United States Postal Service Fails Despite Advantages

The United States Postal Service (USPS) is one of the largest employers in the United States, with 625,113 employees.  But the agency’s financial results are not quite as impressive.  The USPS lost $5.1 billion in 2015 and the cost of labor has increased while the size of the workforce has shrunk.  Nonetheless, the USPS Office of the Inspector General (IG), which is required to uncover and expose waste and abuse, declared in an April 16, 2016 report that the USPS is “doing better financially than sometimes reported in the media.” 

The IG, along with Postmaster General Megan Brennan, has blamed the financial woes of USPS on the payments required every year to its Retiree Health Benefits Fund (RHBF), varying between $5.4 billion and $5.8 billion.  But no payments have been made to the fund since 2011.  While USPS’ leadership is quick to point out supposed obstacles, they do not tout the agency’s exclusive advantages.

A March 2015 report by Sonecon CEO Robert Shapiro, an economist in the Clinton Administration, found that USPS has an $18 billion advantage over similar private sector companies.  This multibillion-dollar subsidy to the floundering agency comes from exemptions from local and state taxes, a special agreement with the Treasury on corporate taxes, a monopoly on mailboxes, special low-interest rates on a $15 billion line of credit from the Treasury, and exclusive control of first-class mail delivery. 

The most valuable aspect of USPS’ financial advantages is its monopoly on mailboxes; no one else is permitted to put mail into residential or business mailboxes.  The Postal Regulatory Commission, the USPS’ overseer, estimated that, in fiscal year (FY) 2013, this exclusive access was worth $810 million.  Shapiro’s more comprehensive analysis of private sector requirements to deliver mail determined that the monopoly saved USPS $14.9 billion in FY 2013.  For example, private companies must deliver directly to a door and build an alternative infrastructure for mail pick-up and drop-off.  Even though private companies bear the brunt of this disadvantage, their businesses continue to be profitable and competitive. 

The Postal Service is exempt from paying any local and state taxes (including real estate taxes on its offices), road tolls, vehicle registration, and parking tickets.  USPS also has a special agreement regarding its corporate income tax; the tax is remitted from their net income and held in the “Postal Service Fund” within the Treasury to help USPS cover further expenses.  The $15 billion line of credit, which has already been maxed out, has been provided at substantially lower interest rates than commercial rates available to private companies.

Despite this support from the government, the agency has had a total net loss of $51.4 billion since 2007, averaging $6.4 billion annually. 

Another reason for USPS’s woes is that generous collective bargaining agreements have raised wages and benefits every year since 2004.  A November 2014 GAO report found that even though the workforce decreased from FY 2004 to FY 2013, the cost of labor had remained the same due to collective bargaining agreements.  USPS pays its employees an average of $18,700 more in wages and benefits than comparable private sector employees.  The Shapiro report found that if USPS pay was similar to the private sector, the agency would have only spent $34.85 billion in FY 2015 and saved $11.15 billion in wages. 

These significant wage incentives” have yielded extremely poor results:  The productivity of USPS employees lumbered along at 0.7 percent annually from 1987 to 2012, while private sector companies’ productivity grew at 2.5 percent each year in the same time frame.  According to the Shapiro report, if USPS had productivity gains similar to those in the private sector, it could have produced the same amount of work but with 35.8 percent fewer hours, which would have saved $20.5 billion in FY 2014. 

Competition fosters investment to improve a business’s efficiency and productivity.  But instead of improving labor productivity or rectifying other deficiencies, USPS has expressed an interest in breaking into the banking industry, grocery delivery, and other businesses that divert from its mission statement.  Adding more duties to an already unproductive labor force that has no training in any of these endeavors would only add to the agency’s financial problems rather than help to solve them.

Even though USPS has been shielded from competition through exemptions and exclusivity, bloated collective bargaining agreements and stagnant productivity have made it increasingly inefficient.  USPS doesn’t need more money or further exemptions to improve; it needs a new model that achieve its mission of “binding the nation” together, which must include learning how to make a profit.