POSTAL ROAD KILL

The following is a perspective by postal commentator Gene Del Polito for Direct magazine. The views expressed are the author's and do not necessarily reflect the official views or policies of PostCom.

You've seen it a hundred times--the squirrel corpse in the middle of the road. "Road-kill,"" it's called. A testament to the inability of a rodent to realize it shouldn't run across the street into the path of an onrushing car. I can understand how the squirrel may not be intelligent enough to avoid a self-destructive behavior, but I never cease to marvel at how the U.S. Postal Service, despite the evolutionary superiority of those who manage it, engages so often in similar squirrel-like behavior. The present postal rate case is one clear example.

In a previous article, I noted how the politico-economics of a penny increase on the price of a First-Class stamp can put the Postal Service between a rock and a hard place as it struggles to determine upon whom it should lay the most painful, revenue-raising burden. In this case, the USPS is asking the Postal Rate Commission for some $2.73 billion in new revenue. Each penny is worth about a billion. A one-cent increase for First-Class, as has been proposed in this case, means all other mail users must bear the cost of raising the additionally needed $1.73 billion.

In rate case parlance, this $2.73 billion is what's called the Postal Service's revenue requirement; that is, represents what postal officials contend is the amount of new revenue the Postal Service needs to comply with its statutory mandate to operate on a break-even basis. The key word in this little soliloquy is "need." Let's take a moment to examine this assumption.

Does the USPS really need $2.73 billion to break-even? It does if every penny of this new revenue estimate is needed to cover the attributable and institutional costs of running the nation's postal system. The Postal Service's own testimony, however, clearly indicates this is not the case. In fact, the USPS really needs only half of this amount to comply with the law. Fully half of what the Postal Service is requesting is in the form of reserves the USPS wants to have on hand to cover unforeseen contingencies and pay-back a share of "prior year losses."

The Postal Service has predicated its break-even assumptions on the basis of a 2001 fiscal year (a year which begins around late September of 2000 and ends roughly 12 months thereafter). In short, the "test-year," as it's called, will already be well underway before the new rates are ever implemented. If the USPS holds true to its claim that new rates implementation will take place sometime in calendar 2001, most of the "test-year" will already be behind us.

That's a short period of time! Why, in heaven's name, then, does the USPS need so large a contingency reserve. Is this period of time not immediate enough to have a clearer crystal ball than the one the USPS obviously has used in constructing this case?

And, why the prior year loss reserve? Well, according to the postal Governors, it's to "restore the Postal Service's original equity" which was provided by the U.S. Government when the Post Office Department was transformed into the USPS. A laudable goal--but not necessarily an essential one given the impact it has on this rate case.

Clearly, in this instance, the Postal Service has inflated its actual revenue need by some 100% to cover its butt in the event of some "unforseen" postal snafu and to restore a balance sheet that has no real meaning for an institution that actually is an agency of government. The net result is double-digit postal rate increases for some of the Postal Service's most price-sensitive customers at a time when moving business communication and commerce to the Internet is an increasingly feasible alternative.

Yes sir, look carefully. There goes another squirrel dressed in a postal uniform attempting to scurry across the road despite the advance of an onrushing car. Guess who will win this exchange?