USPS Should Sell Its Real Estate
The U.S. Postal Service's latest financial results have been released. They are not good.
The agency booked a loss of $2.1 billion in the first half of the fiscal year, which it ends with $15 billion in debt. Since 2011, the USPS has defaulted on $27 billion in payments to its Retiree Health Benefits Fund, and it may well fail to pay this year's $5.7 billion installment, due September 30.
The Postal Service also reports that its 140,000-vehicle fleet is more than 20 years old and overdue for replacement. Two of its four employee unions are negotiating for better compensation, which would further raise operating costs at an agency where employee compensation already accounts for 80 percent of overhead.
The news was not all bad. The USPS has $6.1 billion in cash. Five years ago, the agency had less than $1 billion in cash, putting it on the brink of insolvency. The service also earned $1 billion more revenue in the first half of fiscal year 2015 than it did in the same period last year. Alas, a temporary increase in the price of postage, not increased mail volume, is to thank for this development. These "exigent" rates, much to the USPS' dismay, likely will expire this summer, which does not bode well for its bottom line.
Congress designed the USPS to be financially self-sufficient, but it's clearly struggling to live up to that goal. The Postal Service makes nearly all its money from selling postage. That market is down, with mail volume now 27 percent less than it was in 2008. More than half of what gets delivered is low-margin advertising, also known as "junk mail."
The Postal Service has tried to cope by downsizing. Fifteen years ago, the agency had 800,000 full-time, permanent employees. It now has 480,000. The agency has shuttered some post offices and mail-processing plants and may close more. The agency delayed much-needed facility and equipment upgrades to save money.
Meanwhile, Congress has not exactly been keen to help the agency. For years, postal-reform bills have stalled over objections to any further reductions in service, like slowing delivery speeds, cutting back deliveries from six to five days per week, or requiring more citizens to retrieve their mail from curbside receptacles.
The Postal Service might be able to continue to tread water for a time, but this is not a long-term plan. The USPS needs to replace its vehicle fleet. The agency cannot ignore its $15 billion in debt or its $87 billion in unfunded health-care and other benefits. These bills will come due, and if the USPS cannot pay them, taxpayers may end up on the hook.
To address these serious financial issues, the service should leverage its real-estate portfolio. According to the agency's inspector general, the USPS owns 8,600 properties with a market value of $85 billion, The Postal Service could tap those assets by executing leaseback agreements, wherein the property is sold to a private buyer who then rents the space back to the USPS.
If properly executed, leasebacks could be a win for everyone. The Postal Service gets much needed cash and can shift responsibility for building and property maintenance costs to a private owner. Local and state government benefit because the federal property becomes taxable private real estate. Private entrepreneurs gain a business opportunities. And the public does not have to see more postal facilities closed.
This is not a radical proposal. Unlike most other government agencies, the USPS has considerable legal freedom to buy, sell, and lease property. It already leases 25,300 properties, and it has used leaseback arrangements for many years. With no assistance coming from Capitol Hill, the Postal Service has no better option.
Kevin R. Kosar is the director of the Governance Project at the R Street Institute, a free-market think-tank. He covered postal issues for the Library of Congress' Congressional Research Service from 2003 to 2014.