Alas, poor post office: Newsweek broods on the demise of the Postal Service

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Last week Newsweek ran an opinion piece entitled “Do We Need a Postal Service?”  It originally appeared on the website of the Brookings Institute with the title, “The U.S. Postal Service’s existential problem.” 

“The U.S. Postal Service has an existential problem,” begins the op-ed, and twice more in the space of just 840 words it refers to the “existential crisis” and “existential question” facing the postal system.

The essay is about how the Postal Service is becoming obsolete and pointless and headed for "a day of reckoning," sooner or later.  “To be clear," it says, "the Postal Service cannot be abolished; at least, not immediately.”   

Some readers consequently thought that the essay was looking forward to that day when we would be done with the Postal Service, but then in response to a reader’s comment, the author backs off and says, “Just to be clear, nothing in my op-ed advocated abolishing USPS.

To abolish or not to abolish, that is the question.

 

R Street and Newsweek

The Newsweek op-ed is by Kevin Kosar, who, as his bio says, is a senior fellow at the R Street Institute.  Before joining R Street, he covered postal issues for the Congressional Research Service (CRS) for more than a decade.  

The R Street Institute is a conservative advocacy group that promotes “free markets and limited, effective government.” It's a spin-off of another conservative think tank called the Heartland Institute.

In 2012 Heartland ran into controversy over an anti-global-warming campaign it had launched featuring Unabomber Ted Kaczynski, Charles Manson, and Fidel Castro, all saying they believed in global warming.  The campaign wasn’t very tasteful, the big Heartland donors withdrew their funding, and several Heartland staffers departed and created R Street (which does not promote climate change skepticism).

One of the founders of R Street was Eli Lehrer, now its president.  Back in 2012, Lehrer wrote a piece on Huffington Post entitled “The Postal Service Should Go … Now.”  According to Lehrer, the Postal Service is simply "useless," most communication these days is digital, and anything the Postal Service can do the private sector can do better.  "There's no need to beat around the bush or talk about preserving some sort of service," concluded Lehrer.  "The Postal Service should go. Now."

As for Newsweek, it still runs a print edition in some foreign markets, and it's back in print in the U.S. after ceasing print publication at the end of 2012, but it's probably printing a small portion of what it printed a few years ago, when its circulation was in the millions. The company is owned by IBT Media, which focuses on online publications.  No wonder, then, that Newsweek might like the message in Kosar’s piece.  One of its underlying themes is basically “print is dead, long live online media.”

The piece has provoked a lively discussion in the comment section, and Kosar has taken the time to respond to many readers.  There are several statements in his op-ed that are worth commenting on, such as the following:

 

Flirting with insolvency

“The U.S. Postal Service has an existential problem.  For five years, the agency has flirted with insolvency.  It has $15 billion in debt, its statutory maximum.  According to its most recent financial statement, the USPS, 'continues to suffer from a lack of liquidity.'” 

The reason that the Postal Service is $15 billion in debt is that since 2007 it has had to make unnecessarily large annual payments of $5.5 billion into its retiree health benefit fund (RHBF) — as well as dealing with the worst economic downturn since the Depression.  Every dollar of that $15 billion was borrowed from the Treasury to pay back to the Treasury contributions to the RHBF.

And there's no way the postal system is going to become insolvent and unable to pay its bills.  However one calculates its obligations, the agency’s assets are immense and perfectly capable of covering any liabilities.   

According to a recent OIG report, the current estimate for long-term pension and healthcare liabilities is about $400 billion, and the Postal Service has already set aside more than 83 percent of this amount.  The pension plans are nearly 100 percent funded, and the retiree healthcare liability is 50 percent funded — much better than the rest of the federal government.  

On the other side of the ledger, the assets of the Postal Service are huge (as discussed in this previous post).  The Postal Service’s real estate alone is worth somewhere between $27 billion (the USPS estimate, based on costs) and $85 billion (the OIG estimate, based on market value).  The value of the Postal Service’s intellectual property is unknown, but the OIG says the ZIP code alone is worth $10 billion annually.  Then there’s all the equipment like sorting machines, vehicles, and so on. 

If it weren’t for the RHBF prefunding, the Postal Service would not be showing huge losses, it would not have had to borrow from the Treasury, and it wouldn't be suffering a liquidity problem.  The Postal Service is not going bankrupt.

 

$50 billion in unfunded obgligations

“The Postal Service has not made any payments into its Retiree Health Benefits Fund since 2008, meaning its $50 billion in unfunded health care obligations are not getting any smaller.”

There's a lot more to this story.

First of all, no other government agency or private corporation is required to fund its retiree health care liabilities at 100 percent like the Postal Service.  According to a 2012 OIG report, the federal government does not prefund its retiree health care benefits at all, the military is funded at 35 percent, and in FY 2009 state governments were funded at 30 percent. 

According to an earlier 2009 OIG report, “The Postal Service could pay on average $4.0 billion less each year from FYs 2009 to 2016 to prefund its retiree health benefits and still achieve the same level of funding anticipated under OPM’s assumptions.”  

In 2012, the Inspector General wrote a letter to Senator Bernie Sanders that if the Postal Service were to stop making the $5.5 billion payments and overpayments to the pension fund were returned, the RHBF would grow with interest and reach its $90 billion liability by 2033. 

Also, as explained in that recent OIG report, the RHBF liability is calculated using variables like interest rates that can change in ways that would make it much smaller or erase it completely.  Using alternatives like Medicare would also eliminate the liability entirely.

In response to a reader’s comment about the prefunding fiasco, Kosar admits that “Congress screwed up.  The payment schedule was WAY too aggressive.” 

The fault, however, lies not just with Congress but also with the Bush administration.  A 2009 committee report in the House of Representatives about the Postal Accountability and Enhancement Act (2006) explains it this way:

The payment schedule for the first 10 years was established primarily to make the PAEA budget neutral, responding to the concerns of the Office of Management and Budget at the time the PAEA was passed, rather than corresponding to actuarial requirements or financial conditions at the Postal Service.

Here’s what that passage is referring to.  In 2002 the Office of Personnel Management (OPM) determined that the Postal Service was overpaying billions of dollars into one of its pension plans, and one of the aims of postal reform legislation was to fix the problem. 

The Bush administration, however, said it would not approve any legislation that wasn’t “budget neutral.”  The billions that would no longer be flowing from the Postal Service into the pension fund at the Treasury had to be transferred in another way so that the legislation did not increase the federal deficit.  Hence the creation of the retiree health benefit fund.  (Before this time, the Postal Service had been covering this expense on a pay-as-you-go basis.)

The Bush people at the Office of Management and Budget (OMB) — under its director Rob Portman, now senator from Ohio — required the large payments to the RHBF to offset the reduction in pension payments.  (There's more about how the prefunding came about in this previous post.)

This is important because it shows just what a manufactured crisis the Postal Service is facing as a result of the prefunding mandate.  If the Postal Service faces an existential crisis, we can thank the Bush administration for that.

 

Not replacing retiring workers

The agency has tried to shave overhead costs by not replacing hundreds of thousands of retiring employees, and closing post offices or reducing their operating hours. (Most post offices lose money.)” 

First of all, the Postal Service has done a lot more than “shave” costs.  In FY 2007, expenses were about $80 billion; in FY 2014; they were about $73 billion — almost a 10 percent reduction.  Compensation and benefits have been cut from $54 billion to $46 billion — a reduction of about 15 percent.  In the process, over 200,000 jobs have been eliminated.

These cost reductions weren't made possible simply by "not replacing" retiring workers.  That’s one of the myths of attrition.  In fact, the Postal Service has been very active in getting workers to leave the Postal Service.  In addition to incentive buyouts, it has closed half the country’s mail processing plants and given workers the “option” of commuting ridiculously long distances to another plant.  In 2012, POStPlan pushed thousands of small-town postmasters to retire by telling them their post office would no longer have a postmaster as of September 2014.

Closing post offices has had little to do with the cost savings.  During his tenure as Postmaster General (Oct. 2010 – Feb. 2015), Patrick Donahoe closed about 750 post offices.  A look at the cost savings numbers revealed during appeals to the Postal Regulatory Commission shows that each closing, after figuring in replacement costs (like rural delivery for former box holders), saved about $20,000 to $40,000 a year.  For all 750 closures, that adds up to something on the order of $25 million annually — 0.03 percent of the USPS annual budget. 

As for the parenthetical remark that “most post offices lose money,” it’s important to recognize how costs and revenues are figured.  The Postal Service gives all the revenue credit to the facility where the mail is entered (usually a processing center or bulk mail entry unit), even though the costs of delivering the mail are assigned to local post offices.  In other words, the post office must bear the cost of delivery without getting any credit for the revenue.

Big mailers and privatization advocates talk about closing post offices as a key way to cut costs because average people can relate to the idea.  They’re led to believe that post offices are like a chain store or fast food franchise.  If some of them are losing money, it only makes sense to close them. 

But post offices aren’t simply retail outlets that sell postage.  A lot of other work goes on, like sorting mail and housing letter carriers.  Plus, the post office in a small town often serves as a community center, and it has a social value more like that of a library than a fast food joint.  

That’s why a third of those 750 closings were appealed to the PRC, that’s why a recent OIG report found that people place a "high value" on interacting with a postal employee at their local post office, that’s why citizens complain vociferously to their elected officials when a post office is threatened, that’s why the Postal Service decided not to close thousands of post offices, and that’s why it hasn’t closed but a couple of them over the past 17 months.

 

Environmental damage

“Indeed, from a 21st century perspective, the USPS looks like a hopelessly retrograde enterprise. We cut down trees, mill them into paper, print words on the paper, then transport the paper all over America in pollution-belching trucks, and have people deliver them (often on foot) to 150 million addresses. Then people throw most of it away unopened….  Meanwhile, I can email my sister in Ohio, text my nephew in New Jersey, Facebook message my friend in Russia and video chat with my mother for little to no cost and without environmental damage.”

The Postal Service actually uses a variety of alternative-fuel vehicles, including electric, and the next generation of vehicles — if the Postal Service can find a way to pay for it — will be much greener.

As for the mail itself, yes, it’s sad to see mail thrown away as soon as it is delivered, but that’s blaming the messenger.  Individuals can tell catalog mailers to stop sending unwanted catalogs, and instead of saturation mailings, advertisers could be more selective about what they mail and to whom.

But online chatting, email, and texting do not come at “little to no cost.”  Computers, smart phones, and broadband connections all cost serious money.

And it’s not as if there’s no environmental damage from the digital realm.  Computers use rare earth minerals and metals, the manufacturing process requires toxic compounds, and there’s a vast quantity of e-waste, much of it shipped abroad.

Plus, computers use electricity, which contributes to greenhouse gas emissions.  A single Google search can result in 1-10 grams of CO2 emissions, which add up to thousands of tons of greenhouse gas emissions per day. 

The question of which is more environmentally friendly, the digital realm or print, is a complex issue about which much has been written (like this Guardian article).  It makes little sense, though, to say there’s no environmental damage from communicating via the Internet.

 

A pointless anachronism

“Eventually a day of reckoning must come. A government operation that goes bankrupt is unlikely to be bailed out by a public who sees it as a pointless, environmentally harmful anachronism.”

The public does not see the Postal Service as pointless.  According to a recent Gallup poll, 41 percent of adults look forward to checking the mail each day.  And it’s not just older people.  For age 50-64, it’s 41 percent, and for 18-29, it’s 36 percent.  Over 90% say they have a very positive or positive reaction when receiving personal letters and cards. 

Kosar observes that “even Christmas cards and wedding invitations are going electronic,” but according to the Greeting Card Association, people are still sending lots of personal mail.  Greeting cards make up three percent of First Class mail, one of the most profitable types of mail.  That’s about 2 billion pieces of mail and about $1 billion a year in revenues.

The Gallup report comes to this conclusion: 

Despite the electronic revolution in communication and commerce in the last twenty years, millions of Americans continue to be interested in their daily interaction with the U.S. Postal Service and associate positive emotions with the mail — in particular, with receiving personal letters and cards. These results, coupled with the previous finding that eight in 10 Americans still visit a post office a few times a year, and that nearly half visit at least once a month, show that the perceived value of old-fashioned mail service is still high among many Americans.

Americans value the mail and post offices, and the Postal Service is not going bankrupt and it’s not going to need a taxpayer bailout.  That’s just the usual canard thrown out by those who want to bash the postal system.  As noted above, the Postal Service has a huge reservoir of wealth to cover its liabilities, and if it weren’t limited by Congress in the rates it charges and the products it offers (like banking services), it could easily manage its financial issues.

The Postal Service may be facing an “existential crisis,” but the problem is not the deficit and it’s not the Internet. 

The existential threat to the Postal Service comes from those who don’t want it to exist — conservatives who don’t want anyone to see a successful government-run entity, anti-union politicians and business interests who think paying workers a decent salary is “inefficient,” and corporations in the mailing industry who want to skim the cream off the postal business. 

Now we can add Newsweek to the list of threats.

(Photo credit: Laurence Oliver as Hamlet)

Correction: An earlier version of this story stated that Newsweek no longer printed in the U.S.  Thanks to Dead Tree Edition for pointing out the error.  

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