FOR years, Wall Street has hungrily eyed the United States Postal Service. The post office has everything a borrower could need: name recognition, a huge cash flow, and a thirst for money. But Mr. Zip Code had no trouble borrowing money from Uncle Sam. That may now be changing.
Last Friday, congressional budget negotiators and the White House proposed to take the Postal Service out of the federal budget, pending unspecified reforms. One of the reforms almost always cited by the Reagan administration when it wanted to do the same thing was to have the Postal Service borrow privately.
If the Postal Service goes to Wall Street for its financing, it could ultimately cost Postal Service users more money in the way of rate increases. Similar quasi-governmental agencies typically pay an extra 50 to 75 basis points, or one-half to three-fourths of a percent when they borrow on their own. This could increase the cost of the Postal Service's five-year $13 billion capital expenditure program by $65 million to $97.5 million annually.
Since it would cost the post office more to borrow from Wall Street, the agency would also seek to modify its investment restrictions - permitting it to become more aggressive with its surplus cash. Thus, it might make up some of the lost revenues with higher investment income.
Although the Postal Service says it has no current active program to shift to the private credit markets, Colmer Coppie, senior assistant postmaster general for finance, says, ``We are not opposed to it under the appropriate circumstances.'' This would please such investment banking firms as Salomon Brothers Inc. and Merrill Lynch & Co., who regularly visit postal officials to make presentations. The bankers would generate new fees with the post office as a client.
The Postal Service currently borrows money from the Federal Financing Bank (FFB), an off-budget arm of the US Treasury. The Postal Service issues securities, which the FFB buys, giving the post office an interest rate that is slightly more than it costs the US Treasury to borrow. The FFB gets its funding from the US Treasury.
The post office's capital spending plans are extensive. This year it will spend about $2 billion on large mail-processing facilities; to further automate; and to buy new computers, automobiles, and vans. The last time the post office tapped Wall Street to raise funds was in 1973, when it borrowed $250 million for a capital-spending program. This was prior to the establishment of the FFB.
During the Reagan administration, James Miller, then-director of the Office of Management and Budget (OMB) championed the idea of separate borrowing by the Postal Service. But there was little support from Congress, Mr. Coppie notes.
Congress' attitude, however, is changing, now that it must find ways to cut the budget deficit.
According to the Congressional Budget Office, taking the Postal Service off-budget will save $1.8 billion, since the service is subsidized and runs at a loss, depending on the accounting system used. For example, OMB estimates taking the Postal Service off-budget would save $2.2 billion. The post office maintains, however, that it breaks even on an ``accrual basis.'' Every three years, it gets a rate increase which gives it a surplus, wiping out its debt.
Any change in the status of the Postal Service must be approved by Congress. Last year, the House approved the idea of taking the agency off-budget. But the legislation did not get out of committee in the Senate. This year similar legislation has 300 House sponsors and 75 Senate sponsors.
Postal officials are in favor of this move since the agency would then be exempt from the annual budget process. Officials believe it would give them a better opportunity to plan. Union officials are also supportive of the move.
To win final White House approval of moving off-budget, the post office would have to go through some reforms. According to congressional sources, part of the reforms will be an elimination of some of the indirect subsidies provided by the taxpayers. For example, Congress might ask the post office to pay cost-of-living adjustments on retirement and health care benefits for its annuitants. This expense would likely be passed on to the public in the form of higher postal rates.