Losing Money Isn't the U.S. Postal Service's Only Problem

While your mailman may brave rain, snow and dark of night to deliver your mail during the week, it's looking like he'll spend Saturdays watching cartoons. Faced with an estimated $7 billion shortfall in 2010, the United States Postal Service (USPS) is contemplating radical cuts that would slow down service, eliminate Saturday mail delivery, dramatically alter the post office's workforce, and raise the cost of postage.

Although there are multiple reasons for the USPS's current budget shortfalls, its biggest problem lies in its bizarre relationship with the federal government. While the Postal Service is expected to finance itself, it is not allowed to set its own rates, choose its own hours, or determine its internal policies. To turn the problem around, the USPS will either need to be directly funded by the government (as is the case in many countries) or it needs the freedom to set its own prices, policies, and hours.

On Tuesday, Postmaster General John E. Potter made a bid for greater autonomy when he revealed the results of a four-month, $4.8 million study conducted by three big-name consulting firms: Accenture, the Boston Consulting Group, and McKinsey & Co. The study identified 50 moves that the USPS could take to improve its bottom line. The USPS then narrowed those suggestions down to five general areas: pricing, workforce, service, employee retirement benefits, and new services. Among some of the biggest changes to its current model, the post office will slow down its delivery speed and cancel Saturday services (post offices, however, will remain open six days a week.) But, as the USPS is legally required to deliver mail on Saturdays, these changes would require the assent of Congress.

Problem Number One: Congress Is in the Driver's Seat

Therein lies the USPS's ultimate problem: every policy decision must be approved by Congress, leaving the agency as agile as an elephant. Critics regularly attack the Post Office for its supposed inefficiency and inability to function as well as private companies like the United Parcel Service (UPS) and FedEx (FDX). One big problem is that these competitors are able to set their own policies, while the USPS's rates, hours and even its pension plan funding are determined by Congress. This last item isn't incidental: In 2007, while the Post Office was attempting to deal with plummeting revenues, Congress dropped an anvil on its head with a law requiring the USPS to pay between $5.4 billion and $5.6 billion per year into its retiree health benefits trust fund. By comparison, most of the country's other businesses are legally allowed to underfund their retiree benefit programs. Although this number was later cut, it still represents a major expenditure for the beleaguered agency.

Not helping matters is the fact that people are barely using the post office anymore. E-mail has rendered traditional letter writing almost obsolete, while online bill pay, direct deposit and other services are also cutting into demand. According to Potter, mail volume fell from 213 billion pieces in 2006 to 177 billion pieces in 2009, a 17% decline in just three years. By 2020, he estimates, USPS deliveries will fall to 150 billion pieces.

And much of the existing mail volume is actually unprofitable. Media mail, periodicals, nonprofit mail, and library mail are all money sinks; in fact, 90% of the agency's revenue comes from business mail, a large portion of which is junk mail. While dropping "advertising mail" would make almost everyone happy, the post office can't afford to lose the revenue. According to Potter, the mail that we tend to toss out immediately actually pours over $15 billion per year into the Post Office's coffers. While part of the USPS's shortfall could be made up by raising prices on more popular services, the agency would have to go hat in hand to Congress in order to get approval to do so.

Does the U.S. Postal Service Deserve a Bailout?

In addition to putting an end to Saturday delivery, the USPS is also hoping to change the face of its workforce. Last year, it helped fund a $6 billion cut in its bottom line by dropping 40,000 employees. Over the next ten years,it expects that roughly half of the USPS workforce -- 300,000 employees -- will either retire or voluntarily quit. Rather than replace them with comparatively expensive full-time workers, the Post Office plans to follow in the footsteps of the rest of corporate America by hiring part-time workers who are not eligible for benefits. While these workers will place a bigger burden on an already-stressed social net, they will also lower the Post Office's bottom line.

Tuesday's announcement, coming only six months after last year's post office closures, suggests a chronic problem: as it stands, the USPS is not a profitable program, and isn't like to become profitable any time soon. But the model of mail delivery as a business is inherently flawed: the postal service is not an optional purchase like a Big Mac or a new car. Rather, it is a fundamental governmental service, a basic requirement for a modern, industrialized nation. Along with public schools, roads, and the military, it is something that citizens justifiably feel entitled to.

Yet the Postal Service is not directly funded by the federal government: although the government puts caps on the postage that it can charge, the USPS is expected to pay for itself. While it is allowed to borrow up to $15 billion from the U.S. Treasury to help it through difficult times, it is currently running a tab of $10 billion and may borrow another $3 billion this year. But this ad hoc funding system, disturbingly similar to the old method used to fund Amtrak, is a stopgap, and doesn't allow the Postal Service to engage in long-term planning.

And then there is the Post Office's position in the community. Lest we forget, post offices provide the most prominent -- and, in many towns, the only -- physical connection between communities and the federal government. In addition to providing mail services, they are also where citizens go to get passports, check the wanted posters, and register for selective service. Of course, this also goes a long way toward explaining why many citizens distrust the government: the standard service at many post offices is slow, surly and unresponsive.

The question should not be how much of a postal service we can live with or how much we can cut from an already underfunded program. A more important question is how much it would cost to fund an efficient, cost-effective and responsive postal service with shorter lines and reasonable delivery times. Admittedly, the USPS could certainly afford to trim some fat, and some of its executive perks are excessive. But this year's predicted $7.8 billion shortfall is half the price of the 2008 Detroit bailout and roughly 1% of the price of the Wall Street bailout. And, in terms of touching the lives of average Americans, its hard to find a more effective use of taxpayer money.