Congress and USPS: Rearranging the Deck Chairs
One does not need to be an accountant to recognize that the United States Postal Service (USPS), which lost $8.5 billion in fiscal year (FY) 2010, $5.1 billion in FY 2011, and is on pace to lose another $11 billion in FY 2012, is in dire straits. Only a politician, however, would insist on delaying the Postal Service’s attempts to put a tourniquet on its red ink-hemorrhaging business model.
Enter Sens. Tom Carper (D-Del.), Joe Lieberman (I-Conn.), Susan Collins (R-Maine), and Scott Brown (R-Mass.), whose 21st Century Postal Service Act (S. 1789), would scale back the number of possible processing facility closures from 252 to 125, add several complex requirements to the already tortured process for post office closings, and require USPS to wait two years before stopping Saturday mail delivery. The bill would also postpone USPS’s bankruptcy with an $11 billion cash infusion drawn from “overpayments” made in previous years to a retirement fund.
S. 1789, which passed in the Senate by a vote of 62-37, reached the Senate floor six days after the Government Accountability Office (GAO) published its April 12, 2012 report on the state of USPS. The implications of GAO’s findings make S. 1789’s sponsors appear to be making recommendations for a different agency altogether, possibly while governing from another dimension. Typically diplomatic in tone (for example, in the wake of the $535 million Solyndra debacle, GAO suggested that the Department of Energy “could improve its collection of information from applications”), GAO pulled no punches, titling its report, “Mail Processing Network Exceeds What Is Needed for Declining Mail Volume,” and proclaiming that USPS “cannot continue providing services at current levels without dramatic changes in its cost structure.”
That GAO report is merely the latest in a long line of bad news for the Postal Service. An April 2010 GAO report stated that the USPS business model “is not viable due to USPS’s inability to reduce costs sufficiently in response to continuing mail volume and revenue declines.” On April 22, 2010, former Postmaster General (PMG) John Potter announced that the USPS will lose $238 billion over the next 10 years. EvenS. 1789 co-sponsor Sen. Susan Collins (R-Maine) acknowledged in the April 18, 2012 Portland Daily Sun that the Postal Service “is in danger of dying.”
In a November 21, 2011 speech before the National Press Club, PMG Patrick Donahoe pointed out that “roughly 25,000 out of our 32,000 Post Offices operate at a loss.” He added that thousands of post offices have less than $20,000 in annual revenue yet cost more than $60,000 to operate, and that many of those unprofitable locations are just a few miles away from another post office. When S. 1789 was approved, Donahoe called the Senate’s efforts to keep unneeded facilities open “totally inappropriate in these economic times,” and concluded that “there is simply not enough mail in our system today.”
Despite these warnings, the 21st Century Postal Service Act focuses almost exclusively on preventing USPS from doing what it must: downsize. Sen. Carper’s website explains that the bill will guarantee that, “in the rare case when a Post Office is closed, the impacted community can appeal the decision to the Postal Regulatory Commission,” while preventing USPS from switching to five-day-a-week delivery for the next two years will ensure “that [USPS] has developed remedies for customers who may be disproportionately affected by changing service and exhausted other means for reducing costs and increasing revenue.” Translation into English: don’t worry about losing money, Congress will be here to bail out the Postal Service.
On top of the bailout, the New York Times reported on April 20, 2012, that S. 1789 would “let [USPS] enter into several new lines of business, like shipping beer and wine,” while creating “a chief innovation officer to identify new lines of electronic business.” Even if these plans are put aggressively into practice, USPS cannot possibly bring in enough money to address its massive revenue shortfall. A 2010 study by Accenture, a consulting firm, found that diversification at the Postal Service would require the equivalent of creating 13 Fortune 500 companies and revenue more than double that of FedEx and UPS combined. Put another way, you can’t get there from here.
Conversely, House Oversight and Government Reform Committee Chairman Darrell Issa (R-Calif.) and Senator John McCain (R-Ariz.) have drafted legislation that would only allow the Postal Service to receive the cash infusion proposed in S. 1789 subject to significant reductions in expenses. Those cuts, which would total $10.7 billion per year after full implementation of the bill, would come in the form of a switch to five-day delivery, consolidation of existing post offices, and processing facility closures, among other recommendations. Unlike its counterpart that passed in the Senate, Chairman Issa and Sen. McCain’s bill begins with the recognition that the Postal Service must get smaller, not larger.
Congress’s staunch opposition to real reform at USPS makes a large, taxpayer-funded bailout of USPS more likely by the month, which will be awkward for an agency that has long boasted of operating at no cost to taxpayers. That defense will be even harder to justify when private businesses find themselves undercut by a government agency that hasn’t had a profitable fiscal year since the George W. Bush administration. To salvage its reputation and its mandate, the only direction USPS should be moving is toward a slimmer, consolidated version of itself, one that has been right-sized to reflect diminished modern demand. The sooner Congress leaves the Twilight Zone and comes to grips with that reality, the better.
– Luke Gelber
