Trump’s postal reform plan: Less service and higher prices
President Donald J. Trump, who took the decrepit Old Post Office in downtown DC and reinvented it into a luxury hotel, might have been expected to propose a “yuge” remake of the Postal Service.
He did not. His FY2019 budget proposal takes the agency as it is and proposes some alterations that hope to reduce costs and increase revenues. It is surprisingly thin gruel for an agency facing an existential crisis. The Trump plan, as outlined in the appendix of his budget, is astonishingly short on details with only six components.
Give USPS authority to reduce mail delivery frequency from six to five days per week.
This could mean ending Saturday mail delivery in most places but the president’s plan does not specify. USPS could also experiment with different five-day combinations. For instance, substituting Saturday service for ending service on one weekday in order to reach more residential customers when they are home to receive packages. Moreover, weekend traffic congestion is typically lighter than weekday traffic, which increases delivery efficiency for the postal service while also lessening the impact of postal vehicles on traffic.
Allow USPS to partner with state and local government to increase revenues.
Trump’s proposal would permit USPS to enter contracts with state and local governments to provide services at that level (e.g., fishing licenses). USPS could also rent out excess space to these governments. This collaboration with state and local government has the potential for substantial synergies in the provision of government services. The Postal Service operates more than 31 thousand retail post offices. Colocation of postal services with other government facilities could increase the use rate of government-owned real estate. This benefits the postal service’s retail operations by allowing customers to consolidate trips. Forms picked up from government offices can be filled out and mailed on-site. Additionally, neither state and local government facilities nor the postal service pay property taxes, and each of these bodies benefit when their buildings are easily accessible. Local governments stand to gain when fewer valuable downtown buildings are tax exempt.
Allow USPS to shift more deliveries from the doorstep to curbside and cluster boxes.
Door-to-door delivery is the most labor-intensive of the three standard modes of mail delivery. An entire class of postal employees must walk to each door and physically haul each letter along a mail route. This adds to costs, as the USPS Inspector General (IG) made clear in its 2011 study of the issue. The IG produced the below table to compare annual costs of urban, rural and contract delivery settings.
Annual costs of curbside delivery were more than one hundred dollars less per household in both urban and rural settings, with costs of centralized delivery lower still. The report goes on to note that door-to-door delivery still makes up about one fourth of all USPS delivery points, including 30 million residential locations. If two-thirds of these residential locations could shift to centralized or curbside delivery a conservative back-of-the-envelope calculation implies a savings of $2 billion annually.
Enhance USPS governance to ensure sound financial management.
What the president means by this is unclear. His budget simply does not say. Possibly, he is signaling that he would accept the proposal that has been kicked around in Congress to reduce the size of the Board of Governors, which by law is supposed to be 11 members along with the Postmaster General and Deputy Postmaster General. How that would change anything is far from clear, as USPS has been unable to fill the remaining nine spots on the board. (Their terms expired and new appointees have not been cleared by the Senate and the president himself has failed to appoint enough governors to achieve a quorum.) Strangely, the budget proposes less funding for the two agencies that oversee the USPS and call it out for fraud, waste and abuse: the USPS Office of Inspector General and the Postal Regulatory Commission (PRC). The IG’s budget would fall from $254 million in 2017 to $235 million in 2019, and the PRC’s piddling budget would slide from $16 million to $15 million.
Authorize a one-time rate increase and increase USPS’s freedom to set rates to raises $9 billion in additional revenues.
The USPS has relied on increased postage rates in recent years to stabilize its finances. Prices of the Postal Service’s monopoly products are capped at an annual increase equivalent to the rate of inflation. Trump proposes allowing a one-time higher-than-the-Consumer Price Index increase. How big is not spelled out by his budget. Nor is it clear if the proposed increase in price-setting authority would be for all USPS products. The agency sells monopoly products (e.g., first class mail) that nobody else offers, and it provides competitive products (e.g., overnight delivery) that the private sector offers. What the president wishes to do here will necessitate a close watch. USPS has made clear that it sees delivering packages as its ticket to financial well-being. It would be bad if USPS were given pricing authority that allowed it to increase revenues from monopoly products that are used to cross-subsidize its expansion into the parcel delivery market.
Lowering employee compensation costs through reductions to pension and health benefits.
Unlike other federal employees, USPS employees long have set their compensation through collective bargaining. Every four years unions sit down with management and hash out pay and benefit levels, along with rules that govern the shop floor. Trump’s budget apparently hopes to save money by conjuring savings from government-wide changes to the Federal Employees Health Benefits Program (FEHB), in which USPS employees participate. Does this mean the override of collective bargaining in order to force USPS employees to pay more for their healthcare? Does this mean trimming the benefits offered by FEHB? It is unclear.
Trump’s budget proposal aims to improve USPS’s finances by $45 billion over ten years. With so few details it is hard to take that number–or this postal reform plan–seriously.