard it will push specific legislative changes.

"We wouldn't be asking for a commission unless we thought there was a need for reform," he added.