Freedom Line Blog

Earlier this month, the United States Postal Service (USPS) released its latest financial report for the first quarter of the 2018 fiscal year, and its latest loss amounted to $540 million.  Considering the USPS’s pronounced downward fiscal trends over many years, this issue maintains paramount importance in the effort to reform government and restore fiscal sustainability.

By way of background, the USPS continues to operate under the 2006 Postal Accountability and Enhancement Act (PAEA).  Since that time and despite the PAEA’s mandates, however, the Postal Service’s leadership has not emphasized fiscal accountability by any measure whatsoever.  Since the start of 2007, losses accumulated by the USPS now amount to $65.6 billion.

With such immense losses detailed by the USPS, it’s indefensible that federal regulators and lawmakers haven’t meaningfully demanded that it control its costs.  Without any clear direction to reign its spending, the Postal Service’s expenses from all operations have grown precipitously from $66.3 billion in total costs in 2014 to $70.5 billion spent in 2017.

Fortunately, the arrival of the Trump Administration last year prompted a campaign of close review and positive restructuring of many facets of the federal government.  In that continuing effort, the USPS, with such severe fiscal problems, offers an ideal entity to address in 2018.

Indeed, during the holiday season President Trump touched on one key postal management issue that deserves particular focus this year – the USPS’s arrangement to undercharge Amazon for completing a large segment of its deliveries.  While the Amazon deal certainly translates to higher package volumes, USPS has a responsibility to the taxpaying public to ensure that it’s making enough to cover its rising costs.

As the costs of providing traditional letter mail service remain relatively flat, the USPS’s rising outlays have been driven through the pursuit of a variety of experimental products areas.  That includes attempts to enter specialized markets like weekend package deliveries, same-day deliveries, and also handling groceries.   Therefore, returning the USPS to a stable fiscal state depends heavily on simplifying what the organization is doing and maintaining an emphasis on core competencies.  Additionally, lawmakers and regulators can only help make these determinations if the USPS is forthright about the financial health of each individual line of service.

Accordingly, CFIF urges for a sensible approach where leaders in Congress and the Administration call for much greater transparency from the USPS.  The agency’s past attempts to grow its footprint and duplicate services already available to consumers has not been a recipe for success.  Identifying where the USPS remains profitable and where it loses money must ultimately become a more simple and straightforward process, and the time for reform is now.

Fox News is reporting a major announcement by the Post Master General today that the United States Postal Service (USPS) plans to discontinue Saturday letter delivery.  The agency would continue to deliver packages six days a week.  (Per federal law, USPS does not operate on Sundays.)

The decision to reduce letter carrying to five days a week is one of the cost reduction approaches advocated by congressional postal reformers such as Rep. Darrell Issa (R-CA) and Senator Tom Coburn (R-OK).  With USPS posting a near $16 billion operating loss last year, the move, at a cost-savings of $2 billion, is one of the changes that could help the agency stay alive.

Unfortunately for those who like letter service, legacy costs like high levels of workers’ compensation use and generous pension guarantees are coming up against the switch by consumers to email and other electronic messaging services.

When looking at the numbers, today’s USPS announcement makes sense.  According to the report, the agency’s percentage of letter deliveries has fallen since 2010 while package delivery rose 14 percent.  Reformers typically want government agencies to act more like businesses to reduce the cost to taxpayers while maintaining an acceptable level of service.  Unless Congress gives USPS more flexibility or some money (currently USPS receives no appropriations), a leaner Post Office, with fewer services, seems like the most likely way forward.

Talk to most people who write about politics for a living long enough and you’ll find that there are certain topics that aggravate them far out of proportion to their ultimate significance. Some issues just get up your nose, even if they’ll never command a news cycle.

For me, one of those issues is the U.S. Postal Service. I’m one of those irritating, libertarian-leaning types that can’t resist the contrarian instinct to object when someone says that the federal government shouldn’t do anything beyond “Protecting our shores, defending the borders, and delivering the mail.” (For the record, I’m fine with the first two).

Perhaps it started when I read about the federal government’s epic battle with the anarcho-libertarian activist Lysander Spooner in the 19th century, when he tried to upend their postal monopoly. But regardless, I’ve felt vindicated in recent years as the the lack of the USPS’s financial sustainability has come to light.

Thus, you can only imagine the joy I felt when Matthew Yglesias, Slate’s liberal economics writer, recently declared himself in favor of privatizing the Postal Service. This was music to my ears:

The model is pretty simple, albeit a little old-fashioned as a way of providing public services. Rather than having taxpayers directly finance mail delivery, Congress has chartered a freestanding entity, the USPS, charged with the legal obligation to provide low-cost daily mail service six days a week to all Americans at a flat rate—regardless of whether it’s cost-effective to do so. In exchange, that entity has a monopoly on ordinary mail delivery. The idea is that the lucrative monopoly over delivery to metropolitan areas will generate enough revenue to cover money-losing rural services without the need for direct taxpayer subsidies. The problem is that the monopoly isn’t nearly as lucrative as it used to be—and barring some wild technological shift, it’s going to keep getting less and less lucrative.

That means that administrative fixes related to Saturday delivery or various schemes to more aggressively lay off workers or cut their pay will only kick the can down the road. Sooner or later the basic model will need a more thorough rethink.

Quite right. But here’s where he stumbles:

But absent open-ended taxpayer subsidies, postal workers are going to suffer. A monopoly on daily mail delivery is an intrinsically much less valuable thing to have in 2012 than it was in 1992, and nothing can change that. A humane approach to privatization would note that the USPS currently owns a lot of valuable assets—not only a good brand, but a massive portfolio of real estate—and that the federal government has no real need for the one-time infusion of cash that would come from selling it. That means the privatized company could be turned over to its workforce as an employee-owned firm. Workers could have a say in how to manage the transition and the ability to benefit as owners from more efficient business even as they lost as workers from the same dynamic.

Those first two sentences are indisputably accurate. The rest of it? Barmy. Outright barmy.

The federal government has “no need” for a “one-time infusion of cash”? The federal government is one slight downturn away from rooting through the cushions of congressional office furniture to pick up spare change! And the preferred method of privatizing the postal service is to turn it into a workers’ collective? That’ll definitely staunch the bleeding from excess union influence.

Want a better model? The answer — and it’s always a bad sign when you have to say this — is to follow Europe’s lead and embrace full-tilt privatization.

Kudos to Slate and Mr. Yglesias for at least leaning in the right direction. But the defect with this analysis — as with the Postal Service itself — is that the time for half-measures is well behind us.

In case you missed the news, the United States Postal Service — still clinging to the hope that e-mail thing is a fad — released yet another series of dismal financial numbers today. From the Hill:

The U.S. Postal Service announced Thursday that it lost $3.3 billion in the first three months of the fiscal year as the agency continues to hemorrhage money.

The majority of the losses, some $3.1 billion, occurred because the USPS had to pre-fund its retirement plan.

… The USPS might run up against its debt ceiling this fall, forcing action on the bills.

… [Congressman Darrell] Issa noted that USPS has said that even if it no longer needs to pre-fund its employee benefits, it will still reach its debt limit in the fall.

Keep in mind that the USPS lost $8.5 billion in 2010 and an estimated $9 billion last year. Rather than continuing the regular embarrassment of having the postal service show up on Capitol Hill rattling its tin cup, it’s time to embrace serious reform — in the form of privatization. As the Cato Institute’s Chris Edwards has written:

Reforms in other countries show that there is no good reason for the current mail monopoly. Since 1998, New Zealand’s postal market has been open to private competition, with the result that postage rates have fallen and labor productivity at New Zealand Post has risen. Germany’s Deutsche Post was partly privatized in 2000, and the company has improved productivity and expanded into new businesses. Postal services have also been privatized or opened to competition in Belgium, Britain, Denmark, Finland, the Netherlands, and Sweden. Japan is moving ahead with postal service privatization, and the European Union is planning to open postal services to competition in all its 27 member nations.

Enough fiddling at the margins. America is a first-rate nation. We need not be delivering the mail with an efficiency traditionally reserved for the third world.

Hat tip to Rep. Darrell Issa (R-CA) and his staff at the House Committee on Government Oversight for sharing this “Myth v. Fact” explanation via email of the USPS’s alleged overpayment into the federal retirement system.

Myth: The Postal Service has overpaid by $50-$75 billion into the Civil Service Retirement System and Congress owes this money back.

Fact: There is no Postal Service overpayment.

The United States Postal Service was created in 1971 from the old Post Office Department in order to provide better mail delivery and let it act more like a business. In 1974, the Postal Service agreed to a formula to share the retiree costs of individuals who worked for both the Post Office Department and the Postal Service, calling it “proper, as a matter of principle.” Now, with revenues declining, the Postal Service argues that that formula is unfair. The Postal Service argues that if a formula it considers to be fair had been used instead, then it would be owed $50-$75 billion by the US Treasury.  This is an attempt to rewrite history. The original formula was instituted as part of a broader set of decisions concerning the creation of USPS.  For instance, those decisions included not charging any fee to USPS in return for the postal monopoly it was granted.  Another reason why it makes little sense to speak of an overpayment due to USPS is that the Postal Service had a clear requirement from 1971 until 2006 to raise postage rates to cover all costs, including its cost of retirement funding.  If a different formula had been used all these years that had resulted in lower annual payments by USPS for its federal employee retirement costs, those savings would have been used to lower the cost of postage rates.

Issa’s postal reform bill is up for consideration in a congressional subcommittee today.  You can get more information on his version of postal reform at this website.