In 2016, the U.S. Postal Service lost $5.6 billion on services that have been mostly obsolete for years. They had a pretty good year in 2018, relatively speaking, when they only lost $3.9 billion.
The post office losing money every year has been the case for the last 12 consecutive years, but finding a solution is apparently something that can still wait. This was the outcome of a House Oversight and Reform hearing in April, where members of Congress pressed the Postmaster General Megan Brennan for a reform plan. She insisted it was in final review and would be submitted to the committee in 60 days.
Spoiler: still no plan.
The volume of First Class and other mail has been in decline for a very long time and it has put the long-standing postal business model in jeopardy.
While no public reform plan has been released, now that we’re well into July, it appears that the USPS is sharing details of a potential reform plan with union leaders and some in the media instead of presenting a completed plan to lawmakers or the public. Many are concerned that some of the leaked details show the USPS wants to pursue a combination of cutting worker benefits and pensions while shifting unfunded liabilities over to the Medicare program.
On the one side, this might just be typical Washington fiduciary sleight of hand, but on the other side, this plan could fall like a house of cards.
First, the Medicare program is on pretty shaky ground to begin with, and would be jeopardized by such a de facto bailout wherein the USPS becomes absolved of their commitments. Second, postal leaders approved the existing benefits payments plan favorably when it was created, and maybe should be held to their commitments. As USPS CFO Glen Walker said in 2007, “This is a farsighted and responsible action … and augurs well for our long-term financial stability upon successful completion of the payments.”
Lots of CFOs made big promises about long-term financial stability in 2007. Should yet another one get off the hook?
The post office’s unfunded liabilities and poor business practices can’t be fixed with bandages. It isn’t a solution (on its own) for USPS to just do a few things. USPS has demonstrated a very bad, very long track record of achieving the savings that is promises — again the 12 consecutive years. To move ahead on substantive reforms — to run government like a business, as the recently departed Ross Perot would say — the U.S. Treasury provided a sustainable path forward to keep our couriers on the swift completion of their appointed rounds.
One suggestion was to price competitive products to maximize revenues, with those funds then going to fund capital expenditures and long-term liabilities. Not exactly the most breath-taking suggestion ever, but one that apparently needed to be made. The USPS recently made the largest price hike ever for stamps, and the market has borne the cost. USPS should look to do this for other competitive products.
Another suggestion was to develop a new cost allocation model to establish price transparency and distribute costs. The post office’s competitive products only need to help cover 8.8 percent of its overall institutional costs, but shipping and packages account for an ever-escalating share of total delivery mass. A more equitable model would ensure that each service handles its fair share of total costs. Transparency would also be good, and long overdue, to better understand the comingled mail and package business units.
Treasury also pointedly suggested that the post office take advantage of its “mailbox monopoly” to deliver packages small enough to fit in the average box. As package delivery companies continue to expand offerings, USPS could franchise access to mailboxes, expanding revenue without having to provide any additional services.
The post office also simply needs to exit the business for any mail products that are not deemed an essential service and do not cover their direct costs. Other popular ideas for cost savings include ending Saturday mail delivery, cutting hours at post offices, and continuing to grow the cadre of non-career employees.
There are a lot of solutions, from Treasury and others, to right-size the post office for the 21st Century. But half-measures aren’t going to do it, and the USPS has stalled long enough. The time for reform is long overdue. When it comes to fixing USPS, America needs to go postal.
Jared Whitley is a long-time politico who has worked in the U.S. Congress, White House, and defense industry. He is an award-winning writer, having won best blogger in the state from the Utah Society of Professional Journalists (2018) and best columnist from Best of the West (2016). He earned his MBA from Hult International Business School in Dubai. To read more of his reports — Click Here Now.