Dark times at the post office
One of America’s oldest institutions is facing default. The United States Post Office could be forced to stop delivering mail at the end of September. The rhetoric around the issue is beginning to sound like the potential default of U.S. government debt obligations during the debt ceiling debate. A report from the Government Accountability Office (GAO) tells the fiscal tale:
USPS has experienced a cumulative net loss of nearly $20 billion over the last 5 fiscal years. USPS does not now have—nor does it expect to have—sufficient revenue to cover its costs without legislative changes.
Every nation on earth has a postal service. Some countries have combined mail and phone services, although many have been privatized in recent decades. In Japan the post office is combined with the world’s largest deposit bank and mail carriers serve as bank tellers as they do their delivery rounds. Postal service is indispensable to an economy and society.
The next time you pick up your mail think about the role the postal service has played in shaping America. During colonial times postal riders carried newspapers and political treatises, as well as seeds, bills of tender and personal letters. Benjamin Franklin was appointed the first postmaster general when the Second Continental Congress decided it needed to replace King George’s postal business, which had begun with monthly postal deliveries between Boston and New York in 1672.
In 1788 John Jay wrote to George Washington:
The Direction of the Post Office, instead of being as hitherto, consigned chiefly to a committee, and managed without much System, should I think be regulated by Law, and put under the Superintendence, and in some Degree under the controul of the Executive.
Thus began the formal organization of the postal service as a department of the executive branch. Now, 223 years later, it has been overcome by electronic communications and private, for-profit package carriers. Its vast network of 33,000 retail and processing facilities are a relic of earlier days and slower means of communication.
I live in a small village so I think I have a different perspective on the post office than many others do. When I visit the beautiful building, whose design was overseen by Franklin Delano Roosevelt, I see neighbors greeting each other, immigrant laborers waiting patiently in line to buy postal orders, a small local businesswoman shipping off hundreds of copies of her latest catalog and an elderly person requesting insurance for the package she is sending her grandchild. It is the active heart of my community. But like many older institutions, labor and pension costs have outstripped revenue and the cold knife of commercial viability threatens. From the GAO report:
USPS currently has approximately 600,000 active employees and 480,000 annuitants participating in the FEHB [Federal Employees Health Benefits] program. In fiscal year 2010, USPS recorded over $12.8 billion in health care costs. USPS reported in its fiscal year 2010 annual report that its Retiree Health Benefits Fund had assets of $42.5 billion. USPS’s proposal stated that these assets would cover 47 percent of all future liabilities for current and future retirees.
This large employee cost base is a legacy of another time when post offices were located in every small hamlet and village. The ratio of current employees to retirees is nearing 1:1, accounting for a large part of current costs that competitors like UPS and FedEx do not bear.
The postal service is an essential part of the nation’s fabric and needs time to remake itself into a more efficient operation and close the 12,000 post offices that are unprofitable in today’s world. Once again from the GAO report:
USPS had $67 billion in revenue in fiscal year 2010 and $75.5 billion in expenses, resulting in a loss of $8.5 billion, which it expects to grow to a $20 billion loss by 2015
I don’t think it’s unreasonable for the federal government to allocate funds to help the USPS transition. If this sum was $150 billion over ten years I think it would be money well spent. It would fund a commitment to honor the pension and health benefits promised to current and retired employees. It would provide working capital for the post office to modernize their information technology operations and consolidate physical offices. Is this expensive? Yes, but it pales next to the $7 trillion we will spend over the same time period on the military. Remaking the second largest employer in America should take time and be subsidized. It’s an old work horse who has served this nation well and should be given time and resources to discover how it can profitably continue.
My fellow Reuters blogger Felix Salmon proposes that Congress allow the USPS to enter the financial services area. I heartily second his idea.