Since attempting to change its business profile to one of a more innovative and competitive entity in the mid-90s, the Postal Service has garnered a string of negative assessments of its performance. The Service’s Inspector General deemed the pay-for-performance scheme and excessive relocation payments by the USPS to be inappropriate. The General Accounting Office simply could not evaluate the financial performance of its e-commerce offerings (such as the recently discontinued secure online message service, PosteCS) due to sloppy record keeping by the Service. Now a report by the Rate Commission’s Office of the Consumer Advocate has documented false advertising and service claims for the premier competitive service, Priority Mail (it found that First Class outperformed Priority Mail in every category in 1999, 2000 and 2001).
Despite these clear examples of mismanagement, the Postal Service plans to seek additional pricing flexibility from the Rate Commission in the area of negotiated service agreements. The Postal Rate Commission reported to Congress in February that, in fact, no additional freedom is needed. The Postal Service presently is empowered by the Postal Reorganization Act to enter into negotiated service agreements with mailers, but not on an individual basis. The proposed discount and terms of service must be reviewed by the Rate Commission in public session and deemed justifiable by the expected cost savings. Further, these agreements must be made available to all qualified mailers.
A legislative solution is not necessary, and any legislative action now could thwart any administrative improvements underway.
Negotiated service agreements under the terms of present law still requires that the expected cost savings for the Postal Service be accurate and realistically achievable. In the first two rate filings under the Postal Reorganization Act, the accuracy of costs and the adequacy of costing methods were of major concern. However, other than the piecemeal changes evoked by the Rate Commission, the Postal Service’s costing methods have not been subject to public audit.
As the current rate case moves toward an early resolution, at least one intervener has argued that some proposed discounts for large commercial mailers exceed the expected cost savings. If true, these discounts would generate losses to be covered elsewhere, such as by raising the price of “Aunt Minnie” mail. Prior to legislatively or administratively granting pricing flexibility for these agreements, or freedoms in the area of competitive services in general, a public and independent audit of Postal Service costs and costing methods should be performed and necessary changes made. A complete transparency of Postal Service costs is mandatory for the creation of a level playing field for competition and the welfare of the public.
— Charles Guy, Ph.D., is Adjunct Fellow with the Lexington Institute and former Director, Office of Economics, Strategic Planning, U.S. Postal Service.
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