Congressional Meddling in USPS Makes Bailout More Likely

Congress seems to have two legislative speeds: inertia in the face of an oncoming fiscal disaster, or ugly, last-minute scrambles to ram through sham legislation that often exacerbates already fraught situations.

The budget battles over the last two years are emblematic of this disturbing pattern, and it has also been displayed in regard to the United States Postal Service (USPS), which has made it clear that it must cut employees, close post offices and reduce services in order to stave off bankruptcy and forestall a massive taxpayer bailout.

Decreased demand for postal products has resulted in dwindling income; first class mail, which makes up more than half of USPS revenue, peaked in 2006, and fell 20 percent over the next four years. With more than 600,000 employees, the USPS ranks as the second-largest employer in America, trailing only Wal-Mart. On April 22, 2010, former U.S. Postmaster General (PMG) John Potter announced that the USPS would lose $238 billion over the next 10 years. The agency booked losses of $8.5 billion in fiscal year (FY) 2010 and $5.1 billion in FY 2011. The 2011 loss would have been dramatically larger if Congress had not postponed $5.5 billion in scheduled payments to prefund USPS’ retiree health benefits. An April 12, 2010 report by the Government Accountability Office (GAO) 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.”

In July, 2011, the USPS announced that it intended to close 3,700 post offices and 250 mail processing facilities across the country. In other public comments, the PMG Patrick Donahoe has hinted that the agency will seek to shutter half of its 32,000 facilities nationwide in the next six or seven years, with an eye toward modernizing the retail side of the postal operation.

In a November 21, 2011 speech before the National Press Club in Washington, D.C., PMG Donahoe told the audience that the sale of stamps only accounts for 48 percent of the transactions in a typical post office, adding “Today, there are 71,000 locations operated by retail partners that provide a variety of postal products and services, such as buying stamps or dropping-off packages, depending on the location. These retail partners are grocery stores, gas stations, pharmacies – they’re places that are convenient, they’re part of your regular shopping pattern, and they’re open longer hours. It provides a simpler and more convenient experience for customers. In the coming years we want to dramatically increase the number of retail partner locations we offer. We think there is a huge opportunity for small businesses to operate Village Post Offices or Contract Postal Units.”

He also said, “Roughly 25,000 out of our 32,000 Post Offices operate at a loss” and that thousands of post offices generate less than $20,000 in annual revenue yet cost more than $60,000 to operate, and many of these unprofitable locations are a few miles away from another post office. He bemoaned the response to even the slightest effort to close any Post Office, as well as interference in other proposals to address the USPS deficit.

This attempt to close and consolidate underperforming post offices is an exercise that the USPS has attempted in the past, with minimal success. In 2009, USPS released a similar list of nearly 700 potential closures that would have saved an estimated $1 billion annually. Congress picked that list apart, complaining that the USPS had not shared its underlying criteria when deciding on which facilities would close. By January, 2010, that list had dwindled to 162.

The USPS’s brutal fiscal realities have prompted several members of Congress, including House Oversight and Government Reform Committee Chairman Darryl Issa (R-Calif.) and Senate Federal Financial Management Subcommittee Chairman Tom Carper (D-Del.), to introduce legislation to reform the agency in 2012. However, in a reprise of congressional meddling in 2009 and 2010, 20 Democratic senators co-signed a letter to the Senate leadership on December 8, 2011 asking that the postal closures be delayed. The letter reads, in part, “While we may have very different views on how to financially improve the postal service, we all believe that democratically elected members of the Senate and the House have the responsibility to make significant changes to the postal service. Unfortunately, we are concerned that the postal service may preempt Congress on this matter by closing or consolidating nearly 3,700 mostly rural post offices, over 250 mail processing facilities, and eliminating overnight delivery for first class mail before postal reform legislation is enacted.”

USPS management has finally begun to move from a knee-jerk revenue enhancement model, which has the USPS chasing new service and product lines, trying to compete unfairly with private sector businesses, and constantly raising stamp prices (which drives mail volume down faster) toward a rational cost containment strategy aimed at right-sizing the structure of its operations. This evolution, which pits postal management against postal unions and the USPS’s bloated workforce, is nevertheless a vital step toward staving off bankruptcy and a taxpayer bailout. Congress’s interference in these overdue cost-cutting measures is self-serving, a sop to postal employee unions who are, understandably, resistant to restructuring and downsizing. Authentic private sector businesses, which do not have to answer to congressional overlords (many of whom act at the behest of the postal unions), have already had to make these kinds of painful decisions to salvage their operations.

This latest congressional action vis-a-vis the USPS is consistent with its approach to every single major fiscal and public policy issue facing the country; Congress fiddled for years while the USPS financial condition steadily declined. Most members of Congress have been loath to grapple with the complexities of postal reform and take on the postal unions. It has hidden behind quickie legislative and budget gimmicks, like the delay of the USPS’ $5.5 billion retiree healthcare payment. Now, on the eve of fiscal ruin, as USPS management is finally moving forward with reasonable reforms on its own, these 20 senators have again interfered in the management of the Postal Service’s operations. Even though members claim that they want the USPS to operate like a business, they have stood up for special interests instead of taxpayers. A costly USPS bailout has therefore become much more likely.