The United States Postal Service (USPS): where to begin? A national treasure founded by the legendary Benjamin Franklin. A lifeline which literally delivered life-changing news: college acceptance (or denial), love letters between spouses separated by work or travel, family updates and sweetheart encouragements from home to distant soldiers. Calls to mind dedicated civil servants, deterred by “neither snow nor rain nor heat nor gloom of night.” A path to the middle class and the American dream for millions of employees, many veterans, all over the country.
And dead on its feet. A veritable “dead (post)man walking.” Or in the dry language of the nonpartisan Government Accountability Office (GAO), “unsustainable.”
The sad truth is the USPS as it is today can not long survive. Some seek to kill it and privatize its work. Others want to solve the problem by simply giving it more money. I favor neither. But before we jump to solutions, let’s understand the problem.
Everybody “knows” the Postal Service, but what do you really know about it? It has 600,000 employees (100,000 veterans) and 600,000 retirees and is an independent agency of the executive branch. As a civilian, it looks like a government outfit; as a federal retiree, I can say it looks that way to me, too. But it is very different. It receives no annual federal funding (some say “no tax dollars” but that is a mistake). Both Congress and the Executive Branch influence its day-to-day operations in numerous ways (just try to close a post office building and see how). Its employees have the same job security and nonpartisan rules (Hatch Act) as other federal employees, and get the same generous retirement and health benefits. They run a retail network larger than McDonalds/Starbucks/WalMart combined, own and operate over 200,000 vehicles and deliver almost half of the world’s mail (more on this curious fact later).
USPS was helped by its status as a government monopoly, but technology has proven to be a grave danger. Once upon a time, it was the only reliable way to get something from here to there. Over time, the mandate to provide daily delivery to every home and business in America changed from blessing to curse. New, more nimble rivals (UPS, FedEx, DHL) could run the numbers and start winning the more lucrative routes, and leave the less desirable ones to the Post Office. And then along came e-mail, e-commerce, e-business.
The USPS has run a deficit every year since 2007. Wait, if USPS does not receive annual federal appropriations, but they run short of money, who pays the bill? They can’t borrow from a bank, nor do they have investors like a private business. Sometimes they use funds they should set aside to fund pensions. Also, the Federal government gives USPS a line of credit to spend on things like new infrastructure or life-cycle replacement of vehicles/computers. And USPS has been dipping into it to do all that, and to cover operating expenses. Well, someone has to pay the postman, too. And you do.
But wait, some say, isn’t the cause of the annual USPS operating deficit the fact that the government makes it ‘prepay 75 years of retiree benefits in advance, a rule no other government agency of private business has to comply with (sic)‘? What this Tweet refers to is the 2006 Postal Accountability and Enhancement Act, passed without objection by both Houses of Congress and signed by President Bush (43). Prior to this law, USPS made its own rules on how it pre-funded pensions, and set aside no funding for retiree health benefits. Private companies can always cut benefits or simply go bankrupt and default on pension and health benefits. The federal government recognized if the Post Office ever failed, someone would have to keep paying its retirees’ pensions and health plans, and that would be (again): you.
This was not unusual, since the federal government was likewise concerned about generous federal pensions and health benefits and started trying to raise contributions and reduce benefits at the same time. But now the USPS suddenly had to account for its large funding shortfall; they tried for three years, then decided to stop paying the pre-funding requirement for health benefits. So since 2010, they have defaulted on this obligation every year, and since they paid no money, it can not have affected their annual deficits. The USPS unfunded liabilities are now double their annual revenues. If they were a business, they would be defunct.
The real reason for the USPS deficit is one you already know: who mails a letter anymore? The USPS infrastructure was built for a time when they were the main way to get goods and info to the last mile (your mailbox). That is no longer the case. USPS total mail volumes started declining in 2007 (due to competition, technology, and the Great Recession) and haven’t stopped, generating losses every year. Marketing (aka junk) mail has grown to one-half of Post Office deliveries, even though its cheap rates mean it generates only one-quarter of revenues. Yes, the USPS delivers half of the world’s mail because it delivers the tons (literal) of trash you (like I once did) throw directly into the trashcan next to your mailbox.
The Post Office tries to reduce operating expenses, but as I pointed out earlier, there are both political and labor (union) issues with doing so. USPS has improved productivity almost every year, but improving a failing business model will not succeed. Somewhere the world’s best buggy whip maker can explain why that is so.
However, unsustainable is not the same thing as hopeless. If the USPS keeps operating as is, or simply relies on an infusion of federal dollars (or a relaxation of its unfunded liabilities, which must eventually be paid), it will ultimately fail. What needs to be done? I do have ideas about this.
End six days a week delivery. Who needs daily mail delivery? Only one percent of Social Security recipients get checks by mail, and that’s once a month. Even those vulnerable, at-home seniors don’t get drugs delivered every day. Splitting delivery into three-days-a-week zones (Mon/Wed/Fri, Tue/Thu/Sat) would halve the delivery burden.
Return to postal boxes where appropriate. Way back when, USPS only delivered mail to local post offices in cities, then people walked to the post office to get mail when they wanted it. Add in mandatory electronic notification (they already have this as an option) when you have mail (and what it is).
Consolidate postal offices. Like military bases, start a commision which decides what stays and what goes. Sometimes it is more cost effective to keep a remote site, sometimes not. Let a nonpartisan, business-oriented commission make the call. Perhaps the USPS could generate one-time revenue by the sales of some choice locations.
Encourage retirement. USPS does this occasionally, and it’s time again. Offering early retirement and retirement bonuses can help. In the end, a retiree costs less than an employee, and if you reduce service, you need fewer employees.
Double the price of junk mail. By the rules of price elasticity, this might decrease the volume by half, which would be a good thing. If the volume reduction is less, it would actually increase net revenue!
Publish data on package delivery costs. Post Office public data cites how much package volume they deliver and the revenue, but not the associated costs. It’s true they are often the lowest cost option for packages, but if they are losing money on every package, well then, the punchline to the old joke is “they’ll make up for it in volume.”
Invest pension/health funds in other instruments. Currently these USPS funds can only invest in ultra-safe Treasury funds. Like the Federal Thrift Savings Program (TSP), let USPS invest in other safe, but far more lucrative funds.
All of the above are in the category of putting out the fire, pumping out the water, and keeping the USPS afloat. But the most important issue is: What is the purpose of the United States Postal Service? If it’s to deliver what those younger than forty sneeringly call “snail-mail” to everybody’s home, it will go away. They don’t write letters, they expect Amazon or WalMart to deliver packages, they do all their business and meet all important deadlines online.
I wish I knew what the answer to this is, but I don’t. Japan’s Post Office is a monster in banking and insurance, and was once the world’s largest financial institution. Germany’s BundesPost was heavy into telecommunications before it divested into separate organizations. Perhaps there is a business model for lots of small locations and vehicles and delivery personnel that will work in today’s environment (and the future). I hope for the Post Office’s sake (and all their employees and retirees) they figure it out.
This is excellent. I did not know how the USPS operated. I think most of us do not.
Pat, you forgot to mention how the question is complicated by the U.S. Constitution, laws, and regulations. Article I, Section 8, of the Constitution says Congress shall have the power “to establish Post Offices and post Roads.” So Congress has explicit and, undoubtedly, implicit roles. The Postal Service’s Universal Service Obligation (USO) captures the applicable laws and regulations. The USO arose in response to the need for a nationwide, affordable, reliable channel of communication that binds the nation together. The USO includes requirements to provide mail services to everyone, regardless of where they live, and delivery of mail 6 days a week. These tasks can be expensive. I wonder if an act of Congress is required to change the USO?
Good points, Mike. I only alluded to the USO as a mandate. The Constitutional language is quite vague, and Congress/President could jointly interpret it almost any way they like. The USO itself is a series of rules and interpretations, rather than a single law or ruling. The challenge is that the US mail does not (any longer) “bind the nation together.” I haven’t used it for years, except when forced to by those who insist upon it, but that is their choice, not law. 96% of Americans now own a cell phone, with the text and email that conveys. The public has spoken, and voted with their wallets: they might be willing to pay for a reduced, legacy USPS operation if it refuses to or can’t change, but it won’t last long in any case.