The Postal Accountability and Enhancement Act of 2006 released escrow money and required massive health benefit prefunding payments, created a postal regulator, established an inflation-based ratemaking system for market dominant products and made many other changes to postal law. One provision of the new law received little attention at the time of enactment but is now front and center - a report by the Comptroller General to the President and Congress on options and strategies for long-term structural and operational reforms of the Postal Service.

The 2006 PAEA required the Comptroller General to issue the report within five years of the law's enactment, or late 2011. The requirement reflected the thinking at that time that the Postal Service business model would require further change down the road. Unfortunately, down the road has become now, and the Comptroller General's office, the General Accountability Office, is working feverishly to complete it.

With strong urging from congressional leaders, the Comptroller General is now scheduled to submit the report to the President and Congress in early 2010, perhaps March or April. That report will provide the administration and Congress with ideas on how to deal with the financial problems faced by the Postal Service.

In advance of the Comptroller General's report, the Postal Service has issued its own paper on how to deal with the problem. The Postal Service's report is entitled "Assessment of U.S. Postal Service Future Business Models"❠and suggests various alternatives for consideration. Additionally, the Postal Service hired external authors to provide independent assessments of possible future business models. All of these papers provide interesting food for thought as policymakers ponder how to address the Postal Service's financial dilemma.

The Postal Service's "Assessment of U.S. Postal Service Future Business Models" offers five different business model alternatives. As the Service points out, there "is no one 'right' model that fits all posts. Foreign posts have a variety of business and regulatory models, and the origin and evolution of these models are deeply rooted in the underlying economic, political, social, cultural and geographic history of each country."

The five different possible models proposed by the Postal Service follow:

1. New Flexibilities: In this model, the Postal Service would remain an independent establishment of the executive branch of government and would fund most or all of its operations through its revenues. To accomplish this, the Postal Service says it would need Congress to grant greater flexibilities to control costs and raise revenues. Among those needed flexibilities: elimination of the legal requirement to maintain six-day mail delivery; elimination of legal restrictions on post office closings; and the reduction of congressional interference on facility closures. Other changes could include: moving the Postal Service off-budget; providing the ability to negotiate statutorily-mandated employee benefits; and relief from the retiree health benefit prefunding requirement. Further, the Postal Service would be able to offer non-postal products and services in order to generate additional revenue. Part of the additional flexibility needed to pursue non-postal products and services would result from less stringent regulation. The Postal Service also cautions that "without comprehensive structural changes to reduce political interference, it leaves the Postal Service with the same problem it faces today."
2. The Postal Service Is a Federal Government Agency Supported by Appropriations: This model would have the Postal Service continue its current operations and be supported by congressional appropriations. The Congress "would determine the level of service provided, including the definition of universal mail service, postal pricing, facility closures, and the role of the Postal Service as a government presence."❠While allowed to venture into other areas of business, the Postal Service would be limited to where there is a public need for the government to be involved. The Postal Service says this model would eliminate "the tension that exists between the Postal Service's status as a governmental agency and its mandate to be self-supporting."❠However, the model also adds to the taxpayer burden and could lead to decreasing levels of efficiency.
3. The Postal Service Owns and Maintains Only the Delivery Network: This approach would have the Postal Service maintain its delivery network and perhaps it retail network, but mail processing and transportation would be opened up to privatization. Some Postal Service mail processing would be retained to sort mail in carrier route sequence. The Postal Service says some appropriations also could be required because "it is unclear if revenues would be sufficient to cover costs."❠In this model, the Postal Service could "offer other services, especially government-related, if those services leveraged the delivery or retail network."❠There would be a significant loss of postal jobs, although some would be absorbed by private industry. The Postal Service says that this model is designed to promote a less costly network, and that it would "most likely result in lower paying and fewer jobs." Noting that the model could be appropriate "if Congress wishes to capitalize on the Postal Service's efficiency in delivery and allow the processing network to be handled by the private sector."❠The Postal Service says the model would "likely result in a growing amount of appropriations, coupled with reductions in delivery service."
4. The Postal Service Is Liberalized: Liberalization of the post has many variations around the world, but it generally means "that the government maintains ownership of the post, but grants it the ability to manage itself like a business." In return for new flexibilities, the "reduction or elimination of the monopoly over some time period" would likely occur. In the United States, the monopoly includes the delivery of letter mail and access to the mailbox. This model opens the system up to competition and would allow the Postal Service to venture into other activities to generate revenue.
5. The Postal Service Is Privatized: With this scenario, the Postal Service would no longer be a government agency and instead would be operated as a private business. The postal monopoly would be reduced or eliminated. It would be free to enter into other businesses and compete without government advantage. This model allows for greater flexibility in both revenues and costs. Advocates of free market policies would argue that privatization would result in a more efficient and responsive entity that is much more innovative. Those that favor government involvement say privatization is not always beneficial to consumers and would result in cream skimming of high-volume, profitable areas, leaving "higher cost rural and inner city urban locations without affordable service."

In its conclusion, the Postal Service recognizes that there is "an ongoing movement from hard copy mail toward electronic alternatives." However, the "need to conduct financial transactions by mail will continue so long as consumer access to and trust of the internet is not universal." And since the "needs tend to be greatest in the very areas that a private provider would either overprice or limit service,"❠this "supports a conclusion that the Postal Service should maintain its responsibility for supplying affordable universal service. But the current business model is not sustainable, and Congress has said it wants a solution that does not involve the Postal Service on appropriated funds. Thus, in order for the Postal Service to be self-sufficient in years to come, Congress must give it additional flexibilities to manage its costs and increase its revenues."â

The full paper can be found here: http://www.usps.com/postallaw/_pdf/USPS_FutureBusinessModelPaperForGAO_Final.pdf

Other papers released by the Postal Service on possible changes to the Postal Service business model include:

Toward a New Business Model for the United States Postal Service
By Stephen Crawford 

The Future of the United States Postal Service
By Elaine Kamarck

United States Postal Service Future Business Model Analysis & Action Recommendations
By Joseph McCann and Harvey Slentz

Examination of the Potential Postal Business Models. Report for the United States Postal Service
By Alan Robinson