United States Senate

Committee on Governmental Affairs

Supplemental Statement of Commissioner Ruth Y. Goldway

Postal Rate Commission

May 15, 2001

While I fully support the analysis and several recommendations put

forward today by Acting Chairman George Omas on behalf of the Postal Rate

Commission, regarding the rate setting process and the ability of the Postal

Service to project trends in revenues and expenses, I would like to offer my

perspective on the reforms necessary to assure an efficient and self-supporting

national postal service.

As I have written previously, I believe that only sweeping legislative

reform, that demonopolizes the letter mailing system and privatizes the USPS,

provides the necessary solutions. During the recent postal reform debate, such

wholesale reform has proven to be untenable because of conflicting entrenched

interests. However, I believe there are several achievable adjustments

Congress can adopt that would allow the USPS to function more like a private

corporation and better serve the public.

1. I believe the Postal Service should be encouraged to work with private

sector companies to extend the drop shipment of prepared mail deeper into its

sortation and transportation network. The private sector has a proven track

record of capturing cost savings through automation. The Postal Service record

here, especially in flats, media mail and parcels, is poor. Strategically, the

USPS’s competitive advantage lies in its last-mile delivery connections to every

household in the U.S. network. Congress should facilitate the process by which

the USPS can reduce the number of BMCs, SCFs and DDUs. Unfortunately, by

reacting to individual constituent complaints, members of Congress sometimes

pressure the USPS to keep as many facilities and jobs as possible in each
2

district. USPS should be required to develop and implement a 5-year

downsizing plan in this phase of its operations and be given assurances of

congressional non-intervention. Because the USPS lacks the discipline of the

marketplace, the Congress must motivate it to capture the savings from

investments in automation and reduce institutional overhead.

2. The management bonus pay system should be tied exclusively to the

size of the yearly operating surplus, and distributed to employees only if a

surplus materializes. The current EVA bonus system measures too many factors

unrelated to the marketplace and irrationally guarantees rewards in advance of

demonstrated bottom-line performance.

3. The Postal Service boasts that it has attained “record service

achievements,” but average delivery times for First-Class mail overall have been

getting longer for years. Under the Service’s ODIS measurement system1

average delivery times were 1.68 days in FY 1981, 1.83 in FY 1991, and 1.93 for

the most recent four quarters.

The Postal Service should be required to develop service standards for

all mail classes, measure that performance, and make such data public. The

Commission can then better do the job it is charged with, evaluating “the value of

the mail service actually provided each class or type of mail service . . ..”

2

 The

Postal Service should not be allowed to improve its bottom line by imposing

additional costs on mailers through inferior service. To quote Alfred Kahn,

“buyers can be exploited just as effectively by giving them poor or unsafe service

as by charging them excessive prices.” “Price really has no meaning except in

 

1

 The ODIS system has been criticized for imprecision and that is correct; it probably understates delivery

times. But is has been used for many years, so biases should be consistent, which means one can have

some confidence in relative ODIS data.

2

 39 U.S.C. §3622(b)(2).
3

terms of an assumed quality of service . . ..” “Price regulation alone is

economically meaningless.”

3

4. The USPS exemption from the truth-in-advertising laws embedded in

the Federal Trade Commission Act should be removed.4 Truthful information is

a powerful source of marketplace competition. I have been publicly critical of

past Postal Service advertising for its pricey Priority Mail product. First-class

mail can be far cheaper, and often faster. Further, evidence uncovered during

our last rate case showed the Postal Service often did not handle certified mail

the way it advertises. Truth-in-advertising accountability would require USPS

management to be more responsive to the public’s need for accurate information

and behave more like a private corporation.

5. Congress should further direct that the Service rethink its retail

operations. If the Service can get stamps into the hands of consumers more

cheaply by using electronic stamps on the net, contract offices or grocery stores,

it should be allowed to sell the stamps at a discount to support such

transactions.

Ultimately, we may need fewer traditional post offices. I realize this is a

difficult political issue. Dollars and cents cannot measure all the value we get

from post offices. And historic buildings owned by the Service must be

preserved. But if the Service is correct that many post offices are big money

losers, then efficiencies in operations need to be developed. Perhaps an

unprofitable post office could add a retail Starbucks counter or a branch bank

office. Perhaps post offices could be located at city halls in smaller

communities, or in frequently visited retail stores such as supermarkets.

Perhaps the real estate management and acquisitions operations of the Postal

 

3

 Alfred E. Kahn, The Economics of Regulation: Principles and Institutions, Vol. 1, p. 21.

4

 The FTC has no jurisdiction over not-for-profit corporations. 15 U.S.C. §44.
4

Service should be privatized or contracted out so that cash from the increased

value of long-held properties could be generated or lease revenues maximized.

The long-term strategic value of the USPS retail network and its

community support functions need a thorough analysis separate and apart from

the frantic search for quick-fix savings. The Congress could require such a

report from the USPS or create its own commission to review this complex issue.

During my years of service as a Postal Rate Commissioner, I have not

been shy to criticize the USPS, and I frequently expressed concerns about its

ability to project revenue and manage expenses during the public hearings in

our most recent rate case. Yet, in its defense, private sector companies have

made projections that are way off base and often lose money in experimental

start-up operations. The difference is that the management in private sector

companies is held accountable.

As long as the Congress maintains the USPS’s current ownership and

management configuration, the additional oversight suggested by Acting

Chairman Omas as well as those recommendations I put forward here will be

necessary.

Thank you for your careful consideration of these comments.