What do you know? A federal bureaucracy actually does something prudent.
Earlier today, Patrick Donahoe, postmaster general of the USPS, announced that they would be ending delivery of first class mail on Saturdays beginning in August. Donahoe has long realized that the USPS is fighting an uphill battle in remaining profitable in this age of cyber communications, especially give the fact that his agency is saddled with billions in unfunded liabilities for retirement pensions and healthcare benefits. Unfortunately, he has been stymied by Democrats in Congress in his attempt to enact cost cutting reforms.
Here’s how we explained the issue with the postal service last year:
Democrats have a serious problem with what is called “creative destruction” in a free marketplace and advancements in technology. For self-described progressives, they are quite regressive when it comes to efficiency in markets and the use of technology. They exhibit nostalgia for 14th Century energy technology and 20th Century banking technology. Hence, they don’t care too much for market progression. In concerted initiatives to hold back the tide of technology, they are quick to offer a helping hand to fading enterprises, especially those that are sponsored by the federal government. One such entity is the U.S. Postal Service.
In 1970, in response to a disruptive two-week strike by federal postal workers, Congress abolished the Post Office Department as a full cabinet-level department, and created the U.S. Postal Service, a quasi-private government-sponsored entity, referred to as a GSE. The Postal Service began working like a private entity in the sense that it self-financed its operations, but it was still a part of the federal government in every other respect. The USPS still enjoys tax-exempt status and a monopoly on first-class mail delivery. On the other hand, it is also encumbered by intractable government directives and the “universal service obligation,” a legal commitment that mandates that it provide service to everyone at reasonable rates.
Furthermore, its workers are entitled to the full array of federal employee compensation, including costly retirement healthcare benefits.
This muddled legal status, not unlike most other GSEs, has precluded the Postal Service from innovating to compete in this era of electronic communication like other private entities, leaving taxpayers on the hook to bail out an entity that could not compete without the government-sponsored monopoly.
In recent years, as the Postal Service has failed to remain profitable even as a government-sponsored monopoly, it has become clear that advocates of full privatization back in the middle of the 20th Century were quite prescient. It’s no secret that the U. S. Postal Service is on its way out. The transition to electronic communication has dramatically reduced the demand for its services. Consequently, USPS no longer generates enough revenue to function as a self-sufficient entity, particularly when it comes to paying employee retirement benefits. The Postal Service lost $25.4 billion between FY 2007 and FY 2011, and would have lost another $9.5 billion if not for the bailout in 2006.
As part of the 2006 agreement for USPS to recoup some of the money they had paid into the Treasury for their employees’ retirement health benefits, the Postal Service was required to prefund its future retirees’ health benefits with $5.6 billion per year to the Treasury for 10 years. Yet, Postal Service revenue has declined so precipitously over the past few years that Congress granted them a deferment from paying those prefunded obligations in 2009 and 2011.
It’s good to see that Donohue realizes his agency won’t be able to survive if he relies on the Democrats for another bailout. He originally had plans to cut the workforce by about 220,000 employees and to close 3,700 local post offices and 252 processing centers. Ending Saturday delivery is a good start.
Supporters of the Postal Service complain that the agency is hindered by the government’s requirement that it prepay retirement benefits. But supporters can’t have it both ways. If they want the agency to control its own destiny, it must be able to stand on its own two feet—without the competitive advantages of a government-sponsored monopoly and tax-exempt status. Only then will they get the opportunity to reboot and try to adapt to the new demands of a country that runs on electronic communications.