San Diego Union-Tribune

December 10, 2001

A-1

Recession, anthrax put spotlight on postal woes

By Dana Wilkie 
COPLEY NEWS SERVICE 

WASHINGTON -- The warning signs started years ago.

As Americans bypassed the mailbox in favor of e-mail, faxed
their correspondence and paid their bills online, the U.S. Postal
Service tried desperately to make ends meet by borrowing
money and increasing the price of stamps and other mailing fees.

Experts sounded the alarms: Unless the Postal Service found a
way to compete better in a new communications world, the
mammoth organization that promises America efficient and
reasonably priced service was in danger of going under.

But Congress paid little heed.

For better or worse, it took this year's anthrax scare and a
sluggish economy to expose the structural cracks in the Postal
Service's foundation, and to light a fire under lawmakers who
had ignored the warnings about the long-standing problems with
the nation's mail-delivery system.

"We tried to deal with this absent a crisis," said Robert Taub,
chief of staff to Rep. John McHugh, the New York Republican
who has tried for years to reform the Postal Service.
"Unfortunately, it takes a crisis to get folks to look at something,
and . . . now we've got that crisis."

The morning of Sept. 11 was a gloomy one for the Postal Service
even before hijacked jets slammed into the World Trade Center
and the Pentagon. That day, the service announced it would end
the fiscal year with $1.7 billion in losses. There was talk of closed
post offices, no Saturday mail service and a 37-cent postage
stamp -- 3 cents more expensive than the current one.

During the year, postal authorities already had raised the price
of mailing a postcard from 20 to 21 cents and had raised rates
twice for so-called "junk mailers."

After the terrorist attacks and the subsequent anthrax
emergency that claimed the lives of two mail carriers here,
postal authorities had to ask Congress for more than $1 billion to
repair a damaged New York post office and to buy technology to
sanitize anthrax-contaminated letters and to detect others.
Lawmakers were awaking to the idea that this 212-year-old
organization, which must deliver the mail without government
subsidy, had glaring problems with its finances and with its
ability to react to crisis.

"When you tried to discuss this with members of Congress
(before Sept. 11), the first reaction was, 'Well, what's the
problem?' " said George Gould, political director for the National
Association of Letter Carriers. "Most people are comfortable
with their service and the rates are the lowest in the world. I
think we're in trouble now, but I think we have enough time to
make changes without the institution tanking."

Last spring, the Government Accounting Office, which is
Congress' investigative arm, put the Postal Service on its
"high-risk" list. The service had a debt approaching $15 billion,
investigators warned, with no plans to reduce it. Decreases in
first-class mail threatened to create more financial problems.

"The sense of urgency is growing," investigators wrote. "The . . .
ability to provide universal postal service as we know it today
will be increasingly threatened unless changes are made."

Rules blamed

Postal authorities believe the fundamental problem is that
government rules constrain them as they struggle to compete
with the Internet, faxes, UPS, FedEx and foreign postal services
that ship mail between here and Europe.

"The Postal Service has been saying for several years that the
laws that govern us are not suitable for the 21st century," said
Deborah Willhite, senior vice president of government relations
for the Postal Service. "(Before Sept. 11), our roof had a slight
leak, but the sun was shining and folks on the Hill had other
issues that were more immediate."

Under the 31-year-old law that governs the Postal Service, it
takes nearly a year to raise postage rates to keep pace with costs.
The service must answer to a commission that has a burdensome
process for reviewing changes to the method or cost of mail
delivery. The service is not allowed to offer promotional or
seasonal discounts that might lure new business.

For nearly seven years, a handful of lawmakers has worked in
relative obscurity to reform the Postal Service. One of them is
McHugh, who wants to free the Postal Service to operate more
like a regular business.

As the anthrax scare and its costs escalated, McHugh found he
had potential new allies for his effort. They included Los
Angeles-area Rep. Henry Waxman, the top Democrat on the
House Government Reform Committee, who has said he wants to
make Postal Service reform a priority when Congress returns
next month after the holidays.

Under McHugh's latest plan, authorities could raise postage
rates more quickly, and without commission approval. The
Postal Service could use new marketing tools to lure business,
such as volume discounts for those who send catalogs and
advertising to U.S. households.

At the same time, the Postal Service would have to follow many
of the fair-trading and tax laws that private businesses obey.
With the new freedom to raise postage rates would come
oversight from a panel of presidential appointees. Postal
authorities could raise prices only once a year, and the total of
all rate increases could not exceed the annual rise in the cost of
living.

Support told

In general, postal unions and advertisers support McHugh's
plan, the former because it does not appear to jeopardize jobs
and the latter because it offers some certainty about rate
increases. Nonetheless, even among these groups there is a
wait-and-see attitude. Unions want assurances that the cap on
rate increases does not translate into a cap on wages.
Advertisers want to be sure the service will not abuse its new
power to raise rates.

"I don't think anybody is 100 percent happy with it," said Jim
Cregan, executive vice president for government affairs for the
Magazine Publishers of America. "But enough are happy to say
'OK, let's move forward.' "

Formidable foes, however, include UPS, which competes
directly with the Postal Service for express mail delivery.
Newspapers could lose business if new Postal Service discounts
lure away Sunday advertisers. Other potential combatants
include foreign postal administrations with offices in the United
States.

And there are those who protest that the Postal Service still
would have a monopoly on the U.S. mail. Postal Service
competitors, such as UPS, still would be barred from delivering
regular mail, as they have been since 1845. And the law still
would force UPS-like companies to charge much higher prices
for rushed delivery than the Postal Service does for its own
expedited mail.

Edward Hudgins, author of "Mail at the Millennium," believes
monopoly status prevents true reform for the Postal Service.
Although it has spent billions on technology to become more
efficient, he said, Postal Service productivity in the past 30
years has gone up only 12 percent, compared with 55 percent
for the average U.S. business. Unionized postal workers, he said,
have no competitive incentive to become more productive.

"I think the postal service has gone beyond the point where
McHugh's legislation would solve these problems," Hudgins said.
"(Congress) should remove the monopoly and say anyone can
deliver mail."