The panic over whether the U.S. Postal Service (USPS) could deliver election ballots has passed. So is the fear it would run out of cash and stop all deliveries—Congress provided it with $10 billion in emergency relief to cover COVID-induced losses and expenses.
But fundamental problems still threaten its future viability as mail delays continue.
Money Matters
For years, the USPS has lost revenue as individuals, businesses, and advertisers shifted to electronic communications from paper delivered by mail carriers. Cumulative losses since fiscal year 2007 were some $87 billion, including a loss of $9.2 billion in fiscal 2020 against revenue of $73.1 billion.Don’t Mess With Packages
The Trump administration and some critics argue that USPS loses money when it delivers packages for e-commerce shippers, notably Amazon. Yet, USPS revenue from package deliveries in fiscal 2020 surged to $28.5 billion, an increase of more than 25 percent over 2019, actually exceeding the $23.8 billion in revenue from first-class mail. It’s the bright spot in USPS finances.Currently, by law, USPS must charge e-commerce companies for delivering their packages rates to cover its direct, or “attributable,” costs, e.g., the time mail carriers spend delivering packages, and an appropriate share of USPS overhead costs, e.g., a share of facilities. Courts have certified that USPS pricing is in accordance with congressional mandates.
Some critics would justify higher package rates by pushing the antiquated, widely rejected “Fully Distributed Costing” accounting trick that arbitrarily assigns costs not directly related to services provided. Congress rejected this approach when it passed the Postal Accountability and Enhancement Act of 2006.
If USPS does substantially boost package rates on U.S. companies and consumers, e-commerce companies such as Amazon and UPS would simply carry more packages on their own expanding fleets of delivery vehicles, reducing USPS package volume and revenues; DeJoy wisely refused Trump’s demands to quadruple package deliveries rates.
Focus on Cost Control
A 2019 General Accounting Office study does shed light on several actual reasons for USPS losses:“Insufficient cost savings: The savings from USPS cost-reduction efforts have dwindled in recent years. Although USPS has stated that it will aggressively reduce costs within its control, its plans will not achieve the kind of savings necessary to significantly reduce current operating costs.
“Unfavorable trends: USPS’s expenses are now growing faster than its revenues—partly due to rising compensation and benefits costs and continuing declines in the volume of First-Class Mail.”
Address Pension Costs
A major reason for USPS deficits is that it’s required by Congress to pre-fund employee retirement. Other government agencies have those costs covered by taxpayer dollars. But USPS is supposed to cover benefits from revenues from its services. Recently introduced House legislation would remove this requirement. But there are better approaches to addressing this problem. Amortizing payments over a longer period and using postal-specific wage growth data and more realistic allocation methods for calculating USPS’s share of the pension liabilities would help.Avoid Non-Postal Frolics
Some suggest that USPS provide non-delivery services, e.g., banking, but such efforts in the past have been costly boondoggles. USPS should stick to the business of delivering mail and packages, while exploring ways to increase efficiency and hold down costs by expanding the use of the private sector.Above all, policymakers should move beyond the recent panic mindset and think clearly about e-commerce and serious postal reform.
