Reform Could Offer USPS Enduring Fiscal Health
Fiscal struggles at the U.S Postal Service (USPS) are well-known and documented. In fiscal year 2021, the agency’s net loss is expected to grow to $9.7 billion because of persistently high costs and lower projected revenue. Fortunately, leadership within the agency and Congress have both expressed a willingness to work to remedy this fact. What is ultimately needed is a solution that protects consumers that use its monopoly mail services, while also protecting taxpayers from fiscal irresponsibility.
The USPS released just released its 10-year Plan — ‘Delivering for America’ — a plan to return the organization to financial sustainability and achieve service excellence while maintaining universal six-day mail delivery and expanding seven-day package delivery. Meanwhile, the House Oversight Committee has a discussion draft for legislation hoping to “restore the financial solvency of the United States Postal Service in order to ensure the efficient and affordable nationwide delivery of mail, and for other purposes.”
While Congress and USPS seemingly share the same ultimate goal — namely, USPS solvency and financial independence — politics may be a hindrance to its achievement. The aforementioned House discussion draft bill looks to provide clarity on mail service standards, but it also entails priorities on eliminating some of the USPS’ long-term liabilities, such as ending the pension prefunding mandate. Without clear operational change, USPS may still be compelled to seek monetary assistance from the federal government yet again. Further, the Senate Committee led by Senators Peters and Portman will almost certainly need to reach bipartisan compromises given the narrow divide in the Senate.
Overall, the stage is set for the House, Senate, and the Postmaster General to work together and develop a solid agreement. The long-term success of the USPS is a serious issue worth compromising for in order to achieve the best possible outcome for everyone.
Further hamstringing USPS’ business sensibilities deals with creating requirements on what integrated letter mail and package delivery could look like. This entails possible codifications that would inhibit USPS’ flexibility. Such a measure would represent ill-conceived one-size-fits-all restrictions on how the USPS configures its letter mail and package services.
Given the nation’s diversity of delivery regions and units, it makes the most sense not to superimpose preconceived route concepts for the market dominant and competitive sides. Instead, lawmakers should look to preserve and pursue facets that allow USPS to create efficiencies and find economies of scale.
There also remains problematic matters of non-transparency in USPS accounting with respect to mail and package units. USPS has more than likely created perverse incentives for shifting revenues and profits from market dominant services to competitive services, as well as shifting costs and risk from competitive services to market dominant services.
Empirical evidence based on seasonal earnings and cost trends imply that the parcel segment does not sufficiently cover its share of overhead costs. Rebalancing the overhead costs would not only better ensure USPS’ fiscal sustainability across product segments and help the agency better manage its expenses.
Increased transparency would help to ensure that all products and packages are accurately priced and effectively covering their costs. However, e-commerce has led to a commingling of monopoly mail and underpriced package services in separate postal divisions. Continuing this would be a mistake. Parcel underpricing leaves the USPS further in a bind in which they are increasingly unable to cover their cost of services, and then face increasing net losses as a result.
The USPS has a variety of issues it must remedy before it can adequately fulfill its mission to provide the nation with reliable, affordable, universal mail service. Nevertheless, if the correct procedures are put in place, the agency will be able to provide consumers with valuable services without financially relying on taxpayers.
Steve Pociask is president and CEO of the American Consumer Institute. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow us on Twitter @ConsumerPal.