Fixing USPS


The U.S. Postal Service has proposed a new measure to cut costs: The “independent” but government-owned company would like to slow down the delivery of First Class mail, so that short-range letters no longer reach their destinations overnight. This is part of a plan that would save an estimated $3 billion a year.

Any plan to reduce costs and stave off a bailout is a good one, and we suspect that Netflix customers and junk-mail companies — the biggest users of USPS’s services, at least until they, too, replace the mail with the Internet — can live with a slight delay in their deliveries. While we would prefer a plan that ends USPS’s government-enforced monopoly on letter delivery and then privatizes the company, a dramatic restructuring — including the proposed changes to First Class delivery, as well as other severe cuts — could resolve USPS’s immediate crisis and give it a shot at longer-term viability.

Regarding that immediate crisis: The company, which lost $5.1 billion this fiscal year alone, has reached its $15 billion debt limit. Congress has repeatedly pushed back a $5.5 billion payment the company owes to fund retiree health benefits. If USPS defaults, taxpayers will be on the hook. The company estimates it needs to reduce its annual operating costs by $20 billion by 2015 to return to profitability.

These problems will only grow worse, because the decline in mail volume precipitated by the rise of e-mail has yet to end. Between 2006 and 2010, volume dropped 20 percent. The Boston Consulting Group predicts an additional drop of 15 percent by 2015, with First Class mail in particular falling 35 percent. Whatever USPS does, it cannot assume that revenues will stabilize, much less rise, in the next five years.

Some USPS apologists have pointed out that, unlike other federal agencies, USPS is mandated to prefund its retirement benefits. It’s true that the requirement, which Congress imposed in 2006, is burdensome (without it, USPS wouldn’t have started losing money until recently) and aggressive (it requires the struggling company to make large annual payments for ten years). However, it is also prescient: USPS is almost certain to see its revenues continue to decline in the coming decades, and if it doesn’t work ahead to keep the promises it makes to its workers, it will default, and taxpayers will be left paying the bill. Congress should not see removing this requirement as an option.

Our preferred solution is to get the government out of the mail business. Congress should end the monopoly and sell USPS to the highest bidder. In the age of almost universal Internet access, there is no reason for the government to run a mail company. The USPS services that customers are willing to pay for will continue, and the rest will fall by the wayside. If possible, privatization should also give the new owner a chance to fight the company’s unions, which have negotiated unusually high salaries and benefits, on a level playing field — first in union elections, and then, if workers vote to keep their representation, at the bargaining table.

That is not particularly realistic on a political level; even Republicans in Congress do not support such a plan. A second-best option, as the Heritage Foundation’s James Gattuso has noted, is to give USPS the flexibility to make dramatic cuts. Perhaps most important will be the closing of thousands of Post Offices — as Postmaster Pat Donahoe recently explained in congressional testimony, “roughly 25,000 out of our 32,000 Post Offices operate at a loss,” and “thousands of Post Offices . . . bring in less than $20,000 in revenue in a year, but cost more than $60,000 to operate. Many of these are within just a few miles of another Post Office.” With fewer Post Offices, of course, USPS will be able to make do with fewer employees. Eliminating Saturday delivery should also be on the table, and Congress should take a serious look at overriding some aspects of the company’s union contracts, especially the absurd “no layoff” clauses.

The House’s Issa-Ross Postal Reform Act is a worthy bill that takes up some of these reforms: It rules out the possibility of a bailout, allows USPS to kill Saturday delivery, establishes a task force to recommend Post Office closings, and forces the unions to make significant concessions (including the end of “no layoff”). The Senate’s bill, amusingly titled the “21st Century Postal Service Act of 2011,” also contains many needed reforms, though it goes easier on the unions, relaxes the pension-prefunding requirement, refunds some of the money USPS has contributed to the federal retirement program, and makes the elimination of Saturday delivery a last resort.

As there is no time to waste, the two houses should work to create a bill they both can pass, and of course House Republicans should push hard for concessions from the Democratic Senate. The law needs to allow USPS to downsize its operations in proportion to the decline in mail volume. If we’re to be stuck with a government-owned mail company, at the very least it should not be run at the expense of taxpayers.

Editor’s note: This article has been amended since its original posting.


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