Bailout in the Mail

Wednesday, July 29, 2009

IT LOOKS AS IF the U.S. Postal Service is getting its bailout. The House Oversight and Government Reform Committee has advanced legislation to relax the Postal Service's obligation to prepay its employee retirement benefits, an action that would save it an estimated $2 billion annually. But even this may not be enough to save mail service as we know it.

Everyone who advocates ending the USPS pension prepayment notes that this obligation is unique among federal agencies. But there is a reason for this. Unlike other federal agencies, whose future ability to pay retirement benefits remains unquestioned, the USPS's ever-declining mail volume has made prepayment seem like a sensible precaution. If the Postal Service can't afford to pay for these retiree benefits now, what makes Congress think it will be able to pay in the future, when the number of postal ratepayers will have plummeted still further? If first-class mail volume continues its downward spiral, taxpayers will be next to foot the bill.

With the rise of the Internet and the current economic downturn contributing to a drop in mail volumes, the Postal Service has been hemorrhaging money; it is projected to lose more than $6 billion in the current fiscal year. Relaxing its obligation to prepay retirement benefits will be a substantial reprieve, but this lifeline will be costly if it does not lead to rethinking USPS's future. The Postal Service's status as a huge governmental entity, with more employees than the Detroit Three automakers combined, made sense when the country communicated, paid its bills and maintained its relationships by mail. No longer. Although an end to the recession may drive mail volume back up, it is not likely to return to former levels. And as the USPS increasingly becomes a center for package shipping and direct-mail advertising, its role as a governmental institution will become more and more questionable.

A report released Tuesday by the Government Accountability Office placed the USPS on a financial high-risk list unless it significantly cuts employee benefits, removes excess capacity and creates more competitive products. These are all useful recommendations, as is the suggestion that the Postal Service create a plan to maintain viability in light of the changing role of mail. But broader reform is needed.

The USPS's own proposed remedy for its fiscal woes involves limiting its universal service obligation to five days of delivery a week. Shocking as this change may sound, the requirement to deliver mail six days a week dates back only to the early 1980s; this does not have to remain the model. As people depend less and less on mail for their critical communications, even five days may not be the most efficient delivery level.

Changing the USPS's costly obligations must also mean reconsidering its lucrative monopoly on mail delivery, which no longer makes sense. The Postal Service's status must be adjusted to fit its changing role in communications. Otherwise, this bailout will not be the last.

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