Jordan Weissman, writing in the Atlantic, addresses that question. Why is the USPS in such dire straits? What is it that has caused that entity to be tottering on the brink of insolvency?
Ok, not on the brink … it’s insolvent, it just won’t admit it. So how did this happen?
Weissman points first to the Internet:
In the days of yore, sending letters by mail was pretty much the most efficient way to communicate in writing. Then the Internet happened. Although total mail volume stayed relatively steady until 2006, it has dropped an astonishing 20 percent in the past five years. More important, first-class mail, the Postal Service’s biggest moneymaker, has fallen 25 percent during the past decade. That’s a huge problem for its bottom line. The agency now delivers far more "standard mail" — what most of us call junk mail — than first-class mail. According to Businessweek, it takes three pieces of junk to equal the earnings from a single stamped first-class envelope. J. Crew catalogs and pizza menus alone won’t pay the bills.
I disagree here. While the Internet certainly cut into its revenue, it didn’t put it in the shape it is now. That had been set in motion well before the Internet became a factor. The Internet has simply pushed it to the tipping point earlier than it might have arrived otherwise.
The two real culprits? Labor and Congress.
Yet even as its profits have dwindled along with the mail it handles, the agency’s labor costs have remained stubbornly high. Salaries and benefits make up 80 percent of the Post Office’s budget. By comparison, FedEx spends 43 percent of its budget on labor, while UPS spends 63 percent, according to Businessweek. Why the disparity? As the magazine put it, "USPS has historically placed the interests of its unions first." For years, it has happily negotiated contracts with generous salary increases and no-layoff clauses.
Why? Because it could.
And there had to be this belief, despite the problems, that it was never going to go out of business. In other words, it was felt it would be bailed out if push came to shove. So it happily negotiated away your tax dollars to provide generous benefits to its employees that it would never be able to afford if it were an actual business entity. Its first priority wasn’t its customers. It was the interest of its unions.
As for Congress, well the postal service we have today is the result of a 1970 law that was, as Weissmann writes, “intended to transform the mail system from a dysfunctional dumping ground for political patronage into a self-sustaining, independent agency.”
Or it was supposed to become a business.
But the politicians never really let it. The Postal Service doesn’t receive any taxpayer dollars, funding itself entirely through customer revenue. But it still has to deal with Congress as a micromanager. It isn’t allowed to shutter post offices for purely economic reasons, meaning that roughly 25,000 of its 32,000 now operate at a loss. It needs permission for rate hikes from a special regulatory commission. And for 30 years, it’s been required to deliver mail on Saturdays, even though that day is a money loser.
The Postal Service’s current woes are also due at least in part to Capitol Hill’s meddling. In 2006, Congress passed a new law requiring the agency to pay about $5.5 billion a year into a trust fund for future retiree pensions. When revenues were rising, the idea might have seemed reasonable. But the timing was exquisitely bad. Now that the agency is in the red, the pension burden has helped to force drastic measures like the ones we’ve heard about today.
The Postal Service is begging Congress to let it recoup some of those prepayments, as well as give it more flexibility to manage its business.
A primer in intrusion. An example of what such meddling does in other areas as well. Instead of telling the USPS to become more like a business and then letting it do that, Congress has chosen to interfere.
The USPS – an example of the “why” government should stay out of business. It granted itself a monopoly and is managing to run even that into the ground.
The US Post Office is in deep trouble. Obviously some of the problems can be laid at the feet of the internet which has all but killed routine personal mail in favor of the faster and cheap email. Competition in the area of express delivery and package delivery have taken a ton of business away as well. Private companies like FedEx and UPS can delivery those items more cheaply and reliably than the USPS ever could.
But the biggest problem the USPS faces is its lavish entitlements driven by union demands. And once again, we the tax payers are being warned that unless we toss another 5.5 billion dollars the USPS’s way, its going to go broke. Here’s why:
At the same time, decades of contractual promises made to unionized workers, including no-layoff clauses, are increasing the post office’s costs. Labor represents 80 percent of the agency’s expenses, compared with 53 percent at United Parcel Service and 32 percent at FedEx, its two biggest private competitors. Postal workers also receive more generous health benefits than most other federal employees.
So you have a government agency with declining revenue number …
Mail volume has plummeted with the rise of e-mail, electronic bill-paying and a Web that makes everything from fashion catalogs to news instantly available. The system will handle an estimated 167 billion pieces of mail this fiscal year, down 22 percent from five years ago.
It’s difficult to imagine that trend reversing, and pessimistic projections suggest that volume could plunge to 118 billion pieces by 2020. The law also prevents the post office from raising postage fees faster than inflation.
And overgenerous and rising pension obligations. Sound familiar? The $5.5 billion payment due at the end of September is a payment required to help restructure that pension program. But, as expected, there’s resistance from the union as to the means taken to do so – like cutting the work force:
Cutting the work force is more difficult. The agency’s labor contracts have long guaranteed no layoffs to the vast majority of its workers, and management agreed to a new no layoff-clause in a major union contract last May.
But now, faced with what postal officials call “the equivalent of Chapter 11 bankruptcy,” the agency is asking Congress to enact legislation that would overturn the job protections and let it lay off 120,000 workers in addition to trimming 100,000 jobs through attrition.
Got that folks … the brainacs at the USPS, fully aware of the dire financial straits in which the agency found itself, agreed to a “no lay-off clause” in their new union contract last May. Incredible.
And now that it makes perfect sense to consider layoffs, as well as other measures (no Saturday delivery, closing little used post offices, etc.), that option is one that would literally take an act of Congress:
The post office’s powerful unions are angry and alarmed about the planned layoffs. “We’re going to fight this and we’re going to fight it hard,” said Cliff Guffey, president of the American Postal Workers Union, which represents 207,000 mail sorters and post office clerks. “It’s illegal for them to abrogate our contract.”
So reach deep fellow taxpayer. Time to bail out yet another failing agency which apparently never saw this revolution in communication coming, was never able to compete in the market without monopoly powers granted by government and has overspent and overpromised even as it watched it’s market share continually shrink.
Maybe it is time to, horror of horrors, consider privatizing this service? Actually, that’s something that should have been done years ago. But watch … we’ll still have this government run anachronism around our fiscal necks when your grandchildren are adults.
The US Postal service has a financial problem. That’s not a surprise, especially is a time when the entire US government has a financial problem. Unlike the rest of the US government, the USPS is relatively limited in the amount of government money it can receive, and is more or less—and often less, granted—supposed to rely on postage to fund its operations. It still manages to get nice subsidies from the government, but even then it’s supposed to pay those back. Eventually.
In other respects, though, it operates like the rest of the government. Nice federal workers’ and union bennies, heavy bureaucracy, a monopoly on the service it provides, etc., etc. So, that makes it sort of a canary in the coal mine when it comes to government financing. Which makes this interesting:
The U.S. Postal Service would eliminate about 220,000 full-time jobs and shutter about 300 processing facilities by 2015 under a proposal to bring its finances in order, a postal official said on Friday.
The Postal Service needs to cut payrolls to about 425,000 employees and take over its retirement and health benefits instead of participating in federal programs, Postmaster General Patrick Donahoe told Reuters.
This will require abrogating union contracts on layoffs on retirements and health care, and restructuring its employment and benefit rules, close about 3,000 post offices, and contract out mail services to private organizations.
Naturally the unions are already screaming, as are some Democratic lawmakers.
Cry me a river. This is what financial reality looks like. This is the reality that’s coming to the rest of the Federal government in the not-too-distant future. Get used to it.
And yes, I’m being sarcastic:
The U.S. Postal Service’s current business model “is not viable” and the mail agency should make deeper job and wage cuts, hire more part-time staff and consider outsourcing operations, according to a draft of a government audit acquired by The Federal Eye.
Auditors also urge Congress to remove restrictions on the Postal Service’s ability to cut Saturday mail delivery and close post offices, according to the report, which offers recommendations similar to the USPS’s own proposed 10-year business plan.
Lawmakers requested the Government Accountability Office report, set for a Monday release, as they prepare to consider the USPS plan, which was introduced last month. The proposals call for an end to six-day delivery and ask Congress to give the mail agency the ability to raise prices beyond the rate of inflation and close post offices if necessary.
Other than law, there is no reason the mail should be a government run service. Nothing. And especially now. If ever a part of the government could easily be privatized, this is it. Every single service it provides exists now in the private sector, and there’s not a single reason I can think of to continue subsidizing this fiscal black hole. But as you’ll see, even as it loses billions of dollars a year, there is no appetite to shut it down. Why?
Well of course there is the aspect of putting people out of work during a recession with high unemployment. But even if that wasn’t a problem politically, would anyone seriously consider shutting this money loser down? Instead, you, the consumer, will be faced with higher prices, less service and fewer locations. How would you treat a private business that offered such a fix to their business problems?
You’d look elsewhere, of course.
That’s the power of monopoly of course – government granted monopoly. It is against the law to compete against the post office. But, as you can see, monopoly doesn’t grant guaranteed success or profit. Everything the post office does can be and would be done by competing private firms to ensure the cheapest price and best service at that price point. Instead you’re kept captive to an organization that is inefficient, unprofitable and overpriced.
So why isn’t the government at large at least putting a panel together (a favorite bureaucratic ploy to delay a decision – panel, report, furor has died down, results buried) to explore privatizing the post office? Is it because the party in power isn’t in favor of shifting anything out of government’s control? Then why aren’t the Republicans bringing it up? If “smaller and less costly” government is the new standard, it would seem – given the report above and its recent history of loss – that the post office would be a perfect candidate for privatizing. Or is it because politicians have so demonized the term “privatization”?
Why not shut it down and allow those who already do this privately to take it over? Who would you depend on to get it to you if you had to bet on it – FedEx or USPS? And would you object to FedEx (or UPS) doing it instead? Yeah, me neither – and I’d bet, given most people’s experience with the private carriers, 90% of the rest of the country wouldn’t care either.
So what’s the hold up?