Floundering USPS Needs Reform, Not Expansion | Citizens Against Government Waste

Floundering USPS Needs Reform, Not Expansion

The WasteWatcher

The United States Postal Service (USPS) is a government entity and has operated as such since 1775. It has a straightforward mandate:  “To provide postal services to bind the Nation together.”  And furthermore, “It shall provide prompt, reliable, and efficient services to patrons.”  In 1970, Congress directed that USPS be run like a business, with its activities funded solely through its revenues. 

Even with that mandate, USPS’s business performance leaves much to be desired.  The agency posted a $5.5 billion loss in fiscal year (FY) 2014.  That marks its eighth straight year of multibillion-dollar losses.  Since 2007, USPS has lost a grand total of $46 billion.  In its semi-annual report to Congress in May 2015, the USPS Inspector General (IG) reported little in the way of positive fiscal news.  The IG found $1.4 billion in funds that could be “put to better use,” and $7.5 million in questionable costs in the past six months alone. 

On top of its staggering financial losses, USPS has seen more than a quarter of its total mail volume vanish between 2007 and 2013.  This can be mostly attributed to the rapid and irreversible decline in paper mail, the demise of the brick-and-mortar business model, and the rise of the digital era. 

Among USPS’s many deficiencies, lack of customer service has repeatedly topped the list.  The IG found that in “FYs 2012 and 2013, the Postal Service had an 8.9 percent increase in negative customer feedback … in FY 2013, 20 percent of customers who responded to surveys stated they had been treated ‘worse’ at Postal Service retail counters than by other retailers.”  The report says the agency risks losing an additional $288.5 million this year due to poor customer service. 

Some customers may try to avoid USPS personnel entirely by using self-service kiosks at their local post office, but even those are facing financial peril.  The report found full implementation of their pilot program has been delayed 25 months due to “complexity and functionality issues.”  An updated return on investment projection fell from a positive 41.3 percent to a negative 8.9 percent.  

Beyond its fiscal problems, USPS has become ever sloppier when it comes to public safety.  Last year, then-Attorney General Eric Holder chided the agency for the “shocking” amount of illicit drugs that pass through the mail.  In September 2014, the FBI discovered Chinese hackers infiltrated the secure USPS computer network, compromising 800,000 employees’ personal data and records.

This mess endures even as USPS retains numerous government conferred competitive advantages.  A March 2015 report by former top Commerce Department official and Clinton economic adviser Robert Shapiro revealed the inherent subsidies and monopoly benefits provided to USPS result in more than $18 billion in competitive financial advantages per year.  The report plainly states, “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.”

USPS is in desperate need of reform.  If the agency truly is to act as a business, it must do what failing businesses are routinely forced to do: rightsize its workforce and return to the basic services where it had previously operated effectively.  However, living up to its government-sponsored reputation, the opposite desire is taking hold at the agency.

USPS is having a very public flirtation with expanding its footprint to include banking and financial services.  One of the prime cheerleaders in this effort has been the Postal Service’s IG David Williams.  Even though IGs are usually tasked with keeping a watchful and skeptical eye on their agencies, Williams frequently acts as USPS’s chief advocate on matters of expansion.  In 2014, his office released a white paper claiming that USPS possesses the ability to expand into the financial services sector.  On May 22, 2015, another white paper was published by the IG urging the same course.

The case for expansion centers on the supposed need to help the “68 million underserved Americans who either do not have a bank account or rely on expensive services like payday lending and check cashing.”  However, there are nearly 100,000 bank branches and more than 400,000 ATMs compared to just 31,000 post offices in the United States today.  Add to that, national retailers provide financial services on nearly every street corner.  Furthermore, the onset of the digital age has given way to banking services on smart phones that don’t require customers to travel to a bank at all.

Other proponents of a USPS expansion, like Sen. Elizabeth Warren (D-Mass.), claim that allowing USPS to get into banking would help it “shore up its own financial footing.”  This is simply an example of warped economic logic. USPS is clearly in financial peril on numerous fronts.  The contention that it should expand, even as the agency careens toward financial catastrophe, is counterintuitive and fiscally absurd.

The economic consequences of expanding the federal footprint in banking through USPS would be similar to those of the increased federal role in home mortgages (the housing crisis of 2007) or student loans (a similar bubble poised to burst in the coming years). There should be no desire on the part of policymakers for adding further services to this government portfolio.

In a free market, success is rewarded by expansion and failure is punished by atrophy and extinction.  USPS, with its tens of billions of dollars in special benefits, is proposing to flip this model on its head.  We know the negative repercussions taxpayers would face because we’ve seen already the failure of the postal service for years and we know what happens when market forces are removed from an economic sector.  Under no circumstances should USPS be allowed to go down this hazardous road.  USPS needs a wholesale restructuring, not an ill-advised expansion.