Study: Postal Service Receives $18 Billion Per-Year in Monopoly Benefits | Citizens Against Government Waste

Study: Postal Service Receives $18 Billion Per-Year in Monopoly Benefits

The WasteWatcher

A report by former top Commerce Department official and Clinton economic adviser Robert Shapiro reveals the inherent subsidies and monopoly benefits provided to the United States Postal Service (USPS) result in more than $18 billion in financial competitive advantages per year.   No matter what anyone tells you, the USPS is, in fact, a government entity. It has operated as such since 1775. The funding structure was changed when Congress passed the Postal Reorganization Act of 1970. Not only did the Act remove the agency from cabinet level, it directed that the USPS be run like a business, and funding its activities through revenues. In the decades that followed, the USPS maintained numerous market advantages through its monopolies and subsidies:

“In the monopoly sphere, universal postal service is supported by a range of subsidies, including appropriations, exclusive access to residential and business mailboxes, borrowing subsidies, and favorable tax treatment. The relatively low-cost delivery of letters in dense areas such as large commercial and residential buildings with central mail rooms also subsidizes higher-cost mail delivery to more isolated homes and businesses. Finally, the public systems can draw on economies of scale and scope in their monopoly spheres to reduce their costs in competitive operations. For example, the USPS visits most homes and businesses on a daily basis. This core function, supported by laws barring private firms from using residential and businesses mailboxes, enables the USPS to pick-up packages from any home or business at little additional cost. This produces a “network advantage,” since a private competitor’s cost to pick up and deliver a package exceeds the USPS’s incremental cost to pick up and deliver the same package, along with its normal letter service. In Sweden, where mail and package delivery have been fully privatized, ubiquitous letter-mail service is considered ‘a competitive advantage for the incumbent operator, rather than a burden.’”

The USPS defends these subsidies as necessary due to the cost of congressional mandates:

“For example, Congress requires the USPS to maintain residential deliveries six days per-week, and the Postal Regulatory Commission (PRC) estimates that reducing deliveries to five days per-week would save the USPS more than $2.2 billion per-year. Similarly, Congress mandates discounted mail rates for religious, educational, charitable, political and other non-profit organizations, which cost the USPS more than $1.1 billion per-year. Congress also directs the USPS to provide a special mailing rate for periodicals (at a cost of $521 million per-year) and restricts USPS’s ability to close inefficient post offices (at a cost of $332 million per-year). The PRC estimates that all told, legal and regulatory requirements cost the USPS about $4.5 billion per-year. This total corresponds roughly to the USPS’s average reported deficit over the last decade ($4.2 billion per-year) and to the PRC’s estimate of the total value of the USPS’s special privileges ($4.9 billion), including its monopoly on delivering letters ($3.12 billion), exclusive access to residential and business mailboxes ($810 million), and exemption from state and local taxes and fees ($1.0 billion). As a result, USPS and representatives of its employees maintain that the agency is financially self-sufficient.”

The fatal flaw in this claim arises when one reevaluates the financial benefits more accurately. Shapiro’s study estimated that the USPS’s monopoly rights and other cozy arrangements yield the agency upwards of $18 billion in financial advantages annually, which is 3.5 times the USPS’s analysis.   While the USPS hides behind rose-colored cost-estimates to justify further inaction, this report provides the public with key conclusions to blow the lid off the postal service’s fiscal claims. The hard truth is that in 2014, the USPS lost $5.5 billion. These woes are not new. The USPS lost $51.7 billion over the last eight years and the agency has borrowed $15 billion from the U.S. Treasury, its statutory limit.   The postal service is whistling past the fiscal graveyard. It is time to get some clarity on the USPS’s finances, demand that it eschew jumping into new competitive business sectors, and right-size its operations.

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