Reason Foundation

http://reason.org
http://reason.org/news/show/the-bleeding-continues-usps-lo

Reason Foundation

The Bleeding Continues: USPS Loses $2.4 Billion Last Quarter

Leonard Gilroy
August 6, 2009, 7:31pm

Following up on earlier posts here and here, the Washington Post reports today that the U.S. Postal Service—the beleaguered federal enterprise and proverbial "government option" in the world of mail delivery—continues to bleed red ink (the chart illustrates this vividly):

The U.S. Postal Service lost $2.4 billion in the quarter that ended June 30 and forecasts a $7 billion loss for the fiscal year, according to figures released Wednesday. Mail volume dropped 12.6 percent over a nine-month period, continuing a sharp decline fueled by the economic recession that began in 2007 and by wider use of the Internet.

Though attention in recent months has focused on the potential closure of hundreds of post offices or the elimination of Saturday mail delivery to narrow the budget gap, most of the Postal Service's financial woes are tied to labor costs, especially billions of dollars in required payments to prefund future retiree health benefits. The cost of funding current and future retirees is likely to top $7 billion this fiscal year. [...]

"The Postal Service does not want to do anything that would disrupt this economy," he said. "Over a trillion dollars moves through the mail in any given year, and we are a hub of an industry that employs some 8 million Americans. We have no intention of doing anything that would disrupt the flow of mail."

That flow has slowed in recent years, to an average of 4.1 pieces of mail a day delivered to each address, down from 5.9 pieces in 2000, according to Postal Service figures. The decline has contributed to losses in 11 of the past 12 fiscal quarters.

In response, the Postal Service has implemented hiring and salary freezes and has dramatically cut its workforce -- by 37,000 employees in the past year, to a total of 630,000, down from a peak of 802,000 in 1999. It recently renegotiated more than 300 service contracts, saving $200 million.

The financial numbers follow last week's classification of the Postal Service as a "high risk" government agency and come just days after it released a list of almost 700 post offices it will consider closing. The list once included as many as 3,000 facilities, and some postal officials privately acknowledge that no more than 200 locations, most of them in downtown urban areas, are likely to close. The varying figures have raised the ire of lawmakers concerned that mail service will be trimmed in their districts with little notice.

For context, the USPS lost a total of $2.8 billion for all of last year, so this year's losses are projected to more than double. The business model is clearly failing—abysmally.

And even though the sensible thing to do immediately would probably be to close thousands of outlets, instead they're talking a few hundred. And each one of those closure proposals may prompt a hard fought political battle, if the early, parochial reaction by several pols in the WaPo piece offers any indication. We will see numerous politicians effectively grovelling not to rearrange deck chairs on the Titanic as it quickly sinks.

Why would any politician in D.C. think that the federal government could get healthcare right when it can't even run a postal business? The sooner pols realize that the federal government generally has a "black thumb" with enterprises like this—a reverse Midas effect, if you will—the better.

» Reason Foundation's Federal Privatization Research and Commentary


Leonard Gilroy is Director of Government Reform


Print This