Is Congress Biting the Postman?
We expect dogs to occasionally attack letter carriers. It's part of their biological make-up. However, we expect better behavior from our representatives in Congress; after all, members of Congress get paid good salaries, not just table scraps. That is why it is distressing to see that Congress is apparently willing to go along with financially squeezing the Postal Service, causing tens of thousands of postal workers to lose their jobs and ending Saturday mail delivery.
There is a simple story that is often told about the Postal Service's financial problems. According to this story, the USPS is a relic of an earlier era. In the Internet Age, people use e-mail and Twitter to communicate with their friends. Companies do their marketing on the web, not by sending out expensive mass mailing. The Postal Service has failed to adapt and therefore is running huge deficits. According to this story, there is not much choice but to radically scale back a service that has outlived its usefulness.
There is some truth to this simple story; the volume of letter mail handled by the Postal Service has been shrinking. However, other types of mail (mail order drugs, DVD rentals, e-commerce packages) are growing. More importantly, volume trends are not the main cause of the deficit currently facing the system.
Rather the deficit is the result of peculiar accounting rules imposed by Congress in 2006. Congress is requiring a degree of pre-funding of future retiree health benefits that has no parallel in the private sector. While cautious accounting can be a virtue, the main effect of imposing excessively strict requirements in the middle of the worst downturn since the Great Depression will be to add still more people to the unemployment rolls.
It is easy to show that the deficit that the Postal Service has been running the last few years is not primarily the result of the decline in the volume of mail. While mail volume did drop from 208 billion pieces delivered in 2000 to 177 billion pieces last year, a decline of 14.1 percent, the number of people employed by the postal service has fallen even more sharply. In 2000 the system employed 787,500 workers. Last year it employed 623,100, a drop of 20.1 percent.
This means that the Postal Service has been scaling back its workforce more than proportionately to the decline in mail volume, increasing the productivity of its workforce. This is exactly how we would expect a private business to respond to the decrease in demand for its services. In other words, the post office has recognized and responded to the changed environment.
The cause of the shortfall has been the requirement put in place by Congress in 2006 that the Postal Service pre-fund 80 percent (up from 50 percent at present) of retiree health care benefits. The rule required that they reach this funding level in ten years. The Postal Service spent $12.4 billion to reach this pre-funding target over the last three years, an amount considerably larger than its $11.7 billion shortfall over this period.
It is desirable that the Postal Service have some degree of pre-funding of its retiree health care benefits, but the levels being targeted are almost certainly excessive, as is the rate at which Congress is requiring funding. The assumptions used in projecting liabilities are far more pessimistic than is assumed by the government for other purposes. For example, the projected rate of medical inflation is substantially higher than is assumed in projections of Medicare and Medicaid. Also, the projected health care liabilities don't take into account the fact that postal employment is falling rapidly so that the number of beneficiaries 20 or 30 years out is likely to be far less than the number of retirees currently receiving benefits.
There are other accounting issues that have also been used against the Postal Service. For example, the Inspector General of the Postal Service concluded in a January report that the USPS was overcharged $75 billion by the government for pension liabilities when the Office of Personnel Management calculated its obligations from the time it became an independent company instead of a government agency. The Postal Service was also prevented by the Bush administration from applying for the employer subsidies available under Medicare Part D to businesses that provide drug coverage for retired workers.
The financial squeeze created by these ad hoc accounting decisions is forcing the Postal Service to propose eliminating Saturday deliveries and to slash another 50,000 workers. Adding another 50,000 people to the unemployment roles in the middle of the worst downturn since the Great Depression is hardly good policy.
The Postal Service should be run as a self-supporting business, however it also has to be treated fairly. Congress should have an independent assessment of the key accounting issues. Some degree of pre-funding of health benefits is appropriate, but the measure should be constructed in a way that is consistent with projections used elsewhere in the public and private sector. And, the Post Office should be put on a level playing field with private businesses in other areas, such as its ability to receive Medicare Part D subsidies.
Also, the timing of any funding requirement is crucial; 75-year liabilities do not have to be funded overnight. Keeping people employed through the recession should be a high priority for Congress, even if that means overcoming its hostility to the Postal Service.
I hadn't thought about it but not getting Saturday Netflix really does make that subscription less of a bargain. Though I'm sure Netflix in the end would like to end the mail order service and go all streaming anyway.
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The other problem is that the revenue decline expected over the remainder of the decade makes it impossible to keep either the number of workers employed, real wages levels, or work rules at current levels. Online Clue
April 6, 2011 10:58 AM | Reply | Permalink
I suspect that a large contributing factor for the decline in deliveries has been the reduction in government subsidies for periodicals, which has severely affected small magazines and newspapers, but also the print news industry in general. This has been done by the Postal Regulatory Commission. Facing a budget deficit, the commission declared that periodicals, along with all other classes of mail, needed to cover the “direct and indirect postal costs attributable to that class or type.”
Victor Navasky: “I have never understood why of all the services government provides – defense, education, environmental protection, health, housing, highways and the rest – only the mails are required to break even or make a profit.” Navasky, publisher emeritus of The Nation magazine, told Congress that a 2007 rate increase cost his magazine $500,000 – an expense that followed a year in which the magazine lost $350,000. He said other small journals would have postal increases as high as 58 percent.
March 22, 2010 11:16 AM | Reply | Permalink
Maybe it's just easier to dis an agency represented by people who wear shorts.
March 22, 2010 11:47 AM | Reply | Permalink
I believe, and it is supported by research as well as PO rank and file, that a substantial amount of 'blame' is attributable to extremely poor management and yes, malfeasance by the top echelon of those who oversee the USPO.
The list is long and horrific of waste and budgetary abuses.
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December 15, 2010 11:58 AM | Reply | Permalink
Back when Compuserv and AOL were state of the art and the Internet not yet much used by anyone but academics and researchers, I attended a presentation by people from the Post Office on their corporate strategy.
They identified their mission as "communications", apparently because the small objects that they moved from place to place often contained writing, pictures, and illustrations. They were also desparately trying to figure out how they could charge postage for email.
Meanwhile, UPS and FedEx, who correctly identified their mission as moving small objects from place to place, have prospered.
Besides not quite knowing what their business was, the USPS is crippled by having to serve a lot of addresses that are not economical to serve because of their universal service role, while their competitors are not.
March 22, 2010 3:17 PM | Reply | Permalink
Dean,
An intelligent column but I think you may need to look a little bit more carefully into the problem that the USPS faces. Yes, based on his testimony, the USPS could continue to maintain 6-day delivery if the pension and retiree health issues were resolved in its favor but as some have said that is a lottery ticket and you cannot assume that the lottery ticket will win.
The other problem is that the revenue decline expected over the remainder of the decade makes it impossible to keep either the number of workers employed, real wages levels, or work rules at current levels.
For instance. The Postal Service has a network of over 350 facilities sorting originating single-piece mail. This network is generally thought of as having 50% more labor and physical capacity than current demand. By 2020, the volume of originating single-piece mail will be 30% of what it is today. So by 2020, the USPS could need only 15% of the capacity it has today.
Resolving the overcapacity issue could further aid the continuation of good paying blue-color jobs well into the next decade. Not resolving it could end up reducing service more rapidly than the USPS proposed and raising mail prices more rapidly, further discouraging the use of mail by large volume mailers that now provide 80% of the volume and 70% of the revenue.
March 22, 2010 3:53 PM | Reply | Permalink
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March 22, 2010 8:25 PM | Reply | Permalink
The Postal Service should be run as a self-supporting business, however it also has to be treated fairly.
Why should it be a self-supporting business? I used to be able to mail a package without having someone try to sell me something, but no longer. I'd rather it were run as a non-profit public service.
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July 14, 2010 9:39 AM | Reply | Permalink
This has been done by the Postal Regulatory Commission. Facing a budget deficit, the commission declared that periodicals, along with all other classes of mail, needed to cover the “direct and indirect postal costs attributable to that class or type.” p90x
July 16, 2010 9:04 PM | Reply | Permalink
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July 16, 2010 9:04 PM | Reply | Permalink
The postal service has been crippled by financial problems where their biggest competitor is the internet. In the past where there is no internet, people used to communicate through letters or telegraphic transfer. But today, with technology is fast evolving, the postal service is behind. People are now using emails and social networks to communicate in real time and not to wait for a few hours or days to receive the message. Fast communication is what I need like the internet because I'm working online such as essay writing. I must always be updated so that I will have no problems in making my essay. UPS and FedEx also add up to the problems of the US Postal Service. The USPS will not be abandoned and will still operate but will probably lose some staff.
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I agree with you that the Postal Service has been scaling back its workforce more than proportionately to the decline in mail volume, increasing the productivity of its workforce. Really, this is exactly how we would expect a private business to respond to the decrease in demand for its services. In other words, the post office has recognized and responded to the changed environment.
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December 20, 2010 9:43 AM | Reply | Permalink
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It's up to you to make them stop.
We're with you, but none of us is a Senator, or a President.
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You were elected to make them stop, and you're not doing it. Obviously, we're pretty frustrated with you. Our frustration will end when responsive government starts. To help you along, here are a few simple points.
1. Light shaming works on Democrats. It doesn't work on Republicans.
2. What I wrote about shame? Ditto for encouragement. Forget it. Useless.
3. What you wrote above was 500 words without even one specific suggestion for getting Democrats moving and Republicans in line. (I know, you said "Let's Debate!" but you know that doesn't really count.) Do some real things, please.
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Personally, I'd stick to "There are areas where Democrats and Republicans can agree. If you're represented by Senator XYZ, get him or her on the phone and tell him or her to start governing instead of doing Senate stupid pet tricks--because right now your Republican Senators are not representing you." Or something along that line--a genuine call to action.
Maybe there should be a "Bunning Shunning." Like a really serious one. Nobody talks to the guy. Uninvite him from parties and events. Bring the workers he disemployed to Washington and have one follow him every time he goes to the bathroom. Nothing makes a guy more nervous than having an angry unemployed guy glaring at him while he's trying to pee.
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