Tag: u s postal service

Postal Reform in the Lame Duck?

According to the Hill, policymakers are “scrambling” to do something about the U.S. Postal Service in the current lame-duck session of Congress. The USPS’s recently announced $15.9 billion loss for 2012 apparently inspired policymakers to act.

It’s hardly a surprise that Congress has waited as long as it can to do something about the USPS. Interest in postal issues for most members probably doesn’t go beyond naming post offices and franking. And regardless of whether Congress passes “reform” legislation in the lame-duck or next year, it will end up just kicking the can down the road. (Policy analysts who are frustrated with the inability of Congress to tackle entitlement reform would be wise to stay away from postal policy issue for mental health purposes.)

To get an idea of how absurd the current negotiations are, take this line from the article:

[S]ome liberal lawmakers and postal unions have pushed back against any attempts to limit six-day delivery, saying it would make bad business sense for the Postal Service to give up any competitive advantage as it moves forward.

Competitive advantage? By law, private carriers can’t compete with the USPS on the delivery of first class mail. To the degree that first class mail “competes” with the private sector, it’s with the internet. Going from six-day to five-day delivery won’t change the fact that the demand for the USPS’s flagship monopoly product is in permanent decline as more and more people decide to click “send” instead. What makes “bad business sense” for the USPS is to leave politicians in charge of it.

[See this essay for more on privatizing the U.S. Postal Service.]

About Those Postal Retiree Health Benefits

While Congress is busy trying to figure out how it’s going to continue screwing up the U.S. Postal Service, postal expert Michael Schuler has been busy analyzing the reasons why it’s so screwed up to begin with. Last week, Michael released a paper on congressional micromanagement of the USPS. A new paper looks at the complicated and controversial topic of postal retiree health benefits.

A common claim made by the postal unions and other defenders of the unsustainable status quo is that the USPS would be a-okay if a 2006 law hadn’t required the postal service to start setting aside money for future retiree health benefits. Here’s the background from Michael:

Before enactment of the Postal Accountability and Enhancement Act of 2006 (PAEA, P.L. 109-435), the U.S. Postal Service had been promising generous retirement health benefits to its workers without setting aside any money to pay the costs it would owe in future years. Because the Service was ignoring a very expensive fringe benefit in its income statement, its reported costs were artificially low and its reported income artificially high. The unfunded retiree health care obligation had mushroomed to $74.8 billion by September 30, 2006.

The 2006 law addressed the unfunded liability by requiring the USPS to annually set-aside an average of $5.6 billion from 2007 to 2016. However, USPS revenues began plummeting shortly after the PAEA’s enactment. The annual “prefunding” payments have been exacerbating the USPS’s financial woes. Naturally, postal management and the unions would like Congress to make the payments disappear. The problem is, eliminating the payments won’t put the USPS in the black, and it would merely set the stage for a major taxpayer bailout down the road. As Michael explains, moving to pay-as-you-go financing for retiree health benefits is a bad idea:

First, prefunding is always more transparent than pay-as-you-go. Prefunding shows the costs of commitments when they are made instead of ignoring the costs until years later. Second, pay-as-you-go with regard to deferred postal compensation is unfair because it transfers costs incurred for today’s mail service to future mail users or taxpayers. Third, pay-as-you-go is extremely risky for an organization like the Postal Service where the future obligations are huge while income is stagnating or declining. (It would not be dangerous if future obligations were small or if income were growing rapidly enough to easily pay future bills.) Fourth, a sometimes overlooked hazard of the pay-as-you-go method is that costs can appear deceptively low for many years and then suddenly climb as more workers retire and as retirees, with increasing age, need more medical care. In that vein, OPM estimated that if retiree health care financing had reverted to pay-as-you-go in 2010, the Postal Service’s pay-as-you-go expense would have been only $2.3 billion in 2010 but almost tripled to $6.4 billion by 2020. If PAEA had not moved toward prefunding, insolvency and the need for a massive taxpayer bailout would be virtually inevitable for USPS, although that might not have become clear to the public for several more years because of pay-as-you-go’s lack of transparency.

Michael says that the prefunding payment schedule should be stretched out given the USPS’s financial woes. However, the extended schedule should come with reforms that would “lower the extraordinary cost of USPS’s health care fringe benefit.” I think a common sense reform would be to eliminate retiree health care benefits for new employees. As I noted in an essay on the U.S. Postal Service, the health benefit is something that a decreasing number of private sector workers receive:

Opponents of pre-funding USPS retiree health benefits argue that private companies and the rest of the federal government are not legally required to do so. That is largely irrelevant. Retiree health care coverage is an increasingly rare perk in the private sector, and the federal government’s financial management is nothing to emulate. In 2008, only 17 percent of private sector workers were employed at a business that offered health benefits to Medicare-eligible retirees, down from 28 percent in 1997.

Republican Agenda: Privatization

In coming months, new Republican members of Congress will be looking for ways to cut the budget deficit and also to increase economic growth. One way to do both is to privatize government assets, such as the U.S. Postal Service, Amtrak, and the air traffic control system.

Privatization can reduce deficits from the one-time gain of an asset sale and from the elimination of annual taxpayer subsidies. Privatization can spur economic growth by moving resources from moribund government agencies to the higher-productivity and more innovative private sector.

A new report by a trade magazine specializing in privatization confirms that the United States lags many nations on innovative infrastructure financing. Public Works Financing has been tallying data on “public-private partnerships” around the world since 1985. PPP is sort of half way toward the full privatization of government assets such as highways. I prefer full privatization (such as this highway), but PPP has swept the world in recent years and it is a step in the direction of market reform.

Public Works Financing is subscription only, but I can summarize a few findings from their October annual survey.

  • Since 1985, the magazine has tallied 1,867 PPP infrastructure projects worldwide valued at $712 billion. U.S. projects represented just 8 percent of the total value.
  • With a population about 10 percent as large as the United States, Canada had 53 percent of the U.S. PPP deal value. With a population of a similar size as the United States, Europe has had five times the value of PPP deals.
  • Of the 35 top global transportation firms doing PPP deals, the United States had only one firm, Flour, which was ranked number 33. Countries with firms heavily involved in PPP include Spain, Australia, China, and France. American entrepreneurs are apparently losing out because U.S. policymakers are asleep at the switch regarding private sector infrastructure financing.

Examples of PPP in the United States include the project to widen the Capital Beltway in Virginia, which involves the firms Transurban and Flour, and the leasing of the Indiana Toll Road, which involves Cintra and Macquarie. These deals aren’t full privatization, but they will hopefully bring some market efficiencies into an area of the economy dominated by the government over the last half century.

Congress is expected to write a major transportation authorization bill next year. The likely GOP chairman of the House Transportation and Infrastructure Committee, John Mica, has a more favorable view of private infrastructure than the prior Democratic chairmen. However, it is not clear that some of the incoming Republicans really understand the anti-spending message that voters delivered on Tuesday. Regarding President Obama’s $8 billion in wasteful high-speed rail subsidies, Mica did not call for killing them, but just for making them “better directed.”

The election ended the debate over whether to cut federal spending, but the debate about cutting particular programs has just begun.

The USPS’s ‘Automation Refugees’

Jim O’Brien, a vice-president at Time Inc. and chairman of the Mailers Council, recently guest-blogged on the U.S. Postal Service’s inspector general’s web site on the subject of “automation refugees.”

O’Brien explains the origination of the term:

Back in 1990, Halstein Stralberg coined the term “automation refugees” to describe Postal Service mail processing employees who were assigned to manual operations when automation eliminated the work they had been doing. Since the Postal Service couldn’t lay off these employees, they had to be given something to do, and manual processing seemed to have an inexhaustible capacity to absorb employees by the simple expedient of reducing its productivity. The result was a sharp decline in mail processing productivity and a sharp increase in mail processing costs for Periodicals class. Periodicals class cost coverage has declined steadily since that time.

O’Brien then tells of visiting seventeen mail processing facilities as part of a Joint Mail Processing Task Force in 1998. During those visits he noted that the periodical sorting machines always happened to be down even though the machines were supposed to be operating seventeen hours a day. Although the machines weren’t working, manual operations were always up and running.

A decade later, O’Brien points out that the situation apparently hasn’t changed:

More Periodicals mail is manually processed than ever, and manual productivity continues to decline. Periodicals Class now only covers 75% of its costs. How can this dismal pattern of declining productivity and rising costs continue more than two decades after it was first identified, especially when the Postal Service has invested millions of dollars in flats automation equipment?

O’Brien probably answered this question when he noted that the USPS couldn’t lay off these automation refugees back in 1990.

As I’ve discussed before, the USPS has a major union problem. A new Government Accountability Office report cites as a problem the fact that most postal employees are protected by “no-layoff” provisions. The USPS must also let go lower-cost part-time and temporary employees before it can lay off a full-time worker not covered by a no-layoff provision.

Unfortunately, recent comments from members of the House Oversight and Government Reform Committee showed an unjustified concern for how potential reforms would affect postal employees. Labor isn’t the only problem facing the USPS, but Congress needs to understand that the postal service’s expensive unionized workforce is a crippling burden.

Smelling Your E-mail

In response to this week’s news that the beleaguered U.S. Postal Service is facing $238 billion in losses over the coming decade, Washington Post columnist Charles Krauthammer lamented the inevitable demise of the government mail monopoly:

As a conservative who believes in the market, it ought to die, but as a conservative that believes in tradition and stuff that really holds us together, I would subsidize until it dies a natural death in the next generation. But for old guys like me, keep it going for a while.

[As for] the hard-hearted younger generation — well, if you ever got a sweet-smelling love letter at 17, you’d feel otherwise. Of course, I never did, but somebody did.

You can’t smell your e-mail.

I did receive sweet-smelling love letters from a girl back home during my first year in college. Fifteen years later, my old college roommate is still making fun of me for it. But I don’t “feel otherwise” about the government mail monopoly. The sooner it disappears and is replaced by private operators unshackled from the unions and government mandates that are speeding the USPS’s demise, the better.

Krauthammer’s comment that “you can’t smell your e-mail” isn’t even true. The technology exists for scents to emit from your computer when you open an e-mail, click on a web advertisement, or play video games.

Krauthammer believes that the government monopoly has helped maintain national cohesiveness:

But, look, anything that is in Article 1 Section 8 of our constitution, anything that Madison had waxed enthusiastic about it in Federalist 42 — the postal roads that have kept us together — as an old-school guy, I don’t want to see it die.

If by “kept together” he means that mail enabled people all over the country to communicate with each other, the telecommunications revolution that is undermining the postal service has dramatically enhanced long-distance correspondence. Facebook is a perfect example. Most of my Facebook “friends” are people I would have otherwise lost touch with or rarely communicated with.

Finally, Krauthammer is only somewhat correct when it comes to the issue of privatizing the USPS:

Look, it’s very obvious that you can’t privatize this. Three studies have looked at the postal service. Because of the new technology there is no entrepreneur in his right mind who would purchase it. So it’s going to be on the government dole forever.

The question is, is it completely obsolete? Look, it has one mandate which other private services don’t have. It has to reach every tiny hamlet everywhere in the country no matter what. It’s got to be universal. So that’s a slight handicap that the private companies don’t have.

Its main handicap, of course, is the crushing labor union contracts and the new technology, especially e-mail, which makes most of what it does obsolete. So that’s why it runs a huge deficit.

It’s true that with the combination of unionism and government mandates the USPS in its current form is nothing private investors would want to touch. But that’s the whole point of postal liberalization and privatization. It’s pretty clear that the USPS is going to be directly supported by taxpayers in the future or it’s going to succumb to market realities. Instead of waxing nostalgic about a socialist enterprise, let’s focus on how the wonderful technologies brought to us by the private sector can better get the job done.

As Fred Smith, founder of FedEx and a Cato supporter, noted in a Cato book on the postal service:

[T]here are many things in American life that have had a great history, for example the cavalry. Yet, we do not do cavalry charges anymore. We must recognize that there are many institutions that long ago passed into history.

Privatize the Post Office

Another day, another story on financial troubles at the federal government’s mail monopolist.  We don’t expect the government to make our blue jeans, transport fruits and veggies from the farm to the market, build computers and IPods, or manage the manufacturing of automobiles, so why must it continue to deliver first-class mail?  The quality of the USPS’s “services” has been a punchline in my family since I learned to walk.  But with technology rendering it’s clunky business model increasingly moot, Government Mail’s bottom line is looking uglier and uglier. It would cost me 44 cents to mail a letter to California, and it would cost me the same amount to mail that letter to the next town over.  What sense does that make?

As today’s editorial in the Washington Post leads off:

THE POST office may be the next too-big thing. If it continues on its present course, the U.S. Postal Service stands to post $6 billion to $12 billion in losses by the end of the fiscal year. By the end of the second quarter of fiscal 2009, it had racked up an operating loss of more than $2 billion, almost equal to its total losses last year. So far, the Postal Service has depended on loans from the Federal Financing Bank, a federal borrowing agency, to help make up the difference, but it is fast approaching its $15 billion credit limit. Something has to give.

Kudos to the Washington Post for proceeding to acknowledge that the rest of the western world has been trending toward privatization of it’s government mail monopolies for years.  My colleague Chris Edwards recently touched on the issue of privatizing the USPS as part of a larger piece on privatizing a plethora of federal operations:

The mammoth 685,000-person U.S. Postal Service is facing declining mail volume and rising costs. The way ahead is to privatize the USPS and repeal the company’s legal monopoly over first-class mail. Reforms in other countries show that there is no good reason for the current mail monopoly. Since 1998, New Zealand’s postal market has been open to private competition, with the result that postage rates have fallen and labor productivity at New Zealand Post has risen. Germany’s Deutsche Post was partly privatized in 2000, and the company has improved productivity and expanded into new businesses. Postal services have also been privatized or opened to competition in Belgium, Britain, Denmark, Finland, the Netherlands, and Sweden. Japan is moving ahead with postal service privatization, and the European Union is planning to open postal services to competition in all its 27 member nations.