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Are We About to Lose the Postal Service?

Obama has agreed to cut Saturday delivery, 2500 offices may close immediately and up to 16,000 by 2020, and Republicans want to end free door-to-door mail.

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By the 1990s the USPS often generated a  profit. As of 2005 it was free of debt.

So how is it that today the Post office is faced with a Sophie’s Choice: defaulting or putting itself in the hands of Darrell Issa, whose goal is to effectively gut it.

A Mess of Our Own Making

How did this happen? Here’s the story. The Post Office pays into several retirement and health funds. Almost everyone agrees that in the past it has vastly overpaid, some estimate by as much as $100 billion. One would think it a simple matter for Congress to allow the USPS to tap into these excess funds to pay current health benefits. One would be wrong.

Several times between 2002 and 2005 Congress did overwhelmingly  approve such a strategy. Each time the White House nixed the idea because it would increase the deficit. Welcome to the wonderful world of Washington accounting.

The Post Office is self-supporting. It has overpaid into its health and retirement funds. But it cannot tap these surplus funds because the Congressional Budget Office (CBO) counts the surplus funds as part of the existing budget. Any use of them would therefore increase the deficit.

In 2006, the Post Office finally agreed to buy off the CBO. Budget neutrality over a ten-year period was achieved by requiring the USPS to make ten annual payments of $5.4-5.8 billion.

These payments, the Postal Regulatory Commission (PRC)  observes, “transformed what would have been considerable profits into significant losses.”

The 2006 law also prohibited postal rates from rising faster than inflation. The economic collapse produced negative inflation. The law allows an “exigent” rate increase due to “extraordinary or exceptional circumstances”. In 2010, the USPS requested a 5.6 percent increase to raise $3.2 billion, twice as much, incidentally, as ending Saturday delivery will save.

The PRC agreed the Postal Service faces a crisis due in large part to an extraordinary economic contraction as well as the excessive burden of prefunding payments. But it unanimously  denied the request, declaring the enormous debt was salutary for the post office!

Ironically, the law also requires mail prices to cover costs. In 2010 the same Postal Regulatory Commission determined that junk mail (standard mail) was being  subsidized to the tune of $580 million a year, almost three times what the USPS says it would save from closing thousands of post offices.

The refusal of Congress to alleviate the prefunding burden coupled with the refusal of the PRC to allow a rate increase has led the USPS to embrace strategies that may save money in the short term but will undermine if not destroy the public mission of the post office in the long term.

The Folly of Closing Post Offices

Consider plans to close about 2500 post offices. Dean Granholm, vice president of delivery and post office operations maintains, “We’re not the only ones going through this trend. All sorts of retailers are trying to find ways to do this.” But the post office is not Starbucks or McDonalds or Walmart. It provides a public service and a significant part of that service is the ubiquity of the post office itself.

The closing of several thousand post offices, according to the USPS itself, would  save the post office a paltry $200 million out of a budget of $55 billion, while costing thousands of communities and millions of people far, far more.

The USPS determines which post offices to shut using a cost-benefit methodology similar to that used by Starbucks and McDonalds and Walmart. It only includes half of the equation, the savings to USPS but not the costs to the community.

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