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October 7th, 2011

Snow Or Heat Might Not Keep the United States Postal Service From Delivering Mail, But Financial Problems May

Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds.  Well, snow or heat may not keep the United States Postal Service (USPS) from delivering mail, but financial problems may.  Much like our federal government, the USPS is in trouble, having lost over $20 billion between 2007 and 2010.

The USPS is on the wrong side of the technology curve – mail delivery is going the way of 8-track and cassette tapes – disappearing into economic history.  The impact of email, online bill payments, digital greeting cards, FedEx and UPS, have all taken their toll on yesterday‘s USPS.  Mail volume has dropped from 213 billion pieces in 2006 to 171 billion in 2010 – a 20 percent drop in four years.  And this trend certainly won’t be reversed as younger generations communicate electronically ever more.  But decreased volume alone does not account for the entire USPS problem.

Eighty percent of the USPS costs are employment related.  In contrast, 43 percent of FedEx’s costs and 61 percent of UPS’s go to employee-related expenses.  Although USPS employees enjoy the same benefits package as all federal employees, their required contribution toward those benefits is smaller than all other federal employees.  And funding of their retirement benefits programs has become an issue.

In 2000 the USPS was losing money.  At the time the Government Accounting Office (GAO) warned that the service might not be able to cover its retiree benefits costs.   Congress thought they had a solution – in 2006 it relieved the postal service of $27 billion in pension liabilities for workers who had previous military service.  In return, the USPS agreed to make annual payments of $5.5 billion for the next 10 years to build a fund for future retiree benefits.

While there is honest disagreement about how much should be set aside, the Postal Service and unions essentially want to operate the fund on a pay-as-you go basis – the same model that has got states like California into fiscal trouble.  If funding falls but benefits don’t, pressure will rise to dump those retiree benefits costs on taxpayers – as General Motors and Chrysler did two years ago.

Postmaster General Patrick Donahoe wants to close unprofitable post offices and move some of their operations into convenience stores and supermarkets – he’s targeting 3,500 of its over 31,000 post offices.  Donahoe has said some communities that lose retail locations might get what USPS is calling a Village Post Office – smaller automated stations or a local vendor that sells stamps and flat-rate boxes.  Local small business owners have expressed interest in performing some postal services in towns that lose their post office.  He proposes eliminating Saturday delivery and reducing headcount by 20 percent over five years through attrition since the union contract prohibits layoffs.  Donahoe is taking prudent actions that occur every day in the private sector when a business is in trouble.

Past reform efforts have been stymied by political pressure to preserve the status quo.  Congressman Bruce Braley has said he will fight the “bad decision” to close any USPS facilities in his district.  Business as usual is what got us in this mess.  Kicking the can down the street is not a solution.  The world has changed and the USPS must change with it. The USPS can survive IF it is allowed to operate like a private sector business.  But almost 90 percent of campaign contributions by postal unions go to Democrats.  Take a guess where much of the opposition to reform comes from.

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About the Author

Rod Blum
Rod Blum resides in Dubuque, Iowa. He is married with five children and has an MBA in marketing. In 1994, he was named one of Iowa’s Entrepreneurs of the Year by Ernst & Young. He is currently the CEO of Digital Canal Software. He also writes a conservative column for the Telegraph-Herald newspaper. He was formerly a basketball coach at Dubuque Senior High School and also Chairman of the Dubuque County GOP.

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