PRIVATIZATION OR BUST?

• Author: Edwards, Chris
• Position: Dollars & Sense

"The Trump Administration's Postal Task Force found that USPS's current business model 'is unsustainable and must be fundamentally changed if ... USPS is to avoid a financial collapse and a taxpayer-funded bailout.'"

THE U.S. POSTAL SERVICE is a large business enterprise operated by the Federal government. It has more than 600,000 employees and more than $70,000,000,000 in annual revenues. These revenues are supposed to cover the Postal Service's costs, but mail volume is plunging, and USPS has been losing billions of dollars a year for more than a decade.

The Postal Service has a legal monopoly over letters and mailboxes. That policy is an anomaly because the Federal government's general economic stance is to encourage open competition in markets, yet the USPS monopoly prevents entrepreneurs from entering postal markets and trying to improve quality and reduce costs for consumers.

While mail volumes have fallen, USPS has expanded its package business, but it makes no sense for a privileged Federal entity to take business from private, taxpaying companies in the package industry. Postal and package markets are evolving rapidly, and the goal of Federal policy should be to create a level playing field open for competition and innovation.

Europe is facing the same challenge of declining mail volume and it has focused on opening postal markets and privatizing postal providers. Congress should follow suit by privatizing USPS and opening postal markets to competition. These reforms would give USPS the flexibility it needs to cut costs and diversify, while providing equal treatment to businesses across postal and package markets.

Congress has given USPS monopoly power over the delivery of first-class mail and access to mailboxes, the latter of which is a unique protection among the world's postal systems. USPS also enjoys a range of other benefits: it can borrow up to $15,000,000,000 from the Treasury at low interest rates; it is exempt from state and local sales, income, and property taxes, as well as parking tickets, vehicle fees, and other charges; it pays Federal corporate income taxes on its earnings from competitive products, but those taxes are circulated back to USPS; it is not bound by local zoning laws, is immune from a range of civil actions, and has the power of eminent domain; and it has government regulatory power, which it can use to impede competitors.

On the other hand, Congress ties the hands of USPS in many ways that prevent it from operating like a private enterprise. Congress restricts USPS's pricing flexibility, requires it to provide expansive employee benefits, imposes collective bargaining, and prevents it from cutting costs in various ways, such as by reducing delivery frequency and closing low-volume post offices.

USPS's financial challenges stem from its high cost structure and falling mail volumes, driven by the rise of email, Facebook, Evite, Internet bill paying, and online advertising. First-class mail volume in particular has shrunk by 45% since 2001. This has been a considerable blow to USPS since first-class mail is its most profitable product.

More than three-quarters of postal costs are for employee compensation. About four-fifths of the USPS labor force is unionized. Management has cut costs by reducing worker count, but Congress has resisted USPS efforts to close post offices, even though the number of retail customers has plunged. Marketing mail--which is "junk mail" to most people--has become the largest type of mail by volume. In other words, expenses are substantially higher than revenues, as assets are fading and liabilities are soaring.

USPS has lost $69,000,000,000 since 2007 and likely will continue losing money unless there are major reforms. Without restructuring, USPS is expected to lose tens of billions of dollars over the next decade. Congress should make incremental reforms to reduce costs, such as allowing low-volume post offices to close, reducing labor expenses, ending collective bargaining, narrowing the requirements included within the USPS Universal Service Obligation (USO), and eliminating cross-subsidies. At the same time, Congress should prepare for longer-term changes by studying European experiences with postal service reform and readying USPS for privatization and increased competition.

The Trump Administration is correct that "USPS's current model is unsustainable." To its credit, USPS has taken steps on its own to cut costs, including reducing employment and post office hours and consolidating mail facilities, but more needs to be done. The following are some steps that policymakers should take to improve efficiencies and help stem losses in the...