Don’t Raise Postal Rates Quickly

Op Ed Published in The Clarion-Ledger

Just when you thought it was safe to go back to the post office, the United States Postal Service has begun the process of raising rates again. The Postal Service says that this time, it’s because gas prices are rising. Like the excuses it has trotted out in previous rate hikes, this one ignores the real problem.

On May 3, less than four months after it raised stamp prices from 37 to 39 cents, the Postal Service has filed for yet another increase – which would push the price of a First Class stamp to 42 cents. And Postmaster General John Potter has said the Postal Service is likely to start hiking prices annually in 2009.

So letter mailers are getting nickel and dimed. What’s the big deal?

If the Postal Service were just an ordinary business, another rate rise wouldn’t matter much. Unhappy customers could take their trade elsewhere.

The fact is, though, that the Postal Service is a government-owned enterprise that enjoys a monopoly to keep out competitors.

We pay for the mail as captive consumers, and soon we might start paying as taxpayers, too. The Postal Service has over $80 billion in unfunded liabilities, which could lead to a taxpayer-financed bailout if the USPS doesn’t move aggressively to pay down these obligations.

Meanwhile, postal management refuses to address seriously the root causes of USPS financial problems.

When it filed for the rate increase that took effect in January, the Postal Service claimed it needed the hike to meet a congressional escrow requirement. The USPS had overpaid into a retirement fund, and when this was discovered, Congress demanded that it put the overpayment aside – in escrow – to pay down some of its health care liabilities.

In other words, the USPS thought it owed money to creditor A, found out it didn’t, and was asked to pay the money to creditor B instead. In a company with more transparent accounting, this wouldn’t have affected the operating budget one way or the other.

The Postal Service, though, blamed Congress for what it claimed was a new “cost,” and promptly sent the bill to its monopoly-market customers.

This time, the Postal Service is blaming the stamp-price increase on rising fuel costs. On the surface, that seems reasonable enough. The price of gasoline has a major effect on the Postal Service’s bottom line. But this excuse completely ignores the elephant in the room – the Postal Service’s massive labor costs.

Potter implied as much when he noted that despite a reduction in employees, “our annual health benefits costs have grown some $2 billion – or 36 percent — since 2002.” Today, about 80 percent of Postal Service costs go toward labor, compared to about 50 percent at private delivery companies.

To resolve this problem, postal management will have to start making its case more effectively when negotiating with its unions. And union leaders must realize that preserving the Postal Service’s financial health is very much in the interest of the workers they represent.

The Postal Service has a good case to make. Continually passing cost increases on to customers won’t work forever. Raise prices enough, and Aunt Minnie will eventually figure out how to use online bill pay. Even the bulk business mailers, who pay less than individual mailers, will reach a breaking point, if they don’t figure out how to do an electronic end-run around the Postal Service’s monopoly.

There are strategies the USPS could use to bring labor costs down. Removing the no-layoff provisions that protect around 89 percent of career employees would be a start.

Another option would be to peg wage increases to inflation. That would eventually bring USPS wages back into alignment with legal requirements that postal wages be comparable to those in the private sector.

Currently, there’s a substantial wage premium. New hires receive, on average, a 28-percent increase from their previous jobs.

To be sure, Potter deserves credit for efforts to bring costs under control. He has shrunk the work force through voluntary retirements. He’s also overseeing a redesign of the postal distribution network, which will save money by consolidating some processing centers into fewer, larger facilities.

The USPS, though, must stop placing the blame in all the wrong places. It’s not the congressional escrow requirement or rising gas prices that has given us two back-to-back rate increases. Until the Postal Service can bring its labor costs under control, we can expect rates to keep going up.

Sam Ryan is a senior fellow at the Lexington Institute, a think tank based in Arlington, Va. He can be reached at ryan@lexingtoninstitute.org.