Congress coddles, hamstrings money-losing Postal Service

In 2014, the U.S. Postal Service lost $5.5 billion. It was the eighth year in a row the Postal Service lost money, for a total of $51.7 billion over that stretch.

More than anything, the Postal Service’s money woes are driven by the more than 60% decline in first-class letters that Americans send. While the USPS has done an admirable job competing for parcel business with UPS and FedEx, first-class mail is still its most profitable segment. All of the bills and birthday greetings that are now sent online are greatly reducing the Postal Service’s profitability.

Is there any doubt that something needs to change here? Losing $51.7 billion in eight years might be a clue that things cannot continue as they are. Yet between Congress, which pays fleeting interest to the Postal Service’s problems before returning to its default position of complete indifference, and the postal carriers union, the forces against change are so large that the interminable status quo remains.

This is what happens when government runs a business.

Structure almost guarantees USPS can’t adapt
Although the Postal Service is a business that is expected to make money, it’s also a quasi-governmental agency whose rules are controlled by Congress, for good and ill (mostly ill). That means that the Postal Service, unlike a real business, can’t adapt to the market like its competitors.

Its co-opponent to change is the postal carriers union. Like any union, it opposes job cuts for its members, but often that means trying to prevent the Postal Service from making its operations more efficient. The union likes to complain that a law requiring the USPS to prepay its pension and retiree health benefit costs is unfair (the Postal Service has been unable to make those payments in full the last four years). The alternative – ignoring the problem and having taxpayers pick up the tab when the USPS fails or significantly cuts back – seems pretty unfair, too.

But while Congress was looking out for taxpayers on that one, consider a few of the ways it keeps the Postal Service hamstrung:

– Every year, Congress prevents the USPS from any reduction or full curtailment of Saturday mail delivery. “The six-day delivery rider was first introduced in 1983 and has been included in every annual appropriations bill since,” a new Brookings Institute report on the Postal Service says.

– The postal union isn’t the only impediment to efficiencies. Take this example from the Brookings report: “In the summer of 2014, Post Master General Patrick Donohoe planned to close 82 unnecessary mail-processing facilities in order to save money. Instead of congratulating him for taking steps to become more efficient, 50 Senators sent a letter to him seeking to disrupt the plans. To no one’s surprise, in May 2015 the USPS announced it would not resume the second phase of its ‘network rationalization’ plan and close facilities.”

Postal laws both hold the Postal Service back and prop it up. While rules imposed by Congress prevent USPS from becoming more efficient, its effective service monopoly (and the fact that only the Postal Service is allowed to deliver to your mailbox) help lock out competitors and keep daily mail in the Postal Service’s direct control.

What can be done?
The Postal Service and Congress could consider:

  • Dropping Saturday mail delivery. The postal union opposes this, but Gallup polling over the years shows that Americans are fine with ending Saturday delivery. It’s estimated that delivering only parcels, not mail, on the weekends would save the USPS $1.5 billion a year.
  • Following through on mail-processing efficiencies. While the postal union and its attentive friends in Congress effectively blocked this last time around, the Postal Service’s precarious financial situation means ignoring efficiencies is no longer tenable.
  • Allowing new products. Many countries have diversified their postal services while also privatizing or partially privatizing them. USPS already handles money orders; if allowed, it could venture into other banking services, specialty insurance, printing products, and other services.
  • Splitting the USPS into separate businesses. That’s the conclusion of the Brookings Institute report. One Brookings fellow summed it up: “break USPS up into two divisions that can each pursue different goals with different levels of autonomy and flexibility. One, public institution would respond to the universal mandate to deliver mail nationwide, daily. The second institution would be privatized and work to compete with other private sector institutions to enter new markets, generate new products and services, and innovate out of the shadow of handcuffing government regulation.”

First-class mail volumes, the bread-and-butter of the USPS, have declined significantly and will continue to decline. Maintaining the status quo will only result in further failure. Congress can’t just keep ignoring the problem and expect the Postal Service’s prospects to improve.
-Rob McKenna

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Rob McKenna
Rob served two terms as Washington’s Attorney General, from 2005 to 2013. He successfully argued three cases before the U.S. Supreme Court and negotiated three of the largest consumer financial protection settlements in national history, all involving mortgage lending and servicing. He is a recognized leader in the development of consumer protections on the internet, in data protection and privacy regulation.