Privatization Should Be on the Table if It Will Fix Mail’s Structural Problems

COMMENTARY Debt

Privatization Should Be on the Table if It Will Fix Mail’s Structural Problems

Aug 12th, 2020 2 min read
COMMENTARY BY
David Ditch

Research Associate, Grover M. Hermann Center for the Federal

David is a budget and transportation associate in the Grover M. Hermann Center for the Federal Budget at The Heritage Foundation.
A USPS delivery truck is parked in front of Lenox Hill Station on July 30, 2020 in New York City. Cindy Ord / Staff / Getty Images

Key Takeaways

While there are competing estimates regarding when the Postal Service could go bankrupt it is likely to occur within the next two years. As such, Congress must act.

On the modest end of the spectrum, the Postal Service should be granted more leeway in controlling its own costs.

Privatization would be a serious undertaking and is unlikely to gain congressional approval soon. That doesn’t mean we should exclude it from consideration.

“The Postal Service is in trouble” is a statement that would find bipartisan agreement. While there are competing estimates regarding when the Postal Service could go bankrupt, it is likely to occur within the next two years.

As such, Congress must act quickly to prevent a postal doomsday from occurring, and it should not rule out any effective reform options.

The financial problems facing the Postal Service have been building for decades. The spread of electronic messaging has caused consumer demand for first class mail to plummet by 47% since 2001. Even an increase in revenue from package deliveries hasn’t been enough to prevent heavy losses: the organization has lost nearly $78 billion since 2007.

Yet the struggle to maintain revenue is not the biggest problem facing the Postal Service.

Employee compensation consumes nearly all the revenue in a typical year. These costs have surged to an average of $97,588 per postal worker in 2019, compared to $69,440 for the private sector, per our analysis at the Heritage Foundation. Much of that gap is due to extraordinarily generous retirement benefits, which are currently underfunded by a staggering $120 billion.

In addition, the Postal Service owns or leases tens of thousands of properties, many of which are retail locations with minimal foot traffic. Post Office branches are politically coveted, but unless they serve enough customers, they place a burden on the system.

Many “solutions” put forward amount to a blank check designed to maintain an unsustainable status quo. A big bailout or a fat annual check from taxpayers would only serve to push the day of reckoning back a few years while further adding to our swollen national debt.

Rather than ignoring the systemic problems facing the Postal Service, legislators should be open to a range of reform options.

On the modest end of the spectrum, the Postal Service should be granted more leeway in controlling its own costs. Congress mandates that USPS deliver mail six days per week, bars it from adjusting employee compensation, and makes consolidating under-used retail locations exceedingly difficult. Removing or lowering these legal barriers to cost savings would allow USPS to shrink and hopefully eliminate its annual deficits. Reducing the number of deliveries is especially long overdue given the reduction in volume.

To bolster revenue, the service should have more ability to develop its real estate portfolio, such as building housing or office space on top of ground-floor retail locations in urban areas. This would require some coordination with local governments and would be a win-win for both cities and the Postal Service.

A bolder approach would involve following in the footsteps of countries such as Germany and the United Kingdom, which have opened first-class mail to competition and either partially or fully privatized their legacy delivery agencies.

The robust market for package delivery in America and mail delivery in other countries shows that the private sector is fully capable of providing the service and has every incentive to address the needs of urban and rural households alike.

Privatization would be a serious undertaking and is unlikely to gain congressional approval soon. However, that doesn’t mean we should exclude it from consideration.

National leaders should weigh all available options when deciding the best way to address Postal Service solvency. Ignoring the structural problems, or attempting to paper over them with debt, would be grossly irresponsible.

This piece originally appeared in The Philadelphia Inquirer