Post Office Must Change to Survive

Fort Worth (TX) Star-Telegram

This month, the U.S. Postal Service will raise prices for many of its products and services. The agency also just proposed rules that would make it easier to close excess post offices.

Both measures are meant to help rescue USPS from fiscal oblivion. Unfortunately, they aren’t much more than a Band-Aid over the agency’s gushing financial wounds. The Service lost $8.5 billion last year and is set to lose $7 billion this year. Over the next decade, the agency projects that its losses could reach $238 billion.

To prevent USPS from becoming a major liability for taxpayers, Congress will have to approve sweeping changes to the agency’s business model. Lawmakers should seize the opportunity.

The time is ripe for change. A new Postmaster General, Patrick Donahoe, recently took the helm at USPS. There’s also fresh blood in Congress, as freshman lawmaker Dennis Ross, R-Fla., is now chairing the subcommittee overseeing the Postal Service.

Ross will work with House Oversight and Government Reform Chair Darrell Issa, R-Calif., who has declared that preventing “a fiscal meltdown” at USPS is a top priority.

Donahoe has already launched several modest reforms. In addition to the price increases and post office closures, he recently announced plans to eliminate 7,500 postmaster and administrative positions.

The service is also promoting direct mail as a means of generating revenue. USPS recently relaxed rules on “simplified addressing” for bulk mail, which will permit marketers to blanket every house or business on a letter-carrier’s route without using a specific name or address. Previously, only government agencies and firms targeting rural customers could send unaddressed spam.

USPS chief marketing officer Paul Vogel hopes the new rules will encourage small businesses to use the service as an advertising channel. Some firms have already bumped up their direct mail campaigns. Between July and September 2010, credit-card companies mailed out 1.2 billion new offers — more than three times as many as they did a year earlier.

But juicing mail volume with stacks of advertising mail won’t deliver the cash the Postal Service needs. After all, standard mail — the category into which most advertising falls — brings in about half the revenue of first-class mail, the category used by consumers when they mail a bill or a thank-you note.

Bulk mail also contributes a far smaller percentage of its revenue toward institutional overhead than does first-class mail. In fact, nearly three-quarters of overhead costs are paid with revenue from first class customers.

In other words, ordinary stamp-buyers effectively subsidize the delivery of ads and credit-card offers.

The Postal Service can’t grow its way out of its fiscal woes — nor should it be allowed to offload its multibillion-dollar pension and health benefit obligations onto taxpayers. Instead, Congress must grant the agency flexibility to adapt to a changing postal marketplace.

First off, lawmakers must let USPS shutter those unprofitable postal facilities — and not just the smallest rural post offices. The service maintains 32,000 outlets nationwide — more than McDonald’s, Wal-Mart and Starbucks combined.

Congress must also grant USPS increased labor flexibility — and the service must use that flexibility to the fullest. Eighty percent of the service’s costs stem from its work force.

USPS cannot right its balance sheet without reining in labor costs. And that means continuing to realize cost savings through work-force adjustments and insisting on the ability to employ private contractors and temporary workers.

These issues were discussed at an April 5 congressional hearing at which Issa and Ross scrutinized Postal Service contract renewals and their impact on the service’s sustainability and affordability in light of its precarious financial outlook.

Management should not be spared either. Former Postmaster General John Potter received a $5.5 million golden parachute upon exiting USPS last year. The agency can’t afford such huge executive payouts as it faces billion-dollar losses.

The Postal Service is fighting for its fiscal survival. Lawmakers should ensure that ordinary consumers don’t take the bulk of the punches.