Financial issues threaten Postal Service transformation

Postal Service officials should not expect any new flexibility or pricing freedoms until they address some significant financial problems, members of the agency's Senate oversight committee said Monday.

Among the most pressing issues Postal Service management must confront is a growing debt load. By the end of the year, the agency's debt to the Treasury is expected to reach $12.9 billion, just $2.1 billion below its statutory limit.

Sen. Daniel Akaka, D-Hawaii, demanded that the agency present Congress with a step-by-step plan for paying down the debt. Akaka, who is chairman of the Governmental Affairs Subcommittee on International Security, Proliferation and Federal Services, said that the agency must do a better job of developing financial statements and making predictions about future costs.

Comptroller General David Walker echoed that sentiment. In written testimony, Walker noted that in fiscal 2001, the Postal Service repeatedly revised its financial outlook, "with little or no public explanation. … Accordingly, we have recommended that the Service improve the transparency of its financial information by providing monthly and quarterly financial reports in a user-friendly format on its Web site in a more timely manner."

Walker said the agency also faces significant liabilities-nearly $88 billion-associated with pensions, workers' compensation and health benefits for retirees. Although it is self-funded, Postal Service employees are entitled to the same benefits as other federal retirees. Sen. Ted Stevens, R-Alaska, suggested that the federal government help the agency meet its retirement obligations. Walker was quick to point out, however, that the government will face its own cash crunch in a few years when baby boomers start retiring.

Despite his concerns over the agency's financial statements, Walker said Congress must take steps to reform the Postal Service.

"Its business model does not work in the 21st century and it will not work," he told the committee. Even if the economy picks up, he said, the Postal Service will face significant financial shortcomings and the public could be burdened with a continued series of rate increases.

Postmaster General John Potter said the agency could see a shortfall totaling $1.5 billion this fiscal year, the third consecutive year of net losses. Mail volume is expected to be down 6 billion pieces, the largest decline in more than 70 years.

To right the ship, Potter returned to a common refrain-the agency needs more pricing flexibility, including the ability to negotiate special rates with individual mailers. Additionally, he said the agency needs freedom to close poor-performing postal facilities and make other changes to its delivery system. This was Potter's first appearance before the committee since he submitted a transformation report for the agency in April.

The report provides a blueprint for changing the agency into a commercial government enterprise. Under this model, the agency would be allowed to retain and reinvest profits. Under current law, the agency must break even.

Walker called the report a good first step, but said it does not touch on some critical issues such as the definition of universal service, workforce development and utilization, and pay comparability. He also said the agency's governing structure should be up for debate. The postmaster general reports directly to the agency's board of governors. He is not required to appear before Congress. Board members, who serve part-time, are selected by the president and confirmed by the Senate.

The board has often been criticized for taking a less-than-active role in postal reform issues. Walker said the board should be testifying about the agency's future, alongside the postmaster general.

Given some of the complex and politically difficult choices ahead, Postal Service reform may fall to a presidential commission, as it did in 1969 when the old Post Office Department was transformed into the current Postal Service. The Mailers Council, the nation's largest coalition of mailers and mailing associations, on Monday called for the creation of such a commission.

In a letter to President Bush, Bob McLean, head of the Arlington, Va.-based trade group, said that despite congressional attention, "many issues may be left unresolved that must be addressed now. A presidential commission would study the Postal Service and recommend changes to cope with the current challenges to its core mission."

The House Government Reform committee is expected to take up Postal Service reform legislation later this month.