June 22, 2018

USPS should be restructured, possibly sold, White House report recommends

IPO, sale to other entity should be on table, OMB says.

By DC Velocity Staff

The Trump administration has proposed a restructuring of the U.S. Postal Service to either restore its money-losing model to sustainable profitability, or to position it for privatization, either through an initial public offering or a sale to another entity.

A privately held USPS could be structured like an investor-owned utility while still being regulated by the Postal Regulatory Commission (PRC), the independent agency that currently oversees USPS operations, or a successor agency, according to the proposal. A private postal system could deliver mail fewer days per week to central locations instead of the complying with the existing "universal service" mandate requiring USPS to pick up and deliver from every address and post office box in the country, the administration suggested.

A private firm would have more flexibility in adjusting its prices and would be freed from participating in costly government benefits programs, according to the document. For example, USPS is required by a 2006 law to pre-fund employee retirement health benefits, a mandate that costs it between $5.5 billion and $5.8 billion a year, and is a key factor in keeping the agency consistently unprofitable.

The recommendations were contained in a sweeping Office of Management and Budget report on government reform released yesterday. By mid-August, a presidentially appointed task force headed by Treasury Secretary Steven T. Mnuchin is expected to release its own reform recommendations.

For any deregulation initiative, Congress could follow the privatization templates of postal systems in Europe and Asia, yesterday's report said. Over the years, foreign governments have deregulated their postal systems and enabled them to become publicly traded, private sector concerns that have diversified into other service lines. Perhaps the most notable example is the former German postal system known as Deutsche Post, which was privatized in 1995. Over the past 23 years, Deutsche Post has acquired various transportation and logistics firms, such as express and logistics firm DHL and freight forwarders Danzas Corp. and Air Express International Corp., to become more of a shipping and logistics company than a mail provider.

"Like many European nations, the United States could privatize its postal operator while maintaining strong regulatory oversight to ensure fair competition and reasonable prices for customers," the report said.

Any privatization move would first require the implementation of significant reforms to "show a significant path to profitability," the White House said. Most foreign posts that were privatized were profitable at the time of their sale," the report said.

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