USPS Wants To Branch Out

The holiday season is upon us; the time of year when the mailbox tends to begin filling up with gift catalogs and greeting cards from friends and family.  This is also the time of year when the United States Postal Service (USPS) has traditionally seen a spike in mail traffic, as its fiscal health is often pegged to the level of first-class mail traffic that occurs over the holiday season.  Those circumstances are dire regardless of how much mail is sent through the end of the year, and the cure sought by postal officials is worse than the disease.

The USPS, with its 712,000 employees, has been experiencing steady drops in mail volume, and revenue, over the last several years, well before the current economic crisis ensued.  On November 16, 2009, USPS officials announced that the postal service would post a net loss of $3.8 billion for fiscal year (FY) 2009, its third consecutive year of net losses.  The USPS lost $2.8 billion in FY 2008 and $5 billion in FY 2007. 

The Postal Service incurred the $3.8 billion loss despite trimming 42,000 jobs over the past few years, cutting other costs and delaying a $4 billion retiree healthcare payment it was scheduled to make.  A November 5, 2009 GAO report stated that “USPS debt increased at the end of fiscal year 2009 by the annual statutory limit of $3 billion, bringing outstanding debt to $10.2 billion. At this rate, USPS will reach its total $15 billion statutory debt limit in fiscal year 2011.”

USPS officials are seeking to staunch the fiscal bleeding in a number of ways.  They are petitioning Congress for permission to suspend Saturday deliveries, which would reportedly yield $3.5 billion in annual savings, and want to reduce the service’s annual $5.5 billion obligation to pre-fund its retiree healthcare benefits through 2016.  Postmaster General John Potter calls the pre-funding obligations “impossible demands.”  However, the accounting quick-fix will only be a short-term band-aid on the gaping, long-term $50 billion liability for health benefits for future retirees.  In July, 2009 the GAO added the financial condition of the USPS to its High-Risk List of federal areas in need of transformation. 

Postal officials have returned to a cost-cutting measure that has been a perennial issue, and highly-politicized hot potato; the closure of underutilized post offices.  The USPS operates almost 37,000 facilities nationwide and has wanted to close its surplus facilities for years.  As always, however, Congress has stymied those solid business instincts.  Politics is dominating the effort this time around as well; a November 20, 2009 article posted on The Federal Times website reports that “just 241 facilities remain on the U.S. Postal Service’s updated list of possible post office closures, down from more than 3,300 when the review process started last summer.”

Postmaster General Potter has always been fond of pointing out that the USPS operates more “retail” outlets than McDonalds, Starbucks, and Wal-Mart combined.  With that in mind, postal officials have been trying to cobble together a salvation strategy that creatively leverages that “bricks and mortar” infrastructure by giving postal customers the opportunity to conduct other government businesses at existing post offices, a convenience-store approach to government services.  In order to do that, the USPS would need Congress to make statutory changes giving them the necessary authority to conduct business and collaborate with other government entities. 

Unfortunately, postal officials also have their sights set on venturing outside of their core mission of providing postal products or even access to multiple government services in one location.  They have signaled their intention to seek statutory flexibility to get into financial services, insurance, real estate management, cell phones and other private sector businesses.  The USPS recently initiated a one-year experiment selling Hallmark greeting cards in 1,500 of its branches and hopes to expand that service to all 34,000 outlets. 

A November 15, 2009 report posted on The Federal Times website stated that “Union leaders also want the Postal Service to consider expanded delivery offerings, such as a program to deliver prescription drugs to senior citizens.  ‘We need to utilize the last mile of our network.  There are so many things we can do,’ said Fred Rolando, the president of the National Association of Letter Carriers, in a recent interview.  ‘The other delivery companies don’t have our delivery network.’”  When asked recently what product or service he would choose to have the USPS offer if given the opportunity, Postmaster General Potter answered “I’d be a bank.”

This is not the first time that the USPS has attempted to go outside its core mission of delivering mail, looking for revenue.  The GAO, among others, has issued strong warnings against this kind of postal adventurism.  Contrary to the picture often painted by USPS officials, who complain tirelessly about the unfair advantages their “competitors” enjoy, the USPS is a government monopoly with many valuable protections and advantages, like regulatory and tax exemptions. 

Beyond that, the USPS has an abysmal track record when it comes to competitive products.  According to the GAO, USPS lost almost $85 million in 1995, 1996, and 1997 on 19 new products, including electronic commerce services and electronic money transfers, among others.  In 2001, GAO once again reported that “none of USPS’s electronic commerce initiatives were profitable and that USPS’s management of these initiatives – such as an electronic bill payment service that was eventually discontinued – was fragmented, with inconsistent implementation and incomplete financial information…We testified during the debate on postal reform on some longstanding questions about whether USPS should enter into non-postal initiatives and the appropriate role of a federal entity competing with private firms, particularly since USPS has a statutory monopoly on letter mail and other disparities in legal status vis-à-vis its potential competitors, such as exemptions from taxes.”

Congress must allow USPS’s management to close underutilized postal facilities, streamline and consolidate postal operations, eliminate Saturday delivery, and explore the possibilities of leveraging its current infrastructure to offer consolidated government services.  The USPS’s structural problems, however, must not be an excuse for another never-ending taxpayer bailout or the transformation of the USPS into the next incarnation of the now-bankrupted and discredited government-sponsored enterprise model exemplified by Fannie Mae and Freddie Mac.  Everyone knows how that story ended.