Postal Service’s Financial Woes

The U.S. Postal Service is in a lurch after Congress wrapped up business until November without giving the USPS a break on a $5.5 billion retiree health benefits payment that’s due tomorrow. Combined with an expected loss in the billions of dollars, the USPS could run out of money in October.

In addition, the USPS’s regulator today rejected the USPS’s request for an exigent postal rate increase. The Postal Regulatory Commission acknowledged that the recession has led to a substantial decline in mail volume. However, the PRC rejected the request because the rate adjustments “represent an attempt to address long-term structural problems not caused by the recent recession.”

The PRC singled out “an overly ambitious requirement for the Postal Service to prefund its future retiree health benefit premiums.” The prefunding requirement stems from a 2006 law that sought to address unfunded obligations for retiree health benefits. Last year, Congress agreed to reduce the USPS’s 2009 payment by $4 billion in order to help it keep its head above water.

Congress did not provide such relief this year, which some members of Congress have inappropriately criticized as being a “taxpayer bailout.” However, allowing the USPS to defer its obligations only increases the possibility that future taxpayers could be on the hook. Therefore, policymakers who are critical of giving the USPS another break are correct when they state that the government mail monopoly needs to be substantially reformed.

The PRC’s rejection of the rate increase request points to the problem with the government trying to run a business. If UPS or FedEx had to ask a federal regulatory body for permission to raise prices for their services, it’s unlikely that either would survive.

As I’ve previously discussed, the USPS is currently trying to get Congress’s blessing to eliminate Saturday service. While it’s ridiculous that the American people are forced to use a government monopoly that wants to raise prices while simultaneously degrading services, having to get Congress’s approval to alter delivery schedules is a serious problem for a commercial operation.

Postal management has succeeded in cutting costs, but still lacks the necessary flexibility that a private firm would possess. For instance, if the USPS wants to close post offices, it has to jump through numerous regulatory and congressional hoops. Last year, for example, the USPS proposed consolidating 3,000 postal outlets, but following a congressional outcry, the number under consideration was reduced to a paltry 157.

While the USPS has been able to eliminate a substantial number of employees through attrition, the USPS’s predominantly unionized workforce continues to account for 80 percent its costs. When weighing a decision on postal union contracts, arbitrators are not allowed to take the USPS’s financial situation into consideration. In addition to extracting benefits that are generous even by federal employee standards, inflexible union contracts also make it difficult for the USPS to efficiently manage its workforce.

Beyond the nostalgic depictions of the USPS being a “national asset” that “binds the nation together” is the unglamorous fact that it provides a service just like millions of other commercial outfits. Electronic communication and other technological advances are making the USPS’s mail monopoly increasingly irrelevant. Instead of haggling over six-day mail delivery and retiree health benefit prefunding formulas, Congress should start focusing its attention on getting the government out of the mail business once and for all.