June 20, 2010
by: Marissa Giannotta

Government WasteWatch, Spring 2010

The United States Postal Service (USPS) has been an American cultural icon since its establishment on July 26, 1775, in Philadelphia by one of the Founding Fathers, Benjamin Franklin, who served as its first Postmaster General. Times and technology have changed dramatically since then and, today, the USPS is struggling to stay afloat.

An April 2010 Government Accountability Office (GAO) report suggests that, if the USPS was a privately-owned company, it would have been out of business a long time ago, since its “business model is not viable.” According to the GAO report, the USPS has “lost nearly $12 billion” since 2007, mostly due to a steep decrease in mail volume. The USPS projects that volume will continue to decline “by about 27 billion pieces over the next decade, while revenues will stagnate.” Without major systemic reforms to its business structure, the USPS projects that losses could exceed $238 billion over the next decade.

The rise of the Internet and technological advances have undoubtedly contributed to this downward trend. The USPS warned Congress in March 2010 of its need to gain greater managerial control over its operations, such as the ability to close some facilities and cut its workforce. In May 2010 Postmaster General (PMG) John Potter warned Congress that it “won’t have enough money to make payroll,” according to The Washington Post.

The USPS is burdened by its huge workforce. According to Cato-at-Liberty.org, “compensation and benefits constitute 80 percent of USPS cost.” With a workforce of 636,000, more than 300,000 of whom are scheduled to retire between now and 2020, the USPS faces a $90 billion unfunded commitment to retiree obligations, including healthcare and pensions. The American Postal Workers Union (APWU) and the National Association of Letter Carriers (NALC), which represent more than 450,000 USPS employees, have extracted lavish contracts over the years, which have contributed to this fiscal instability. Both union contracts with the USPS include a no-layoff clause for employees who have worked with USPS for more than six years. The unions also oppose moving to a five-day mail delivery service.

PMG Potter has been lobbying Congress for the authority to restructure retiree obligations, move to a five-day delivery service, introduce more flexibility in the postal workforce, make price adjustments, and increase retail offerings. Potter, according to The Washington Post, “plans to press lawmakers and the Postal Regulatory Commission to eliminate Saturday mail deliveries and allow the mail agency to raise prices beyond the rate of inflation.” Many of these ideas have public support. According to a March 2010 Rasmussen survey, only 31 percent of Americans polled are opposed to cutting back to a five-day mail delivery schedule.

In addition to considering PMG Potter’s ideas, Congress should submit the USPS to a top-to-bottom audit to determine where else it can squeeze more waste out of the system. However, the only real reform that would save the USPS is full-scale privatization.

Germany’s Deutsche Post, which also owns DHL, has been largely privatized since 2000. Its success leads many to think the USPS should follow the same path. In addition to being a mail delivery service, Deutsche Post has morphed into a large, competitive, highly profitable logistics group. The European Union is now on its way to spinning off all of its members’ postal services into the private sector. In 2005, Japan also privatized its postal service to accommodate the evolving technological and fiscal landscape. Companies such as FedEx, UPS, and DHL are not seeing huge financial debts on their immediate horizons and, unlike the USPS, they cannot count on the taxpayers to bail them out.

Congress needs to rethink its position on the USPS. Taxpayers should not be left to foot the bill if the USPS reaches insolvency. The USPS must be permitted to recreate its business structure and work with unions on restrictive employee regulations and management bloat, as steps towards privatization.

Otherwise, it looks like there will continue to be a fiscal downpour on the “Rain or shine, snow or sleet, we deliver your mail” U.S. Postal Service.