As Congress remains gridlocked, the USPS loses

Mailboxes

The U.S. Postal Service lost nearly $5 billion this past year, according to its just-released year-end financial results. As in recent years, the agency did not make the legally required $5.7 billion payment to its Retiree Health Benefits Fund. The agency is $15 billion in debt and legally prohibited from borrowing additional funds. The unfunded portion of its retiree-health-benefits obligation is $54 billion.

Revenues increased slightly but mail volume slid by 1.4 billion pieces from last year to 154 billion. The agency has $6.6 billion of cash on hand, which is better than in recent years and means USPS is in no immediate danger of having to shut off the lights due to lack of cash. The agency’s financial results benefited from a temporary emergency price increase and a lower-than-expected employee compensation charge.

All told, the results confirm what’s been obvious for some time: the USPS faces not just a financial crisis, but an existential one. The agency’s business model was predicating on the assumption that granting it a monopoly over first-class mail delivery would enable it to reap high margins that would subsidize the agency’s service nationwide. Thanks to electronic bill-paying services, among other factors, first-class mail volume has plunged. Worse still, total mail volume is down more than 25 percent since 2007.

mail

Equally problematic is that the USPS’s mission has become increasingly anachronistic. The agency’s authorizing statute declares:

The Postal Service shall have as its basic function the obligation to provide postal services to bind the Nation together through the personal, educational, literary, and business correspondence of the people.

Can anyone in the modern age say with a straight face that our nation is united by mail? Moreover, the word “correspondence” denotes two-way communication, such as me sending a letter to my mother and she writing me back. But person-to-person correspondence is less than 1 percent of the mail sent, as the USPS’s household diary study and “revenue, pieces and weight” reports show. Most mail today is not correspondence; it’s advertisements and solicitations broadcast at the public.

Magazines – which, in some instances, may be “educational” or “literary,” but often not – constitute less than 5 percent of the mail. Packages account for about 1 percent of what the postman delivers, despite the widespread misperception that USPS is a big parcel-deliverer. When I logged and surveyed a month’s worth of my own mail recently, almost one-third of what arrived were needless corporate notifications, like my mortgage company sending me a paper bill despite my choice to auto-pay online.

To date, Congress has proven wholly incapable of thinking big about what sort of USPS we need for the 21st century and beyond. For the past five years, lawmakers have feuded among themselves about what to do. Neither the House nor Senate has voted on any of the postal-reform bills that have been introduced.

Much of this paralysis is driven by the forces of the status quo. Postal unions (one of which has endorsed a socialist for president) and liberal romantics deny an existential problem exists. These same individuals often propagate the myth that the USPS would be doing just fine were it not for the mandate that it prefund its health-care benefits. Economist Michael Schuyler has shown that if you remove this cost, USPS nevertheless lost $10 billion over the past seven years, and the situation would have been worse still were it not for the temporary emergency-rate increase, which forces mailers to pay the government monopoly more. These same proponents of the status quo tacitly admit the USPS’ existential problem when they advocate for it to enter new lines of business, like banking.

Many congressmen, particularly from rural areas, object to shuttering post offices and outsourcing counter service to private retail outlets, like cafes and big box stores. And many legislators treat reducing home-mail delivery service from six to five days a week as a non-starter, no matter that USPS wants to do it or that the shift would save money.

For the foreseeable future, America will see more of the same news. Absent a miraculous rebound in mail volume and revenues or an outbreak of political courage on Capitol Hill, the Postal Service likely will continue to post losses and do what it can to trim service.

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  • chuck

    changing delivery from 6 to 5 days would save billions of dollars… the USPS proposal was to still delivery priority and express on weekends…CONGRESS DOES NOT DO anything unless it benefits CONGRESS…

    • True—both postal unions and legislators from rural states have loudly protested shifting to 5-day delivery (with packages/parcels and express/priority still being delivered on weekends).

  • kralph

    I guess the almost depression since 2008 and the terrific recovery we’ve been experiencing could not be a reason for the $10 billion loss, when excluding the prepayment of future retiree health care that covers 75 years to paid up in only a 10 year time period.

    • Yes, the recession–which ended years ago—caused mail volume to plunge from 213 billion mail pieces to a little over 150 billion mail pieces. Despite the economic recovery, mail volume has not come back. Big companies, who send most of the mail in America, have shifted a portion of their communications to the Net. So, less mail and less profitable mail appears to be the new normal. So—we have a Postal Service that will continue to struggle to cover its costs.

      • grannybunny

        Operationally, USPS has been profitable the past 3 years.

        • USPS has lost $10 billion (not counting RHBF charges) in the past 7 or so years. The RHBF costs, by the way, are not nonsense—they are promises made to current employees to pay them future benefits. They are, then, a cost of doing current business.

          • grannybunny

            USPS is recouping $4+ billion or so of that loss through the exigent rate increase. Retiree health benefits are not nonsense, but the Congressional mandate requiring USPS to aggressively prefund 75 years’ worth within 10 years was just a cheap accounting trick to transform off-budget Postal revenue — collected from mailers, not tax-payers — into on-budget funds within reach of the greedy mitts of Congress, which has squandered the resulting $50+ billion fund on non-Postal purposes, in essence, “bailing out” the taxpayers, and allowing the Starve the Beast no-new-taxes politicians to misrepresent the deficit as smaller than it actually is. Prior to the 2006 mandate, USPS was debt-free and profitable, and was paying its retiree health benefits perfectly satisfactorily, on a pay-as-you-go basis, as do other government agencies.

          • The PAYGO basis was a problem GAO was pretty clear about that. NO argument that the payment schedule was too aggressive. That said, GAO also showed that USPS is not paying 75 years worth in 10 years. And, as it happened, USPS did not come close to making payments for the whole 10 years, which concludes in 2016.

          • grannybunny

            I disagree with what you claim GAO found. It is true that USPS had to quit making the payments when it got to the point that it could not afford to make the payments and continue to deliver the mail.

          • GAO: “Contrary to statements made by some employee groups and
            other stakeholders, [the] PAEA did not require USPS to prefund 75 years of retiree health benefits over a 10-year
            period. Rather, pursuant to OPM’s methodology, such payments would be projected to fund the liability over a period
            in excess of 50 years, from 2007 through 2056 and beyond (with rolling 15-year amortization periods after 2041).” U.S.
            Government Accountability Office, U.S. Postal Service: Status, Financial Outlook, and Alternative Approaches to
            Fund Retiree Health Benefits,” GAO-13-112, December 2012, p. 7, at http://www.gao.gov/assets/660/650511.pdf.

          • grannybunny

            The PAEA requires USPS to totally fund all of the future retiree health benefits for those employed its effective date. It is totally foreseeable that an 18-year-old employee could live another 75 years and — further — at some point marry someone younger who could qualify for survivor retiree health benefits for even longer. You do the math.

          • If you want to dispute what GAO found re: the 75-year claim, you are free to do so. But I’ll trust GAO’s work and my own reading of the law rather than a claim that I have never seen established in argument/data/etc.

          • grannybunny

            I gave you the basis of the analysis. If you don’t want to do the math yourself — but accept someone else’s conclusion — that’s your prerogative.

  • grannybunny

    What a slanted bunch of crap! Anyone who doesn’t want to use USPS doesn’t have to; this is still the United States of America. However, for the 120+ million American addresses that are only served by the Postal Service and not by its private-sector competitors, USPS is an essential service that — yes — does, indeed, bind the Nation together.

    • 120+ million addresses ONLY served by USPS? Please provide a source for that figure—because it is clearly false. There are fewer than 160 million delivery points nationwide, including the millions of post office boxes. Also, you say nobody has to use the Postal Service. Well, thanks to federal law, USPS has a monopoly over first class mail delivery. So, if one wants to send a letter or postcard, yeah, you have to use the Postal Service.

      • grannybunny

        I got the figure by subtracting the 30 million addresses served directly by FedEx and UPS — combined — from the 153+ million (the number keeps growing, so I may be understating it) served by USPS, including all of the FedEx and UPS deliveries the Postal Service ends up carrying, because FedEx and UPS have decided that it would not be sufficiently profitable for them to directly serve the address. You can certainly send a letter through a private carrier; you will just have to pay a lot more, and — if it is not going to an area directly served by the private sector — USPS will end up delivering it anyway. All of which go to my original point: that USPS is essential to the vast majority of Americans.

        • UPS and FedEx serve only 30 million domestic addresses? Do you have a source for that figure?

          • grannybunny

            Not offhand. They DIRECTLY serve only 30 million domestic addresses. Now that they are consigning many of their deliveries to USPS, however, they accept packages going to the entire Postal network of 153+ million addresses, assuming that one wants pay their substantially-higher rates for USPS service.

          • Hmmm, I’m not so sure about that. But let’s stick to the larger point: by the law’s definition, USPS does not “bind” America together by the criteria listed by the law: literary, etc. Only, arguably, by providing last mile service—much of which consists of delivering ad mail. It’s hyperbole to claim otherwise. These days, our Union’s strength is little affected by what’s stuffed in mail receptacles.

          • grannybunny

            You must be at one of the 30 million addresses served by the private sector. For those at the remaining 123% million addresses, “what’s stuffed in mail receptacles” is all there is, and is essential.

  • Judy Mothers

    Eliminate junk mail and once a week delivery is sufficient for first class.

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