Going Postal: Reengineering the USPS

The US Postal Service (USPS) is popular with many Americans.  USPS’ First class mail is still a favorite, although its volume is declining as consumer communications technology changes.  For shipping goods or important documents, Priority Mail is still a good deal for consumers.  In the late 1990s, a business I ran used a few dozen of the Priority Mail boxes each day.  They were very low in cost and our customers were delighted by fast delivery of their orders.  We had access to other shippers, but they charged far more for the same speed and they were less convenient.  One USPS advantage was that I could drop off packages at a regional Postal hub, in effect cutting shipping time in half.

In recent years, USPS has had to reconsider its “full service” culture that causes costs to exceed revenues.  Under reconsideration are cutting six-day per week deliveries to five-day, delivering to banks of postal boxes instead of to the door, and keeping Post Offices in every sub-hamlet.  Reengineering those legacy costs is difficult with a union partner who wants full employment without benefit cuts.  But it is impossible while honoring the commands of a Congress who demands uneconomic offices are kept open, 6-day delivery stays, and pre-paying retiree health benefits of $5.5 billion per year.  Postal competitors are not hobbled by such meddling.

In 2016, the USPS health care benefits plan for retirees will be nearly funded — Office of Personnel Management (OPM) estimates it will be 73% funded and the Postal Regulatory Commission claims it will be 93% funded.  The difference comes from differing assumptions on the level of medical cost inflation.  To bring USPS into fully funded status, Congress demands an annual $5.5 billion payment to the benefit fund.  With the example of Detroit in mind no one argues against fully funding retiree benefits.  It’s necessary to avoid sticking the taxpayer with the cost of lavish benefits that earlier needed the assent of elected officials in return for union “gratitude.”

Measures that cut more cost than they shed in revenues must be pursued by USPS.  The 6-day delivery and shedding of low activity post offices are legitimate for cutting.  In General Motors’ restructuring, to pare current and long term costs, new employees were granted a less lavish retirement benefit.  This seems appropriate in the USPS situation.  Congress specified that the benefit fund must be invested in “interest-bearing securities of the United States.”   Federal securities give a dreadful yield, and are at odds with OPM and USPS assumptions of 6.25% and 5.35% yield respectively.   Most public pension funds are allowed to earn a reasonable yield.  For example, CalPers earned 21.7% in 2011 and 0.1% in 2012 (similar to a 1-year treasury).  Modest risk bonds will get USPS more quickly to fully funded status.  We’d like to keep it healthy for years to come.

Alan Daley is a retired businessman who lives in Florida and who writes for The American Consumer Institute Center for Citizen Research

 

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