The post office made GAO’s list of government operations that are considered costly and “high risk.” GAO submits its High Risk Series report to Congress every two years.
“Addressing USPS’s financial viability is critical as USPS plays a vital role in the U.S. economy and in providing postal services to all communities. Moreover, it is the largest civilian federal agency, employing about 633,000 career and 94,000 non-career employees,” the GAO said in the report.
Congress has given the USPS opportunities to pull itself out of financial trouble. Sen. Joseph I. Lieberman, I-Conn., Chairman of the Governmental Affairs Committee, announced in a July 30 press release that the committee passed legislation that gives the USPS increased borrowing power to pay for obligations arising during 2009.
Even with the extra help, the USPS has become the object of criticism, drawing calls that it be privatized.
Privatizing USPS
USPS, like many government agencies, has become an albatross. It has many branches and sub-branches throughout the United States which are no longer needed, as mail traffic has decreased substantially due to the advent of e-mail.
Experts have called for privatization and point to Japan, whose parliament privatized Japan’s postal services in 2005. In 1995, Germany’s Deutsche Bundespost privatized its postal service and is often cited by privatization proponents as a major success story.
The European Union plans to reform the postal systems of most member states by December 31, 2010.
“The USPS is a drag on the government, on the economy, on the marketplace it unfairly distorts, and on consumers and taxpayers. It should be privatized without delay,” wrote Sam Ryan, in a blistering article “Privatize This” on the National Review Web site in 2005. He predicted that in the not-too-near future, USPS will go bankrupt.
That day may have arrived.
Lowered Revenue
The last year USPS reported income from its operations was in 2006. Beginning in 2007, its fortunes soured and it began to report significant losses: $5 billion at the end of fiscal year (FY) 2007 and $3 billion in FY 2008, according to its annual financial report. On June 30, 2009, the third quarter of its fiscal year, the USPS reported a staggering $4.7 billion net loss.
Projected losses for 2009 and 2010 are about $7 billion, which according to the GAO, is unsustainable in the long term.
Since 2006, total mail volume has decreased by 10.4 billion annually on average. First class mail took the greatest hit since 2006, decreasing by more than 6 percent overall or 6 billion annually.
Between October 2008 and May 2009, total mail volume has decreased by 18.5 billion letters and USPS management predicts that the mail volume for 2009 will decrease by 28 billion.
The culprit is a combination of economic realities, increased reliance on e-mail, and the USPS’s inability to address problems effectively and efficiently, according to the GAO.
“USPS urgently needs to restructure to address its current and long-term financial viability. USPS has not been able to cut costs fast enough to offset the accelerated decline in mail volume and revenue—particularly costs related to its workforce, retail and processing networks, and delivery services,” read the GAO’s High Risk Series release.
Costs increased in that time as well—fuel prices were unexpectedly high, to almost $500 million annually. A $5.6 billion health benefit obligation as stipulated under the 2006 Postal Law, among other expenses, put another nail in USPS’s coffin.
Making Its Case
The GAO charges that the USPS is procrastinating and not meeting new targets fast enough, but USPS is on the defensive.
“We began 2008 with a goal of reducing costs by $1 billion. We soon doubled that target, which we not only met, but exceeded by year-end,” read a letter in USPS’ 2008 annual report.
USPS claims that its prices are the lowest among its peers in foreign countries. It could only increase first class mail by 10 cents from 31 cents between 1998 and 2008. Mexico and Japan’s postal services increased mail by 26 cents, from 23 to 49 cents and 59 to 85 cents respectively.
Costs were reduced by more than $2 billion during 2008, overtime hours were curtailed by 50 million hours, and 20,000 positions were eliminated, Postmaster General John E. Potter said.
“We are subject to Congressional oversight, regulation by other government agencies, and also oversight by various other organizations and the public,” USPS said in their annual report. “If we cannot successfully address their various, and sometimes competing, concerns, we may be subject to greater regulation, which could increase our costs or otherwise place additional burdens on our operations,” USPS warned regulators in the annual report.
The USPS is not eligible for tax dollars and is self-financed. Congress has appropriated no funds to USPS since 1982. It finances itself from cash from operations and borrowing from the Federal Financing Bank, which is under the supervision of the U.S. Treasury.
In 2008, USPS’s borrowing amounted to $7.2 billion, an increase of $3 billion from the end of fiscal year 2007.
The USPS exists under Title 39, Section 101.1 of the United States Code. It has monopoly power concerning first-class mail. Although it operates as a private enterprise, it does not pay federal or local taxes, may borrow from the Treasury at discounted rates, and can use governmental rights of eminent domain to attain private property. The USPS is not a profit-oriented entity, but is required to break even.
