Resolution — USPS Will Lose Weight, Get in Shape

Op Ed Published in the Southeast Missourian

As the year ends, one of the biggest legislative efforts of 2004 must officially be declared a failure. It was an attempt to overhaul the U.S. Postal Service for the first time in 34 years, and would have saved mail users from the 15-percent stamp-price hike that will likely go ahead in 2006. Effective reform could also have saved Americans billions of dollars.

The silver lining of this setback is that while the Postal Accountability and Enhancement Act of 2004 got bogged down without passing either house of Congress, the policymakers working on the issue now have a chance to get it right.

Just before the last session of Congress adjourned, Rep. Tom Davis of Virginia, chairman of the House Government Reform Committee, called on his colleagues to address the “urgent issue” of postal reform as soon as they get back.

He’s right. If the Postal Service’s problems aren’t fixed soon, taxpayers could eventually be on the hook for a massive bailout, as the USPS has over $70 billion in unfunded liabilities.

But rather than resurrecting the failed 2004 reform-blueprint as Davis has urged, it would be more effective to start from scratch. The fact is, though we desperately need postal reform, the House and Senate bills under consideration failed for two good reasons.

First, the bills were weak in terms of cutting labor costs, the Postal Service’s number one problem. Labor gobbles up around 76 percent of USPS revenue, with postal employees paid over 25 percent more than their private-sector counterparts. Were this wage and benefit premium to disappear, the USPS would easily save over $8 billion each year, solving most of its financial difficulties in one fell swoop.

Second, while the bills took some key steps toward improving transparency and accountability, both of which the USPS sorely lacks, they could have gone much further.

In the private sector, companies try very hard to assess profitability by allocating costs as closely as possible to specific products. In fact, private shipping companies strive to attribute 100 percent of their costs to products.

But in a radical departure from sound business practice, the Postal Service lumps a whopping 42 percent of its costs — over 25 billion dollars — into general overhead. The Postal Service, a $69 billion organization, is content to provide only a fuzzy notion of where much of its money goes.

Dumping almost half its costs into a vague “overhead” category means that the Postal Service can hike the rates it charges its captive letter-mailers — who are forbidden by law to turn elsewhere — then use these monopoly profits to undercut private companies in sectors like overnight package delivery.

Normally, this would be considered predatory monopolistic behavior, and illegal. But as a government agency, the USPS is immune from anti-trust law.

The White House had called for postal legislation that required “SEC-like financial disclosure” from the Postal Service — and the draft legislation didn’t deliver.

Nor did it make a serious attempt to rein in expenditures. Charles Guy, former director of the Postal Service’s Office of Economics and Strategic Planning, commented on the draft legislation that “there’s nothing in [it] that would compel — or even encourage — management to reduce costs.” This is an opportunity to plan a new regimen. Fortunately, plenty of time, money and brainpower has already gone into figuring out how to slim down the Postal Service.

In 2002, President Bush established a bipartisan commission to undertake the daunting task of figuring out how to overhaul the USPS. The Commission’s report, released in 2003, is remarkably thorough and offers an excellent get-fit plan; it was roundly praised by most experts who have followed the long Postal Service binge.

The report made 35 highly sensible recommendations, from demanding better accounting to creating a mission statement “to clarify that the mission of the Postal Service is to provide high-quality, essential postal services.” Sounds obvious, but having no prime directive has meant that the Postal Service can stumble from one misguided business venture to another. A mission statement would help.

The commission’s report also issued other critical cost-cutting recommendations, such as reducing the 700,000-strong career workforce, sifting out redundant management positions, and closing excess mail-sorting facilities.

As we turn the page on the calendar, Congress has a great opportunity to start fresh on postal reform. It’s time for the USPS to lose weight and get in shape. How’s that for a New Year’s resolution?