The U.S. Postal Service and financial sustainability: Research roundup
Since its founding in 1775, the United States Postal Service (USPS) has been an indispensable part of the country’s communication network. Unlike most other federal agencies, the Postal Service is explicitly authorized by the U.S. Constitution, and as the country grew and technology advanced, it has adapted and expanded. Horses were replaced by trains, and airmail service was added in 1918. First Class mail volume peaked at 104 billion pieces of mail in 2001, more than quadruple the figure 50 years earlier.
Despite that high-water mark, the Postal Service was already feeling the effects of competition and technological change. FedEx opened its doors in 1971, and UPS, founded in 1907, began to deliver packages to across the country in 1975. While the USPS still had a monopoly on First Class mail service, in the mid-1990s email was born, and within a decade, letter volumes started to drop. From 2002 to 2011, First Class stamped mail declined nearly 50%. In fiscal year 2012, the number of pieces of mail delivered fell by another 5%, from 168.3 to 159.9 billion; USPS lost $15.9 billion over that period. It is now losing an estimated $25 million a day.
Complicating the agency’s situation is the Postal Accountability and Enhancement Act, passed in 2006 during President Bush’s second term. The act helped in some ways — for example, it authorized the Postal Service to sell the highly popular “forever” stamp — but it hurt in others: The USPS was prohibited from engaging in nonpostal services and, more significantly, required to fully prefund employee retirement and retirement health care costs. Not only is this requirement a unique burden among U.S. public and private enterprises, it’s costly — approximately $5 billion a year until 2017.
In a bid to stay solvent under such constraints, the USPS has responded by delivering more commercial mail and closing post offices, and has even considered ending Saturday deliveries. While some rural residents objected, a 2012 New York Times/CBS poll found general support for cutbacks that would help the Postal Service. Congress decided otherwise, however, and in April 2013 added a rider to a spending bill that mandated Saturday delivery. Free-market advocates have long suggested privatizing the Postal Service, a controversial step that the Conservative-led government of the United Kingdom recently took.
But is privitization — and the significant changes it would no doubt bring — really a viable option for the Postal Service? Beyond the agency’s Constitutional mandate, many constituencies depend on the USPS: Direct mail marketers and political operatives are nervous about potential delays in service. Post offices are often the centers of small-town life, and elderly and disabled populations could see reduced access. Christopher Huckle, the publisher of the Cadillac News, testified at a Senate hearing that the paper, like many smaller independent publications, relies on the Postal Service for delivery.
Below is a selection of reports, scholarly studies and research papers that address USPS operations are detailed below:
“The U.S. Postal Service’s Financial Condition: Overview and Issues for Congress”
Kosar, Kevin R., Congressional Research Service, January 27, 2012.
Excerpt: “After running modest profits from FY2004 through FY2006, the USPS lost $25.4 billion between FY2007 and FY2011. Were it not for congressional action to reduce a statutorily required payment to the RHBF [Postal Service Retiree Health Benefits Fund], the USPS would have lost an additional $9.5 billion…. As the USPS’s finances have deteriorated, its ability to absorb operating losses has been diminished. Between FY2005 and FY2011, the USPS’s debt rose from $0 to $13 billion. (The agency’s statutory debt limit is $15 billion….) In July 2009, the GAO added the USPS’s financial condition “to the list of high-risk areas needing attention by the Congress and the executive branch. Many media headlines have characterized the USPS’s recent deficits as the result of a drop in mail volume and attendant postage purchase revenue. This is not entirely accurate. Mail volumes slid from a peak of 213.1 billion mail pieces in FY2006 to 212.2 billion in FY2007, and dropped to 202.7 billion in FY2008. Despite the drop in mail pieces, the USPS’s revenues actually held steady during those years — $72.7 billion, $74.8 billion, and $74.9 billion — largely due to postage increases. However, between FY2009 and FY2011 mail volume declined further. Since FY2008, mail volume has fallen 17.7%, from 202.7 billion to 167.9 billion mail pieces … and operating revenues have declined 12.3%, from $74.9 billion to $65.7 billion.”
“The Postal Accountability and Enhancement Act: Overview and Issues for Congress”
Kosar, Kevin R., Congressional Research Service, December 2009
Summary: “[In 2006] Congress enacted the PAEA, which made over 150 changes to postal law. Some of the more significant alterations are defining the term ‘postal service’; restricting the USPS’s authority to provide nonpostal services; altering the USPS’s budget submission process; requiring the USPS to prefund its future retiree health benefits by establishing the Postal Service Retiree Health Benefits Fund; and replacing the USPS’s regulator, the Postal Rate Commission, with the more powerful Postal Regulatory Commission. The inherent complexity of lawmaking and the execution thereof invites disagreement and confusion over what a law means and how it should be implemented. In the three years since the enactment of the PAEA, some issues and questions concerning the law’s provisions have arisen. These include, but are not limited to, possible executive branch concerns about the PAEA and the separation of powers; the cost of prefunding USPS future retiree health benefits; the role of the public in the closure of nonretail postal facilities; the USPS’s authority to provide nonpostal products and services, and the viability of the USPS’s business model.”
“U.S. Postal Service Workforce Size and Employment Categories, 1990-2010”
Ginsberg, Wendy R. Congressional Research Service, April 4, 2011.
Excerpt: “USPS employed 671,687 persons as of September 30, 2010 (FY2010). USPS’s workforce size has dropped by 171,576 employees (20.3%) in the past 20 years, and USPS had 40,395 (6.0%) fewer employees at the end of FY2010 than it did at the end of FY2009. Since 1990, the career/non-career composition of the USPS’s workforce has also changed. The number of career employees has declined 23.2%, and the number of non-career employees has increased 6.3%. Facing financial problems, the USPS recently has instituted a hiring freeze, frozen the pay rate of managers, and offered some employees early retirement options. In FY2010, USPS operated with its smallest workforce in at least 20 years.”
“Projecting U.S. Mail Volumes to 2020”
The Boston Research Group, March 2, 2010.
Executive Summary: “The USPS will require significant structural changes to avoid staggering losses in the coming decade. The magnitude of these losses will require a combination of robust cost reduction actions, including changes in delivery model, including days of delivery and service standards; changes in network, including closing branches and integrating post activities into other retailers’ footprints; and changes in labor cost structure. Other countries facing similar declines are taking dramatic steps to preserve the viability of their national postal systems. Lesser solutions will fall short: price increases will drive volume away, and business diversification alone will not offset a $15B annual loss. If structural changes are unpalatable to the American people, then the Postal Service will require taxpayer support to offset its losses. Under the current volume trajectory, and with current policies, a financially viable Postal Service is not possible.”
“U.S. Postal Service: Ending Saturday Delivery Would Reduce Costs, but Comprehensive Restructuring Is Also Needed”
United States Government Accountability Office, Report to the Ranking Member, Subcommittee on Federal Workforce, U.S. Postal Service and Labor Policy, Committee on Oversight and Government Reform, House of Representatives, March 2011, GAO-11-270. 40pp.
Findings: “USPS’s proposal to move to 5-day delivery by ending Saturday delivery would likely result in substantial savings; however, the extent to which it would achieve these savings depends on how effectively this proposal is implemented. USPS’s $3.1 billion net cost-savings estimate is primarily based on eliminating city- and rural-carrier work hours and costs through attrition, involuntary separations, or other strategies. USPS also estimated that 5-day delivery would result in minimal mail volume decline. However, stakeholders have raised a variety of concerns about USPS’s estimates, including, First, USPS’s cost-savings estimate assumed that most of the Saturday workload transferred to weekdays would be absorbed through more efficient delivery operations. If certain city-carrier workload would not be absorbed, USPS estimated that up to $500 million in annual savings would not be realized. Second, USPS may have understated the size of the potential mail volume loss due to questions about the methodology USPS used to develop.”
“Weighing the Universal Service Obligation: Introducing Rural Well-Being as a Consideration in the Viability Of the United States Postal Service”
Community Development, 2012, 22pp. doi:10.1080/15575330.2012.705871.
Findings: “On the topic of broadband, while broadband availability is increasing in rural America, many areas still lack access to the bandwidth necessary to be competitive in the global economy (USDA, 2009). In light of this situation, postal service cutbacks and changes in price or frequency of postal service may disproportionately affect rural areas because many residents and businesses continue to rely heavily on services provided by the USPS. Attenuating the USO potentially restricts access to weak ties – relationships that provide rural residents with access to information about jobs, alternative sources of news, and social networking opportunities. Without a comprehensive broadband infrastructure in place, rural residents and businesses will face significant challenges when conducting very basic business and personal transactions, such as paying bills, receiving coupons and information about sales, sending and receiving checks, contracts, and greeting cards, getting informational flyers and pamphlets, submitting applications, accessing education resources, receiving news media, collecting disability and social security benefits, accessing health care information, and numerous other transactions that are still normally carried out by mail… A sudden shift away from the reliance on postal service to conduct these transactions would either require that rural residents conduct these affairs less frequently, incur higher costs, or make a formidable and sudden jump into the information age.”
“Can Services and Platform Thinking Help the U.S. Postal Service?”
Communications of the ACM, April 2012, Vol. 55, No. 4, pages 21-23. doi: 10.1145/2133806.2133814.
Findings: “a more creative services and platform strategy could help reverse the USPS’s financial woes and provide a more positive way forward—generate new revenue rather than continue to reduce the scale and geographic scope, and thus the intrinsic value, of the network. While additional cuts in locations and headcount may still be necessary to get costs in balance with short-term revenues, the goal would be to halt the downward spiral of continually reducing the physical footprint of the USPS that ultimately could destroy its potential value as a service-delivery platform. How much would a bank pay for the privilege of locating ATM machines or customer service agents in every post office in the U.S.? Probably a lot, and maybe enough to solve the Postal Service deficit problem in one or two bold moves. At least, the services and platform alternative seems worth serious consideration.”
“Studies of Social and Commercial Benefits of Postal Services: Economic Effects of Post Offices”
The Urban Institute, compiled for the Postal Regulatory Commission, August 2011.
Findings: “Analysis of selected indicators reveals stark differences between ZIP codes where closures happened and where they did not… There is less variation by socioeconomic characteristics, although the closure ZIP codes tend to be substantially poorer. While the steps described above to reduce the pool of the closure ZIP codes resulted in lower average numbers of employees and establishments, no difference is apparent in socioeconomic characteristics. Because both minorities and the elderly represent potentially vulnerable populations that could be disproportionately affected by the loss of an easily accessible postal facility, it is encouraging that, in general, closures do not appear to be occurring in ZIP codes where these groups are concentrated.”
“One For All and All For One: Privatization and Universal Service Provision in the Postal Sector”
Applied Economics, 2013, Vol. 45, No. 26, pp. 3667–3682. doi: http://dx.doi.org/10.1080/00036846.2012.727982.
Abstract: “Universal Service provision has a special role for the public utilities sector in many Organization for Economic Co-operation and Development (OECD) countries. These public utilities have largely been subject to privatization during the last 3 decades. Efficiency effects of privatization are widely documented while the impacts on the quality and accessibility of the Universal Service are not much examined. By using a unique dataset on privatization for 21 countries over the period 1980–2007 for the postal sector, we are able to show that privatization, in particular formal privatization, has led to a decrease in the quality of the Universal Service.”
“Providing Digital Public Services through Secure Digital Postal Systems”
2011 International Conference on Research and Innovation in Information Systems (ICRIIS), 23-24 November, 2011, Dublin, Ireland, pp. 1- 6.
Abstract: “As a result of the technological revolution, postal systems that were once viewed as efficient, trusted and inclusive have rapidly come to be seen as outdated, expensive and slow. Even though posts are still recognised as essential to citizens, they are showing evidence of decline. A direct effect of this decline is that the ability of posts to fulfill their universal service obligation (USO) is slowly being eroded. Ironically, research shows that, in order to protect their personal information online, citizens still seek trusted and efficient systems with which to interact, The aim of this paper is to present a privacy-enhanced Digital Postal Solution (DPS) designed to create public value through reducing citizens’ privacy concerns while providing secure government 2.0 services. Additionally, the DPS restores, in digital format, the full gamut of traditional universal services afforded by posts to citizens in earlier times. Additionally, it provides citizens with a platform where they can avail of web 2.0 technologies to interact with government, making way for a more transparent and collaborative relationship between government and the public. It also provides every citizen with a private digital space, where they can securely access, process and store (un)official and personal information such as bills, receipts, health and financial records. In summary, from this space, citizens can begin to fully and safely interact with digital society.”
Tags: infrastructure, research roundup, rural
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