Identity Crisis at the USPS | Citizens Against Government Waste

Identity Crisis at the USPS

The WasteWatcher

On Wednesday, April 7, 2015, the United States Postal Service (USPS) unveiled its newest postage stamp, a commemorative tribute to the renowned and beloved poet and writer, Maya Angelou.  The celebration attracted First Lady Michelle Obama, Attorney General Eric Holder, and Oprah Winfrey, who is an Angelou mega-fan.  Unfortunately, within hours of the stamp’s launch, it was revealed that the quote printed on the stamp was not written by Maya Angelou, but by another writer, Joan Walsh Anglund. 

Postal officials have been cagey about whether they will reissue the stamp with an authentic Angelou quote or not, but the blunder drew derisive reactions and negative attention to an agency already under intense criticism and fiscal duress.  In the ongoing slog over how to reform the troubled USPS, postal officials and other stakeholders might look to Maya Angelou for some of her bona fide words of wisdom:  “If you don’t like something, change it.  If you can’t change it, change your attitude.  Don’t complain.” 

Transformative postal reform will require more than just a change of attitude.  But before it can proceed, there must be more transparency about the USPS’s finances and certainty about its mission.

Over the past eight years, the agency has lost $57.1 billion, which is unnervingly close to its $67.8 billion budget for just fiscal year (FY) 2015.  In the first quarter of FY 2015, the USPS lost another $754 million.  One of the root causes of the continued losses is a 26 percent drop in mail volume since 2006, a trend that shows no sign of abating.

Over the last five years, practical efforts by postal management to reform the USPS operations have become highly politicized minefields, into which members of Congress from both sides of the aisle have repeatedly stepped.  In 2014, due to the fact that even thinking about closing a post office is anathema to the vast majority of members, Congress obstructed and delayed proposed closures and consolidations of postal facilities.  Likewise, the USPS’s initiative to drop back to a five-day delivery schedule was blocked by Congress in 2013, even though postal officials claim it will save $2 billion annually.  At least the agency is tenacious and has once again set out to close and consolidate facilities.

However, even if these failed efforts eventually succeeded, they would be far from sufficient to stop the flow of red ink.  A March 13, 2014 Government Accountability Office (GAO) report documented that the downsizing of the USPS workforce from approximately 796,000 to 618,000 employees between FY 2006 and 2013 resulted in no cost savings because the USPS was simultaneously negotiating higher hourly wages and benefits, richer cost-of-living allowances, and increased health benefits in its collective-bargaining agreements.  The GAO stated that despite these reductions in labor, USPS labor costs are expected to rise by $2 billion in FY 2015.  Furthermore, the agency has begun to reclassify lower-cost, part-time workers into permanent higher-cost, full-time positions, which will put even more pressure on its future pension and healthcare liabilities.

Curiously, as cost-cutting efforts seem to be going nowhere, the USPS’s regulatory body, the Postal Regulatory Committee (PRC), has given the agency the green light to strike off into new competitive territory with several new initiatives, such as partnering with Amazon to deliver fresh groceries to households in several cities and offering Sunday delivery of Amazon parcels to customers in some regions.  In January, 2015 USPS launched a same-day delivery pilot effort in Washington, D.C., even after a similar program in San Francisco failed miserably.

Postal reform has been on a faltering trajectory.  Both the Senate and the House of Representatives reported postal reform bills out of their respective committees in the 113th Congress, but neither of them received floor votes.

The USPS has become an ideological pawn in a culture clash between those who intend to use the USPS for “social engineering” and “pragmatists,” who seek to modernize the agency to allow it to meet dropping demands, become more flexible and efficient, and prevent it from leveraging its subsidies to compete with and bulldoze over private-sector companies already offering certain services.

Denizens of the “social engineering” camp include Sen. Elizabeth Warren (D-Mass.) and the postal unions, who envision the USPS providing non-banking financial services to the “unbanked,” among other services, as well USPS Inspector General (IG) David Williams, whose oversight work now seems to consist of building a case for the transmogrification of the agency into a futuristic logistics operation, rather than identifying wasteful practices and guiding the agency toward overdue management changes.

At a March 25, 2015 Brookings Institution forum called “The Future of the United States Postal Service,” that cultural contrast was brought into stark relief.

IG Williams used his opening presentation to channel beat poet Jack Kerouac and wax prosaic about the future, urging stakeholders to “define the Postal Service conceptually as an enabler of communications and logistic services in age of great upheaval and advancement …,” and to “act as an intermediary, enabling seamless navigation between people’s digital and physical lives.  Gain an essential American neighborhood role in providing inputs to smart megacities of the future.  We should equip our trucks and our carriers and our post offices to become a mobile sensor net collecting and uploading data to customers and to the smart city infrastructures.  We should be testing Wi-Fi and cable strength in the neighborhoods, air quality, gas leaks, conduct meter readings. We should become neighborhood cohort centers for electricity reserves for the power grid, 3D print centers…. we should act to protect the continuity of commerce during the coming supply chain wars.”  Dream on.

The pragmatists were well-represented by PRC Acting Chairman Robert Taub, economist Robert Shapiro, and Association of Postal Commerce President Gene Del Polito, all of whom offered a more earth-based approach to the USPS’s dilemma.  Del Polito provided one of the best counterpoints to Williams’ utopian vision by stating, “I don’t choose to talk about the world the way that I would like it to be or the way that I would believe it to be.  I have to talk about the world the way that it is.”

And as it is right now, the USPS is nontransparent.  Del Polito, as a representative of the business mailers, whose products make up 95 percent of the mail moving through the postal system, expressed concern about the lack of transparency in cost allocation data.  He said, “The whole day of being able to go to the Postal Regulatory Commission and finally got them when you asked for the costs of competitive services you find everything redacted should be long gone. I, as a user of market dominant services, have an absolute right to be assured that when I pay a price for that particular service, that price is covering the cost of my service, not the cost of somebody else’s. So we're looking for a way in which we can actually say that we’ve got an ability to measure the costs in a way so that we’re sure that they’re accurate, they’re complete, and transparent.”

Sonecon, an economic advisory firm founded by Shapiro, released a study on March 25, 2015 documenting that the USPS’s special privileges are worth $18 billion, a far cry from the PRC’s annual $4.9 billion estimate.  According to the report, the value of the USPS’s subsidies stems in large part from its two monopolies, one for the carriage of mail and the other for mailbox ownership, along with its massive economies of scale.  During the Brookings panel, Shapiro compared allowing the USPS to gamble on new competitive businesses to permitting the Pentagon to launch a private for-profit security firm.  Furthermore, according to Shapiro, cross subsidization in an entity like the USPS is “pervasive and significant.”  (Many of these same arguments were made with regard to the housing government-sponsored enterprises Fannie Mae and Freddie Mac in the run-up to their implosions and taxpayer bailouts, to no avail.)

Postal statutes bar the USPS from offering “non-postal” products; unfortunately, the PRC, which adjudicates which new businesses the postal service can launch, relies on an overly broad definition of what constitutes a postal product.  Acting PRC Chairman Taub recognized as much when he stated during the Brookings discussion that “The law made a decision in 2006 for better or for worse that the Postal Service could only offer postal products….  But within that framework of what’s postal, there is clearly a lot of flexibility and the Postal Service, as they have, have come to the Commission and can continue to do so.”

It should go without saying that the USPS should not be permitted to enter new business sectors that are already well-served.  By its own admission, the USPS’s motives for striking out into grocery delivery, banking, and any other pie-in-the-sky services being concocted deep in the bowels of the Inspector General’s office or among USPS managers, are not meant to address market failures (does anyone believe that the USPS is in a position to act as a foil to global supply chain disruptions?), but as a way to justify a bloated workforce and siphon revenue from other extant and thriving businesses.  Those rationales are simply not good enough; they are the result of wishful thinking, not sound planning and management.  The USPS is not structured to be a competitive entity.  Its business model and financial incentives do not align with those of private sector operations.  And its subsidies cushion financial fiascoes in a manner not available to its erstwhile “competitors.”

First class and advertising mailers, who are captive in the USPS’s monopoly business, are already being forced to subsidize these adventures at a time when the agency is arguing that services to those captive customers must be degraded, ostensibly because of financial stress.  Even with its massive raft of unfair advantages, including the ability to borrow from the U.S. Treasury at discounted rates; exemption from real estate taxes; absolution from paying parking tickets, tolls or registration on its vehicles; plus a special revolving-fund arrangement with the U.S. Treasury that allowed the USPS to recoup almost $850 million in federal income taxes in 2014, the agency still manages to lose scads of money.

Before granting the USPS the green light to launch or expand into new areas of business of any kind, and certainly in advance of enacting postal reform, the PRC and members of Congress must mandate increased transparency into how the USPS accounts for all of its costs and revenues.  Without a clear sightline into the USPS’s finances, no one can be sure what the agency is doing, how it can be reformed, or where it should be headed. 

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