U.S. Postal Service: Key Elements of Comprehensive Postal Reform 
(28-JAN-04, GAO-04-397T).					 
                                                                 
Both the Presidential Commission on the U.S. Postal Service and  
GAO's past work have reported that universal postal service is at
risk and that reform is needed to minimize the risk of a	 
significant taxpayer bailout or dramatic postal rate increases.  
GAO has testified that Congress should enact comprehensive postal
reform legislation that would clarify the Postal Service's (the  
Service) mission and role; enhance governance, transparency, and 
accountability; improve regulation of postal rates and oversight;
help to ensure the rationalization of the Service's		 
infrastructure and workforce; and make needed human capital	 
reforms. The administration has also supported postal reform,	 
outlining guiding principles intended to ensure that the Service:
implements best practices with a governing body equipped to meet 
its responsibilities; enhances transparency of timely and	 
accurate data on postal costs and performance; provides greater  
flexibility for the Service to meet its customer obligations;	 
ensures accountability through appropriate independent oversight;
and keeps the Service financially selfsufficient, covering all of
its obligations. GAO was asked to discuss comprehensive postal	 
reform in light of these principles. This testimony is largely	 
based on prior GAO reports and testimonies.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-397T					        
    ACCNO:   A09167						        
  TITLE:     U.S. Postal Service: Key Elements of Comprehensive Postal
Reform								 
     DATE:   01/28/2004 
  SUBJECT:   Federal agency reorganization			 
	     Financial management				 
	     Postal service					 
	     Strategic planning 				 
	     Agency missions					 
	     Internal controls					 
	     Accountability					 
	     Human capital					 
	     Civil Service Retirement System			 

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GAO-04-397T

United States General Accounting Office

GAO Testimony

Before the Special Panel on Postal Reform

and Oversight, Committee on Government

Reform, House of Representatives

For Release on Delivery Expected at 2:00 p.m. EST

Wednesday, January 28, 2004

U.S. POSTAL SERVICE

                  Key Elements of Comprehensive Postal Reform

Statement of David M. Walker, Comptroller General of the United States

GAO-04-397T

Highlights of GAO-04-397T, a testimony before the Special Panel on Postal
Reform and Oversight, House Committee on Government Reform

Both the Presidential Commission on the U.S. Postal Service and GAO's past
work have reported that universal postal service is at risk and that
reform is needed to minimize the risk of a significant taxpayer bailout or
dramatic postal rate increases.

GAO has testified that Congress should enact comprehensive postal reform
legislation that would clarify the Postal Service's (the Service) mission
and role; enhance governance, transparency, and accountability; improve
regulation of postal rates and oversight; help to ensure the
rationalization of the Service's infrastructure and workforce; and make
needed human capital reforms.

The administration has also supported postal reform, outlining guiding
principles intended to ensure that the Service: implements best practices
with a governing body equipped to meet its responsibilities; enhances
transparency of timely and accurate data on postal costs and performance;
provides greater flexibility for the Service to meet its customer
obligations; ensures accountability through appropriate independent
oversight; and keeps the Service financially selfsufficient, covering all
of its obligations. GAO was asked to discuss comprehensive postal reform
in light of these principles.

This testimony is largely based on prior GAO reports and testimonies.

www.gao.gov/cgi-bin/getrpt?GAO-04-397T.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact Mark Goldstein at (202)
512-2834 or [email protected].

January 28, 2004

U.S. POSTAL SERVICE

Key Elements of Comprehensive Postal Reform

GAO believes that comprehensive postal reform is urgently needed. The
Service achieved notable success in fiscal year 2003, but this respite is
likely to be shortlived. The outlook is for continuing declines in the
core business of First-Class Mail, while some key costs are rising and
productivity gains are likely to slow.

First-Class Mail Volume Growth, Fiscal Years 1984 through 2003

Key postal reform issues that need to be addressed are:

The Service's Mission and Role as a Self-Financing Federal Entity

The Service has a broadly defined mission that enables it to engage in
unprofitable and costly endeavors. In our view, the time has come for
Congress to clarify the Service's core mission and ensure continuity
across changes in its management. Key issues include what should be the
scope of the postal monopoly, and should the Service retain its regulatory
functions.

Governance, Transparency, and Accountability Mechanisms

Better governance, transparency, and accountability mechanisms are needed.
Qualification requirements are too general to ensure that board appointees
have the experience needed to oversee a large business-like operation.
Enhanced transparency and accountability mechanisms are also needed for
financial and performance information, such as reporting requirements.

Flexibilities and Independent Oversight

The Service needs additional flexibilities so it can generate needed
revenues, contain costs, and provide quality service. Major changes to the
rate-setting structure are needed to enhance flexibility, encourage
greater cost allocation, provide better cost data, and strengthen
independent oversight. Also, current legal and other constraints serve to
limit the Service's ability to rationalize its infrastructure and
workforce, including closing unnecessary post offices.

Human Capital Reforms, Including Pension, Benefit, and Escrow Issues

Outstanding human capital issues include the Service's responsibility for
pension costs related to military service, funding the Service's
significant obligations for retiree health benefits, and determining what
action to take on the escrow account established as a result of the
enactment of P.L. 108-18. Other key areas for reform include workers'
compensation and pay comparability.

Chairman McHugh and Members of the Special Panel:

I am pleased to be here today to participate in this hearing on postal
reform. In my testimony today, I will focus on (1) the need for postal
reform and (2) key areas for comprehensive postal reform. Recently, the
U.S. Postal Service (the Service) has gained some financial breathing room
primarily because legislation enacted in April 2003 (P.L. 108-18)1 has
reduced the Service's payments for its pension obligations. The Service's
net income in fiscal year 2003 was a record $3.9 billion, of which about
$3 billion was the result of this legislation. In addition, the Service
reported that it has made notable progress in its cost-cutting efforts. In
fiscal year 2003, the Service downsized its workforce by 27,000 employees,
increased its productivity for a record fourth consecutive year, and
achieved $1.1 billion in cost reductions. As a result, the Service reduced
its debt by $3.8 billion in fiscal year 2003 to $7.3 billion at the end of
the fiscal year. The Service also maintained high levels of customer
satisfaction and timely delivery of collection-box First-Class Mail,
setting new records in each of these areas. The Service is justifiably
proud of these achievements.

However, as the Service has recognized, its respite is likely to be
shortlived, given increasing competition and the Service's formidable
financial, operational, and human capital challenges. As the President's
Commission on the United States Postal Service (the presidential
commission) noted, the nation's communications, technology, and delivery
markets have seen vast changes since the Service was created by the Postal
Reorganization Act of 1970.2 New types of electronic communications
include the use of email, wireless technology, and electronic bill payment
services. These technological advances appear to have placed First-Class
Mail volume in the early stages of a long-term decline. In addition, the
Service faces increased competition from private delivery companies, some
of which have established national ground delivery systems and a national
network of retail facilities. In this new environment, unless the
Service's operating expenses can be reduced correspondingly, with a
rightsizing of both its infrastructure and workforce, it is questionable
whether affordable

1The Postal Civil Service Retirement System Funding Reform Act of 2003,
Pub. L. No. 10818, 117 Stat. 624.

2President's Commission on the United States Postal Service, Embracing the
Future: Making the Tough Choices to Preserve Universal Mail Service
(Washington, D.C.: July 31, 2003).

universal mail service can be sustained over the long term with a
selffinancing public institution.

Recent developments strengthen our view that enactment of postal reform
legislation is urgently needed so that the Service can achieve a
successful transformation to modernize itself and continue as a viable
provider of universal postal service in the 21st century. To summarize:

o  Declining mail volume: Total mail volume declined in fiscal year 2003
for the third year in a row-a historical first for the Service, which has
depended on rising mail volume to help cover rising costs and mitigate
rate increases. First-Class Mail volume declined by a record 3.2 percent
in fiscal year 2003 and is projected to decline annually for the
foreseeable future. This trend is particularly significant because
First-Class Mail covers more than two-thirds of the Service's
institutional costs.

o  Changes in the mail mix: The Service's mail mix is changing with
declining volume for high-margin products, such as First-Class Mail, and
increasing volume of lower-margin products, such as some types of Standard
Mail. These changes reduce revenues available (contribution) to cover the
Service's institutional costs.

o  Increased competition from private delivery companies: Private delivery
companies dominate the market for parcels greater than 2 pounds and appear
to be making inroads into the market for small parcels. Priority Mail
volume fell 13.9 percent in fiscal year 2003 and over the last 3 years has
declined nearly 30 percent. Once a highly profitable growth product for
the Service, Priority Mail volume is declining as the highly competitive
parcel market turns to lower-priced ground shipment alternatives. Express
Mail volume is declining for the same reason. In addition, United Parcel
Service (UPS) and FedEx have established national networks of retail
facilities through UPS's acquisition of MailBoxes Etc., now called UPS
Stores, and FedEx's recent acquisition of Kinko's.

o  Subpar revenue growth: The Service's revenues are budgeted for zero
growth in fiscal year 2004, which would be the first year since postal
reorganization that postal revenues have failed to increase. However, as
the Service has recognized, even the zero-growth target will be
challenging. In the absence of revenue growth generated by increasing
volume, the Service must rely more heavily on rate increases to cover
rising costs and help finance capital investment needs.

o  Declining capital investment: The Service's capital cash outlays
declined from $3.3 billion in fiscal year 2000 to $1.3 billion in fiscal
year 2003, which was the lowest level since fiscal year 1986, and far
below the level of the late 1990s, when the Service spent more than $3
billion annually. Capital cash outlays are budgeted to increase to $2.4
billion in fiscal year 2004, but this level may not be sufficient to
enable the Service to fully fund its capital investment needs. In the
longer term, it is unclear what the Service's needs will be to maintain
and modernize its physical infrastructure, as well as how these needs will
be funded.

o  Renewed difficulties in substantially improving postal productivity:
The Service's productivity increased by 1.8 percent in fiscal year 2003
but is estimated to increase by only 0.4 percent in fiscal year 2004. In
the absence of mail volume growth, substantial productivity increases will
be required to help cover cost increases generated by rising wages and
benefit costs and to mitigate rate increases.

o  Significant financial liabilities and obligations: Despite the passage
of legislation that reduced the Service's pension obligations, the Service
has about $88 billion to $98 billion in liabilities and obligations that
include $47 billion to $57 billion in unfunded retiree health benefits.
Under the current pay-as-you go system, the Service may have difficulty
financing its retiree health benefits obligation in the future if mail
volume trends continue to impact revenues while costs in this area
continue to rise. The Service has recently proposed two options to
Congress so the Service could prefund this obligation to the extent that
it is financially able.

o  Uncertain funding for emergency preparedness: The Service requested
$350 million for emergency preparedness for fiscal year 2004, which it did
not receive, and $779 million for fiscal year 2005. If the money is not
appropriated, funding for this purpose may have to be built into postal
rates.

o  Challenges to achieve sufficient cost cutting: The Service achieved
additional cost cutting to compensate for below-budget revenues in fiscal
year 2003. Despite this progress, in the longer term it is unclear whether
continued cost-cutting efforts can offset declines in First-Class Mail
volume without impacting the quality of service.

In view of the Service's continuing financial, operational, and human
capital challenges, as well as trends that increase the urgency of making
rapid progress in transforming its organization, we believe that Congress
should enact comprehensive postal reform legislation that includes the

Service's overall statutory framework, resolution of issues regarding the
Service's pension and retiree health benefits obligations, and whether
there is a continued need for an escrow account. We are pleased that the
administration has engaged with Congress and other stakeholders on these
important issues, and agree with the administration's principles for
postal reform.3 We also believe that the findings and recommendations of
the presidential commission's report made a valuable contribution to
assist Congress, the administration, the Service, and other stakeholders
in considering the actions needed to transform the Service to a more
highperforming, results-oriented, transparent, and accountable
organization. My testimony, based on our prior reports and testimonies4
and our continuing work in this area,5 will address the need for postal
reform and the key areas for comprehensive postal reform, including

o  clarifying the Service's mission and role by defining the scope of
universal service and the postal monopoly and clarifying the role of the
Service in regard to competition;

o  enhancing governance, transparency, and accountability by delineating
public policy, operational, and regulatory responsibilities, as well as
defining appropriate transparency and accountability mechanisms;

o  improving flexibilities and oversight by balancing increased postal
flexibility with an appropriate level of independent oversight and
addressing selected legal and other constraints that limit the Service's

3http://www.treas.gov/press/releases/js1044.htm.

4U.S. General Accounting Office, U.S. Postal Service: Bold Action Needed
to Continue Progress on Postal Transformation, GAO-04-108T (Washington,
D.C.: Nov. 5, 2003); U.S. Postal Service: Key Postal Transformation
Issues, GAO-03-812T (Washington, D.C.: May 29, 2003); Major Management
Challenges and Program Risks: U.S. Postal Service, GAO-03-118 (Washington,
D.C.: January 2003); U.S. Postal Service: Moving Forward on Financial and
Transformation Challenges, GAO-02-694T (Washington, D.C.: May 13, 2002);
U.S. Postal Service: Deteriorating Financial Outlook Increases Need for
Transformation, GAO-02-355 (Washington, D.C.: Feb. 28, 2002); U.S. Postal
Service: Financial Outlook and Transformation Challenge; GAO-01-733T
(Washington, D.C.: May 15, 2001); and U.S. Postal Service: Transformation
Challenges Present Significant Risks, GAO-01-598T (Washington, D.C.: Apr.
4, 2001).

5We did not independently verify any Postal Service data, although data
from its financial statements were audited by an independent auditor. Some
other data, such as data on mail volumes and costs, were produced by data
systems that have been reviewed by the Postal Rate Commission, by
stakeholders participating in rate cases, and by the 1999 Data Quality
Study. See A.T. Kearney, Data Quality Study (Alexandria, Virginia: Apr.
16, 1999).

  The Need for Comprehensive Postal Reform Legislation

ability to rationalize its infrastructure and workforce; and

o  making needed human capital reforms such as determining the Service's
responsibility for pension costs related to military service, funding
retiree health benefits, and determining what action to take on the escrow
account established in recent pension legislation, deciding whether postal
workers' compensation benefits should be on par with those in the private
sector, and clarifying pay comparability standards.

Our conviction, shared by the presidential commission, the Service, the
administration, and others, is that postal reform is needed. The status
quo has not produced satisfactory results and the temporary surpluses
generated by P.L. 108-18 are unsustainable. Incremental steps toward
postal transformation cannot resolve the fundamental and systemic issues
associated with the Service's current business model. The Service's
longterm financial challenges remain, and, accordingly, the Service's
long-term outlook and transformation efforts remain on our High-Risk List.
Fundamental changes will need to be made to the Service's business model,
and the legal and regulatory framework that supports it, to help assure
the Service's long-term financial viability. Now that the presidential
commission has finished its work, the time has come for Congress to act.
Structural issues contributing to the need for postal reform include the
following:

o  Uncertain financial future: The Service is intended to be
selfsupporting through postal revenues. However, as the presidential
commission noted, even after recent statutory changes reduced the
Service's unfunded liability for Civil Service Retirement System (CSRS)
pension benefits, the Service has accumulated over $85 billion in
financial liabilities and obligations over the past three decades. These
liabilities and obligations include large unfunded obligations for retiree
health benefits, workers' compensation liabilities, remaining pension
obligations, and debt. Given the Service's demographics and current health
care trends, the costs and obligations related to retiree health benefits
are expected to continue rising at a rapid rate. These growing obligations
will increase financial pressure on the Service at a time when revenues
from First-Class Mail are expected to continue to decline.

o  Difficulty financing capital needs: In recent years, as the Service's
debt level neared its $15 billion cap, the Service found it problematic to
obtain adequate financing for capital needs and thus curtailed capital
spending. Recently enacted pension legislation has resulted in an increase
in cash flow, and the Service plans to increase capital

spending for fiscal year 2004. However, in the longer term, it may be
difficult for the Service to obtain adequate funds to address its capital
needs, including modernizing its aging network of postal facilities,
without significantly increasing rates or debt. An additional potential
source of funding is the disposition of surplus real estate, because the
Service is allowed by law to retain all revenues received from the
disposition of postal assets. Although the current market value of the
Service's portfolio is unknown, its book value is approximately $15
billion.

o  Limited incentives for success: The current legal framework, which was
designed to help the Service fulfill universal service mandates, does not
provide the same types of incentives that apply to the private sector.
Under the statutory break-even mandate and postal monopoly, the Service
does not have the profit motive or direct competition (in letter mail)
like the private sector does. In addition, the rate-setting structure has
allowed the Service to cover rising costs by increasing rates. Moreover,
whatever cost reductions the Service achieves in one rate cycle are used
to reset the estimated costs that the Service is to recover in the next
rate cycle, limiting incentives for cutting costs and improving
productivity. In this regard, a limited retained earnings provision could
enable the Service and its employees to benefit from whatever cost
reductions are achieved.

Despite the above, the Service has achieved success in reducing total work
hours and downsizing its workforce by over 74,000 employees over the past
3 fiscal years, which has helped the Service contain its costs. However,
cost cutting is likely to achieve diminishing returns under the current
structure, which restricts the Service's flexibility and provides limited
incentives. Thus, postal reform is needed to enhance incentives and enable
the Service to achieve major advances in postal productivity and continued
cost reductions. Such advances may be achieved through continuing
automation as well as realignment of the Service's processing and retail
networks.

As previously noted, the likelihood of declining First-Class Mail volume
is another key impetus for postal reform. Its rate of growth has been in
longterm decline since the 1980s. First-Class Mail can be divided into two
categories that are both declining in volume: (1) single-piece mail, such
as letters, which is sent at the rate of 37 cents plus 23 cents for each
additional ounce; and (2) bulk mail, which receives discounts for
worksharing activities performed by mailers (see fig. 1). The single-piece
mail includes remittance mail, which is impacted by diversion to other
forms of payment, such as automatic deductions from bank accounts,

automatic charges to credit cards, and other electronic payments. The bulk
mail includes mailings of bills and statements, and advertising mail.
Single-piece First-Class Mail volume declined by a record 5.4 percent in
fiscal year 2003, while bulk First-Class Mail volume declined by 1
percent-the first such decline since worksharing discounts were
implemented in fiscal year 1976.

Figure 1: First-Class Mail Volume Growth, Fiscal Years 1984 through 2003

First-Class Mail generates more than half of the Service's revenue and
covers more than two-thirds of its institutional costs. Standard Mail
volume is growing, but it makes a smaller per-piece contribution than
First-Class Mail and its volume is considered more price sensitive to rate
increases. Parcel Post volume is also growing, but not enough to offset
declines in Priority Mail. Periodicals mail is priced at cost, and other
sources of Service revenue make a relatively small contribution to its
institutional costs. Thus, the loss of contribution from declining
First-Class Mail volume is difficult to recover from other classes of
mail.

Looking ahead, a report prepared for the presidential commission found
that growth in electronic payments is likely to be an important factor in
its forecast of gradual declines in First-Class Mail volume.6 The rapid

6Institute for the Future, Two Scenarios of Future Mail Volumes:
2003-2017, prepared for the President's Commission on the United States
Postal Service (Palo Alto, California: May 2003).

diffusion of computer, Internet, and broadband technologies has led to
high adoption rates among those with high levels of income and
education-the same groups that send and receive a disproportionate share
of First-Class Mail. These trends point to the strong potential for
further diversion. Raising postal rates to offset this trend may provide
an immediate boost to the Service's revenues, but over the longer term
will likely accelerate the transition of mailed communications and
payments to electronic alternatives, including the Internet.

If the Service's core business of First-Class Mail continues to decline,
it will face the formidable challenge of maintaining affordable universal
postal service by growing revenues, significantly cutting costs, or
reducing service standards. In order to achieve net cost savings, the
Service's costcutting efforts must currently offset billions of dollars in
annual cost increases for general wage increases, cost-of-living
adjustments, and rising benefits costs, particularly in health insurance
premiums, as well as infrastructure and workforce costs associated with
having to deliver mail to over 1.5 million new addresses every year. Thus,
maintaining the quality and affordability of postal services would likely
require dramatic improvement in the Service's efficiency. In order to do
so, the Service will need to become a much leaner and more flexible
organization and rightsize its processing and retail networks and its
workforce.

More significant and frequent rate hikes are also likely to be needed to
cover the costs of benefits that are being earned by current employees and
financed under existing cash-based accounting and rate-setting methods.
One of the key reform challenges facing Congress and the Service is the
funding of the Service's financial liabilities and obligations, including
unfunded retiree health benefits, workers' compensation benefits, and
Civil Service Retirement System (CSRS) pension obligations. Although
recent legislation addressed how the Service will cover its CSRS pension
obligations over a 40-year period, the Service continues to make minimum
payments for the other obligations, which are currently financed on a
payas-you go basis. Based on known demographic trends, the Service's
payments on its retirees' health insurance premiums are expected to
continue rising until about 2040.

Congress is currently reviewing the Service's retirement-related
obligations. We believe that it would be prudent for the Service to
address the unfunded obligations today, in a manner that is fair and
balanced for both current and future ratepayers. In response to the
requirement in the Postal Civil Service Retirement System Funding Reform
Act of 2003 (P.L.108-18) that the Service report on how it proposes to use
the pension

  Major Elements Needed for Comprehensive Postal Reform

"savings" resulting from the act, the Service proposed to prefund at least
a portion of its retiree health benefits obligation. We found that
although this proposal would result in marginally higher postal rate
increases, at least in the short term, it strikes a reasonable and
equitable balance between current and future ratepayers, and addressed one
of the Service's substantial future obligations. On a related matter, we
recommended that Congress repeal the escrow requirement established by
P.L. 108-18 after receiving an acceptable plan from the Service describing
how it intends to rationalize its infrastructure and workforce and is
confident that the Service is making satisfactory progress on transforming
itself into a more efficient organization and implementing its other
transformation goals.7 This recommendation and related considerations,
including responsibility for military service pension costs, are discussed
further in this statement. Taken together, consideration of the escrow
requirement, postal reform, and the Service's retiree health benefits
obligation represents a rare opportunity to address the Service's
long-term financial viability.

We and the presidential commission have reported that universal postal
service is at risk and that reform is needed to minimize the risk of a
significant taxpayer bailout or dramatic and more frequent postal rate
increases. We have testified that Congress should enact comprehensive
postal reform legislation that would clarify the Service's mission and
role; enhance its governance, transparency, and accountability; balance
enhanced flexibility and oversight to improve regulation of postal rates;
help to ensure the rationalization of the Service's infrastructure and
workforce; and make needed human capital reforms. The administration has
also supported postal reform and outlined guiding principles to ensure
that the Service: implements best practices with a governing body equipped
to meet the responsibilities and objectives of an enterprise of its size
and scope; enhances transparency of timely and accurate data on postal
costs and performance; provides greater flexibility for the Service to
meet its obligations to customers in a dynamic marketplace; ensures
additional accountability through appropriate independent oversight; and
keeps the Service financially self-sufficient, covering all of its
obligations. In the following sections of this testimony, I discuss
comprehensive postal reform in light of these principles.

7U.S. General Accounting Office, Postal Pension Funding Reform: Issues
Related to the Postal Service's Proposed Use of Pension Savings,
GAO-04-238 (Washington, D.C.: Nov. 26, 2003).

    Postal Service Mission and Role Need Clarification

It is important for Congress to consider how best to clarify the mission
and role of the Postal Service as part of a fundamental reexamination of
the role of the federal government in the 21st century. As the
presidential commission recognized, the nation's postal laws that
established the Service in the early 1970s did not envision the challenge
of setting appropriate boundaries on the Service's commercial activities
and maintaining fair competition between the Service and the private
sector. These issues need to be addressed because the Service has
repeatedly strayed from its core mission. We have reported on the
Service's moneylosing initiatives in electronic commerce and remittance
processing, among other things.8 The Service's ill-fated ventures were
also questioned by some postal stakeholders as unfair competition, since
they were crosssubsidized by a tax-exempt entity that is also exempt from
many laws and regulations governing the private sector. Further, such
ventures have raised the fundamental issue of why the federal government
is becoming involved in areas that are well served by the private sector.
Although the current Postmaster General has appropriately focused on the
Service's core business of delivering the mail and sharply curtailed its
nonpostal initiatives, the presidential commission recommended codifying
this policy. In our view, the time has come for Congress to clarify the
Service's core mission and ensure continuity across changes in postal
management. Key questions in this area include the following:

o  How should universal postal service be defined in the 21st century?

o  Should the Service be allowed to compete in areas where there are
private-sector providers? If so, in what areas and on what terms? What
laws should be applied equally to the Service and to its competitors?

o  Should the Service's competitive products and services be subject to
antitrust and general competition-related laws? Should they be subject to
consumer protection laws?

o  Should the Service retain its regulatory responsibilities and law
enforcement functions?

8U.S. General Accounting Office, U.S. Postal Service: Update on E-Commerce
Activities and Privacy Protections, GAO-02-79 (Washington, D.C.: Dec. 21,
2001); U.S. Postal Service: Postal Activities and Laws Related to
Electronic Commerce, GAO/GGD-00-188 (Washington, D.C.: Sept. 7, 2000); and
U.S. Postal Service: Development and Inventory of New Products,
GAO/GGD-99-15 (Washington, D.C.: Nov. 24, 1998).

On a related issue, the Service's current statutory monopoly on the
delivery of letter mail and its monopoly over access to mailboxes have
historically been justified as necessary for the preservation of universal
service.9 However, questions have been raised regarding whether these
restrictions continue to be needed; and if so, to what extent and whether
the Service should be able to define their scope. Narrowing or eliminating
the monopoly could increase consumer choice and provide incentives for the
Service to become more effective and efficient. For example, in the
competitive parcel market, FedEx has expanded its role in delivering
residential parcels and UPS has shortened its guaranteed transit time on
ground shipments traveling to some of the country's biggest metropolitan
areas.

Another issue is whether the Service, as a commercial competitor in the
overnight and parcel delivery markets, should have the authority to
regulate the scope of competition in these areas.10 The presidential
commission has recommended separating these functions so that the Postal
Service cannot define and regulate the scope of its own monopoly. As the
presidential commission noted, it is a fundamental premise of American
justice that parties that administer laws should not have a financial
interest in the outcome. Questions relating to the postal monopoly include
the following:

o  Is a government monopoly needed to enable affordable universal postal
service, especially if such service is provided at uniform rates? If so,
what scope of monopoly is needed?

o  Should the Service continue to have the power to define and regulate
its own statutory monopoly, including use of the suspension process?

o  Should a regulatory body have authority to redefine and narrow the
postal monopoly and the mailbox monopoly? If so, should a clear statement
of congressional intent be provided to guide regulatory decisions, or
should the regulator have unfettered discretion to

9U.S. General Accounting Office, U.S. Postal Service: Information about
Restrictions on Mailbox Access, GAO/GGD-97-85 (Washington, D.C.: May 30,
1997).

10The Service has used its regulatory power to further define the scope of
the statutory monopoly by suspending the monopoly for urgent letters and
outbound international mail. The Service has also defined the scope of its
monopoly by issuing regulations that define a "letter" for the purposes of
enforcing the statute (39 C.F.R. S: 310.1(a)) as well as regulations
specifying access to mailboxes (Domestic Mail Manual, D041 and P011.2.2).

consider options to expand or contract the Service's monopoly? What
principles should guide the process, and what key players should be
involved?

o  Similarly, should the regulator be able to consider opening up access
to the mailbox? If so, under what circumstances? Would it be cost
effective for private delivery companies to deliver items to mailboxes if
individuals could veto access and redefine mailbox access as the delivery
companies move from one home to another?

o  Should any regulatory decisions be governed by process requirements to
enable stakeholder input? Should such processes facilitate congressional
review of any changes, as is the case for some other types of
communications regulated by the federal government?

    The Need for Enhanced Governance, Transparency, and Accountability
    Mechanisms

      Governance Issues