U.S. Postal Service: Privatize or Reform?

Written by Ralph E. Stone. Posted in Opinion, Politics

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Published on April 13, 2012 with 1 Comment

Photo by Justin Sullivan/Getty Images.

By Ralph E. Stone

April 13, 2012

The U.S. Postal Service (USPS) is a branch of the federal government headed by a Postmaster General and a Board of Governors with further oversight provided by the Postal Regulatory Commission. Ultimate authority over the USPS, however, rests with Congress. The USPS is structured like a business in that revenues from the sale of postal products generally cover costs, and it receives virtually no federal appropriations. The organization is the second-largest civilian employer in the United States—after Wal-Mart—with about 600,000 workers. If the USPS was a private company, it would rank about 28th on the Fortune 500 list of largest companies.

While the USPS is structured like a business, Congress often prevents it from actually operating like a private company, such as taking actions to reduce costs, improve efficiency, or innovate in other ways. The agency is also obligated by statute to provide mail services to all Americans, irrespective of where they live and the cost of serving them. It is required to deliver first-class mail at a uniform price throughout the nation.

Is it any wonder why the USPS is in debt? The USPS fiscal year 2011 debt was $13 billion and in the first quarter of fiscal year 2012 it had a $3.3 billion operational loss. The USPS can borrow money from the U.S. Treasury but its debt limit is set at $15 billion by federal statute. Thus, the USPS will no longer be able to absorb operational losses by the end of this year.

The USPS is losing billions of dollars annually because of declining mail volume and increasing labor costs. According to a U.S. Government Accountability Office (GAO) report, first-class mail volume peaked in fiscal 2001 at nearly 104 billion pieces, but has dropped by about 29 percent, or 30 billion pieces, in the last decade. For the first time ever, in 2010, fewer than 50 percent of all bills sent to Americans were paid via USPS mail.

Part of the problem is that lawmakers continue to micromanage its practices. (We know how Congressional micromanagement has worked with regard to our economy). For example, Congress has repeatedly prohibited requests to eliminate costly Saturday mail deliveries and reduce the number of post offices. Congress and the Obama administration need to empower the USPS to operate more like a business by giving USPS management more control over decisions about its financial well-being.

Congress should consider privatizing USPS. Congress can learn from other countries where the private sector has taken large ownership stakes in their postal services. For example, 69 percent of Germany’s formerly government post office Deutsche Post is now privately-owned, delivering 70 million letters in Germany, six days a week and doing it at a profit. Through its DHL International arm — purchased in 2002 — Deutsche Post AG also operates express service in about 170 countries. In the Netherlands, 100 percent of its formerly government post office is privately-owned as TNT Post. The British government is considering selling off to private investors its ownership of the Royal Mail where at least 10 percent of the shares may be reserved for postal employees, which would have the benefit of reducing union incentives to take actions negatively affecting the company’s bottom line.

Unfortunately, Congress is again going the reform route to shore up the faltering USPS. S. 1789, the “21st Century Postal Service Act,” also known as the “Postal Reform Bill,” to deal with the U.S. Postal Service’s poor financial situation, is pending in the Senate. A vote in the Senate was delayed while its sponsors negotiate with Senators supporting S-1853, a competing bill. These competing bills are efforts to reform the USPS with Congress or a newly created government panel still in position to micromanage.

S-1789 would postpone ending Saturday delivery service for two years, while S-1853 would delay it for four years. S-1789 would also use $11 billion in overpayments to a retirement fund to provide incentives to long-time postal workers to retire, and would allow the USPS to offer additional services, such as the sale of fishing licenses and the shipping of beer and wine. S-1853 goes further by preventing the enactment of proposals suggested by Postmaster General Patrick Donahoe, such as closing post offices and processing centers and slowing first-class mail delivery times. The USPS has agreed to delay closing any facilities until May 15 to allow Congress to act.

According to a MapLight analysis, the USPS unions and associations have given a total of $1,805,360 in campaign contribution to current U.S. Senators between July 1, 2005 and June 30, 2011. These campaign contributions are to assure the status quo.

On the other hand, MapLight analyzed campaign contributions from express delivery services such as UPS and FedEx have given a total of $1,796,143 to current members of the U.S. Senate between July 1, 2005–June 30, 2011. These companies could possibly benefit by a reduction in service if certain Postal Service changes are enacted,

With privatization, Congress would end its micromanagement of the USPS; eliminate the complex laws and regulations on delivery schedules, price caps, restrictions on facility shut-downs; and other business decisions. Unfortunately, Congress will again attempt reform, rather than consider privatization.

Ralph E. Stone

I was born in Massachusetts; graduated from Middlebury College and Suffolk Law School; served as an officer in the Vietnam war; retired from the Federal Trade Commission (consumer and antitrust law); travel extensively with my wife Judi; and since retirement involved in domestic violence prevention and consumer issues.

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  1. According to your story, the U.S. Postal Service ended the first three months of its 2012 fiscal year (Oct. 1 – Dec. 31, 2011) with a net loss of $3.3 billion. But take a look at the tables that are included in the Form 8-K [8] that came out with the Quarter 1, 2012 USPS financial report (Form 10-Q [1]).

    The first line shows that revenues declined only a small amount — .2 billion ($200 million) — or about 1.1 percent. That’s actually better than the declines from fiscal year 2009 to 2010 (1.5 %), and from 2010 to 2011 (2%).

    The next line in the table shows a decline in operating expenses of $100 million. The Postal Service typically claims that its lower operating costs are thanks to the downsizing it’s already doing, but lower volumes always mean lower costs. (In its case for closing processing plants, the Postal Service says slower service standards will push business away and cause revenues to drop by $1.3 billion, but that number is reduced to .5 billion because less mail means lower costs too.

    The next line in the table shows an “Operating Income” of .2 billion. That means the Postal Service actually MADE a profit during the first quarter of $200 million.