Postal Service Should Not Be Left Out of Swamp Draining

Brian McNicoll
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Posted: Jan 22, 2017 12:01 AM
Postal Service Should Not Be Left Out of Swamp Draining

Donald Trump can’t run his own businesses while he’s president, but it would be helpful if he applied his management skills to some of the government’s businesses.

The Postal Service just wrapped up another dismal financial year, losing $5.1 billion. The bright side, it says, is revenues were up somewhat, and losses actually decreased from the $5.8 billion reported in the previous fiscal year.

To continue this trend, the Postal Service has done what no business would do – announced a price increase on what is now its most-profitable product to increase investment in unprofitable lines.

Prices will go up a penny on single-piece letters and cards, on which revenue covered 175 percent of expenses, and presorted letters and cards, on which revenue covered 363 percent of expenses.

Postal Service leaders say the losses, which now total more than $50 billion since 2009, result not from their business decisions but from technology – the digital age has reduced mail volume as fewer use paper to pay bills, etc., -- and the requirement the Postal Service to prefund its pensions and benefits.

Some argue the prefunding requirement is too expensive – it was set up in 2006, before the financial crisis or the sharp drop-off in mail volume. But the Postal Service doesn’t actually make the payments – it paid not a penny of the $5.7 billion due this year or since 2011 and is now $50 billion or more behind.

Besides, the problem won’t be solved by absolving the Postal Service of its pension obligations, forgiving the $15 billion line of credit it has used up with the U.S. Treasury or reducing oversight and allowing postal officials to raise prices as they see fit.

What the Postal Service needs is to make better management decisions.

For instance, the revenue increase of which it boasts -- $1.1 billion over the previous year – is more than offset by dramatic increases in what Postal Service auditors call “questioned costs” and “funds put to better use,” as well as less severe increases in operating costs, surface transportation costs and labor costs.

Questioned costs – which the Postal Service defines as unnecessary, unreasonable, unsupported, or an alleged violation of law, regulation, etc. – jumped from $455 million last year to nearly $2.1 billion this year, a more than 400 percent increase.

Funds put to better use – which the Postal Service defines as funds that could be used more efficiently by implementing recommendation actions – increased from $140 million to $475 million, a jump of nearly 350 percent.

In other words, the Postal Service loses $5.1 billion this year – and more than $50 billion over the last decade – and the losses will only continue to grow if not addressed.

Moreover, the Postal Service resists advice on how to improve. For example, its market-dominant products – those on which it has a congressionally granted monopoly – must, by law, cover their direct and indirect postal costs. Products that don’t cover these costs are considered underwater products.

In 2009, five market-dominant (meaning monopoly-protected) products – outside county periodicals, standard mail flats, media and library mail, standard mail parcels and in-county periodicals – collectively produced $1.5 billion of shortfall on their own.

The Inspector General recommended the Postal Service develop a plan to address this problem. But the Postal Service declined to pursue that recommendation, saying it could overcome the losses with strategies to optimize efficiency and decrease costs.

Today, parcels recover less than 64 percent of their costs and flats less than 80. All the standard mail negotiated service agreements – the deals the Postal Service makes with Amazon and others to drive up volume – combined to contribute just $5 million to the bottom line.

The Postal Service’s Office of Inspector General then recommended USPS establish a formal framework to address its underwater products. The framework should assess how effectively goals are met, measure the impact of strategies on cost coverage and assess other ways to curb losses.

Were the Postal Service’s leaders ready this time around to accept recommendations after seven years of failing to move the needle?

“Management disagreed with our recommendation to establish a formal strategy beyond what the [Postal Rate Commission] requires stating that raising the prices of underwater products is either not possible under the current price cap, or not the most fiscally responsible approach to improve net income,” the auditors reported.

Then there’s the matter of money orders. The Postal Service sells international paper money orders and domestic money orders, and the market for both has plunged in recent years as customers have moved to electronic options. International money orders declined from $60 million in sales in 2010 to $34 million in 2015, even as the market for this product grew from 3 percent to 11 percent each of those years.

The auditors said the Postal Service has this product wrong – that’s it not well-suited for today’s digital environment and that it should enhance technology, strategic management and marketing of these products to turn them around.

And how did that suggestion go over? “Management disagreed with the recommendations, believing that the projected revenue of enhancing this program was overstated given a requirement for increased compliance staffing and that there were other prioritized opportunities with higher returns on investment.”

Postal reform can’t come soon enough. And it need not come at the cost of service or dependability. Yes, there are factors that work against it, but a lot of the challenges, it seems, could be fixed with more attentive, active and alert management.

It’s time they learn the art of the deal.