Kurt Brouwer July 29th, 2009
The U.S. Post Office is broke says the U.S. Government Accountability Office (GAO). That’s unsettling.
In the past few months, the government has taken effective control of two major automobile companies (GM and Chrysler) as well as companies holding about half of all U.S. home mortgages (Fannie Mae and Fredddie Mac), not to government’s stake in major banks and insurance companies. And, Congress is debating a vast expansion of Federal government activity in huge swathes of the economy including energy (cap and trade) and healthcare (universal healthcare).
GAO: Largest Civilian Government Agency Is Near Insolvency
Yet, we hear from the Government Accountability Office (GAO) that the largest civilian government agency, the Post Office, is essentially broke. The U.S. Post Office has over 700,000 employees and controls 38,000 facilities, so it’s pretty big. However, delivering the mail isn’t exactly the same as brain surgery. I know a little about delivering mail from a short summertime stint as a mailcarrier many years ago.
Since then, I have not thought about the Post Office much, other than to occasionally wonder why prices go up every couple of years. I suppose we are all resigned to steady increases in the price of stamps, but we seldom stop to check out just how much they have gone up over time:
Source: Carpe Diem
Mark Perry at Carpe Diem put the price increase for stamps in its historical context here:
If stamp prices had increased over time at “only” the rate of gas prices, a first-class stamp would only cost only 17 cents today instead of 44 cents. If stamp prices had increased at the same rate as consumer prices in general, stamps today would cost about 25 cents…
Is delivering a letter so much more complex than drilling for oil, shipping it and refining it and then getting it to your local gas station? Obviously not. Then, what justifies a price increase at more than twice the rate of inflation? It is not as if mail delivery has gotten so much better or faster over time.
Government Monopoly
I recognize that mail volume is falling, in part due to changes in how we send messages (email etc), but also the recession and other factors. However, all businesses have to deal with technological changes and business cycles. Why is the Post Office failing? One additional issue is competition. Two major companies, FedEx and UPS, have taken away a lot of package deliveries that once would have fallen to the Post Office. However, nothing prevents the Post Office from competing with them, yet they have thrived.
The only answer I can come up with is that our regular mail service is a government monopoly and not subject to normal issues of supply and demand. I wonder what the price of gas would be if it were produced by a government agency? Despite raising prices far faster than the rate of inflation, the Post Office still cannot operate profitably. In fact, it has operated at a deficit for years and is now out of cash.
This report from the GAO tells the tale [emphasis added]:
Restructuring the U.S. Post Office to Achieve Sustainable Financial Viability (Government Accounting Office, July 2009)
GAO is adding the U.S. Postal Service’s (USPS) financial condition to the list of high-risk areas needing attention by Congress and the executive branch to achieve broad-based transformation. Amid challenging economic conditions and a changing business environment, USPS is facing a deteriorating financial situation in which it does not expect to cover its expenses and financial obligations in fiscal years 2009 and 2010. This year, USPS expects to increase its year-end debt to $10.2 billion and incur a cash shortfall of about $1 billion…
The GAO reports the cash shortfall as about $1 billion, but to reach that number it drily noted (in a footnote) that it had assumed unspecified ’savings’ of $5.9 billion. Those savings have not yet been realized, so the shortfall could be much higher.
…Other actions that USPS has proposed that would require congressional approval include the following:
1. Change funding requirements for retiree health benefits: USPS has asked Congress to revise the funding requirements for its retiree health benefit obligation as it does not expect to make the full amount of its $5.4 billion retiree health benefit payment at the end of this fiscal year due to a cash shortage.
2. Realign delivery services with changing use of mail: USPS has asked Congress to allow it to reduce delivery from 6 to 5 days per week as its revenue per delivery has declined 20 percent from fiscal year 2000 to fiscal year 2009, as have pieces of mail delivered per address.
…To address its short- and long-term challenges, USPS should develop and implement a broad restructuring plan-with input from the Postal Regulatory Commission and other stakeholders and approval by Congress and the administration-that includes key milestones and time frames for actions, addresses key issues, and identifies what steps Congress and other stakeholders may need to take.
The GAO does not suggest a timeframe for how long it might take to develop and implement a restructuring plan that requires input from a postal commission, other unnamed stakeholders such as unions, along with Congress and the administration, but I suspect it will be a long time coming.
Rather than adding major new initiatives such as an energy tax and regulatory scheme or healthcare reform, shouldn’t Congress be focused on fixing existing government institutions such as the Post Office or Medicare? As we wrote in an earlier post called, Why Not Fix Medicare First?:
It seems eminently sensible to me that we would reform Medicare first before subjecting everyone in the country to a wrenching change in how we insure our healthcare costs. This comment by John Thacker (see final comment here) was picked up and quoted by Megan McArdle at the link above. Thacker’s points seems both perfectly obvious and perfectly clear:
I completely fail to grasp this magical argument whereby Medicare is unreformable now, but adding even more patients to the rolls will create the incentive for exactly the sort of cost-cutting reforms that people hated when the HMOs were doing them in the early ’90s, and got laws passed to prevent.
I’m generally an optimist, but I fail to see much likelihood that Post Office (or Medicare) will turn around any time soon. What about you?
