Saving the U.S. Postal Service
Earlier this week, the U.S. Postal Service (USPS) announced a number of rate increases to take effect in January 2012. For starters, the cost of first class postage (equivalently, the cost of a "forever" stamp) will increase by one cent, totaling 45 cents. Additionally, postcard postage will increase by three cents, letters to Canada and Mexico will go up five cents, and international letters will go up seven cents. As reported by Ed O’Keefe of the Washington Post, this will amount to an $888 million increase in revenue. For some, this change will seem out-of-the-blue as rates have not increased in 2.5 years; however, this is just a preliminary step in addressing the USPS’ mounting debt problem.
Over the past decade, the internet has changed the way we disseminate information, affecting not only newspapers and the advertising industry but the mail service industry as well. E-mail is now the preferred contact method for advertising as well as long-distance communication, siphoning demand from mail carriers, primarily the USPS. In the last four years alone, mail volume has fallen by 20 percent -- including a 7 percent decrease in first class mail volume in FY 2011 alone. Such sharp decreases in demand for postal services have left the USPS with $15 billion in debt. The finances for the USPS are important for the federal budget, given that it is a quasi-governmental agency.
The USPS broke from the federal government to become a semi-independent federal agency in the 1970s, reaching an agreement with the Treasury Department that they would split costs to the Civil Service Retirement System (CSRS). In 2006, a law was passed requiring that the USPS set aside money annually to cover the cost of future health benefits for retired workers, averaging $5.5 billion dollars every year for ten years. Back in September, the White House announced that it would give the USPS an extra three months to make this year's payment, in an effort to "save the deficit-plagued Postal Service from an embarrassing default." Each year, the federal government spends somewhere between $5 - $10 billion on the USPS.
One proposal to ease the debt burden faced by the USPS is for the federal government to refund up to $75 billion that USPS says it overpaid into the CSRS since the 1970’s. However, the Government Accountability Office (GAO) stated that the refund would merely transfer the burden of debt and not affect the long-run fiscal problems faced by USPS.
Aside from the issue of refunding overpayments, there have been a number of proposals for ways to ensure the long-run fiscal safety of the USPS. According to an article in the Wall Street Journal, an option supported by Postmaster General Patrick Donahue is to make standard mail ("junk mail") more lucrative to businesses in order to offset the declining first class mail volume with increases in standard mail delivery. Also on the revenues side, a bill proposed by Sen. John McCain (R-AZ) suggests the USPS be allowed to increase postage prices to cover the full costs of postage. This week's increases were certainly a step in this direction.
On the other side of the coin are a number of cost-cutting measures. A proposal supported by the White House, Congressional Republicans and 7 out of 10 Americans is to eliminate Saturday mail. Other proposals could involve cutting hundreds of thousands of jobs, selling mail-processing facilities, and closing large numbers of local post offices. However, the USPS is the seventh largest employer in the nation, making the debate surrounding how to fix its debt problem more than an actuarial problem, as it will affect its nearly one-half million workers and much larger customer base.
In some ways, the fiscal woes of the USPS are a microcosm of those faced by the larger US economy. Hopefully some mixture of revenue-increasing and cost-cutting measures can help preserve the USPS, its workers, and the vital services it provides for Americans.