Congress should stick to its role as a marginally competent board of directors and stop micro-managing the Postal Service into oblivion.
For 30 years, a meddling Congress has been driving the Postal Service from health into bankruptcy while ignoring the three major drivers of its collapse: Congressional mandates, defined-benefit plans for postal workers, and declining mail volume. Clean up the first two and the declining mail volume could be managed by competent executives and dedicated workers empowered to modernize and expand the system. I’ll suggest a cure that Congress can and should enact. For details of the financial situation I suggest reading “The Cost Structure of the Postal Service: Facts, Trends, and Policy Implications,” released July 20, 2011 by the Office of the Inspector General
Congress mandates unnecessary services. To subsidize special interests, it compels delivery of 2nd and 3rd class mail at a loss. It limits any increase in the price of stamps to the rate of inflation and ignores more rapid increases in operating costs such as transportation. In 2006, it mandated that the Post Office pay $5.5 billion each year into Federal coffers until 2020, ostensibly to pre-fund health care costs for the next 75 years. (Gross revenues for the post office were only $63 billion in 2011). This last piece of micro-management was passed unanimously by Congress. It should have been obvious to any member with a business background that this would accelerate a financial crisis while doing nothing to solve the long term issues of fiscal soundness. It did, however make Congress look better. Through the magic of bookkeeping, it reduced the Federal deficit by $5.5 billion each year!
Defined-benefit plans, like the health care benefits for retired Postal workers, are intrinsically unsustainable because there is no way to adequately fund them from current revenues. Their future costs and the future value of existing contributions were unknowable and uncontrollable. They were negotiated between management and the postal workers union, but they were simply easy ways out for management, buying labor peace and phony profits at the expense of future workers and taxpayers. They agreed to benefits they couldn’t and didn’t adequately fund. Auto executives and their unions (among many others) took the same easy ways out and bankrupted their companies in 2008. Such programs inevitably produce bankruptcy or bailouts and require younger people to pay part of the costs with lowered salaries and benefits. Defined benefit programs involve either collusion between the two negotiating parties or gross ignorance, and they indenture innocent people who weren’t represented in the negotiations. Defined benefit agreements are destructive, and in the private arena at least, should be illegal because they enable one generation to force later generations into involuntary servitude.
The volume of first-class mail will continue to decline because of the Internet and private delivery systems such as UPS and FEDEX. Unless the postal service is encouraged and permitted to develop new products and services that leverage its infrastructure and credibility, it is doomed to operate with fewer and fewer people and seriously degraded operations.
How to fix it
Congress should make these changes:
1) Mandate only the most essential services for the Post Office, eliminate all other cost and service mandates. Eliminate mandates which subsidize special interests or stifle good management practices. Bite the political bullet and allow first class delivery (in rural areas) for as few as four days a week. (Note that the Post Office’s proposal to eliminate local sorting facilities or the alternative to limit pickup and delivery in selected places to four days a week simply adds one day to the average delivery time for first-class mail. Four delivery days would save far more money, particularly in personnel and transportation costs in rural areas.) Leave the post office free to choose more frequent deliveries on a business basis.
2) Allow the Post Office to charge adequate rates without Congressional interference or oversight.
3) Eliminate the 2006 pre-funding mandate effective 2010 and return the last $11 billion to increase operating capital.
4) Convert defined benefit programs into limited benefits determined by contributions already made and agreed to defined annual contributions from 2012 onward. Benefits may increase or decline based on available funds and number of workers. No grandfather clauses. We should all be in this together.
5) Hire some executives with backbone, give them the authority and incentives to modernize the postal service and allow them to develop or purchase new products and services, and then get out of their way. Don’t continue to appoint political hacks.
The Post Office debacle is a poster child for the deep seated fiscal problems facing Congress and our nation. We could learn vital lessons by handling it with honesty and courage. Who knows, successful cooperation on this issue could improve Congressional standing in the public, and might be a blueprint for how to face the larger issues in a bi-partisan way.