The Postal Bailout


These are dark times for the U.S. Postal Service.  After years of rising postal rates and declining service, customers found a way to avoid using it entirely: a strange new technology that allows mail to be composed and sent instantly, for free, anywhere in the world.  The legally mandated monopoly of the USPS on delivering this kind of mail was a key factor in its “business model,” since it already had plenty of competition for parcel delivery through UPS, Federal Express, and their many competitors.

Defenders of the Postal Service would often point to the relatively reasonable cost of a stamp, which was still a pretty good deal by any objective standard.  The problem is that the government was spending a lot of money in subsidies to keep stamps that cheap, and with the widespread acceptance of email, even forty cents was suddenly a high price to pay for sending a letter.  Postal revenues declined as the USPS entered a buggy-whip death spiral… and crashed upon the rocks of fabulously expensive employee benefits and restrictive employment rules, achieved through the wonder of collective bargaining by public employees.

As Tad DeHaven of the Cato Institute pointed out in an April 2010 article, “The average postal employee earns $83,000 a year in total compensation and 85 percent of its workforce is covered by collective bargaining agreements. Labor accounts for 80 percent of the USPS’s cost structure.”

Collective bargaining has won job protection for postal employees that makes it very difficult to adjust the USPS business model.  It’s extremely difficult to fire, or even reassign, much of the workforce.  There are actually rules that require management to put underemployed postal workers in holding rooms, where they wait for tasks to perform, rather than trimming any of that $83,000 per year fat.

Another charming union protection described by DeHaven is that when binding arbitration with the union is called for, “there is no statutory requirement for the USPS’s financial condition to be considered.”  No matter how broke the postal service becomes, negotiations must always proceed as if it were flush with cash.

Like every other public employee union, postal workers have won fabulous, gold-plated retirement benefits through collective bargaining.  The cost of funding these benefits has become unsustainable.  The current Postmaster General, Patrick Donahoe, wants to reclaim money he says the Postal Service overpaid into the federal retirement system, but such a move make the rest of the federal government even more insolvent that it already is, and would achieve little except delaying the financial crash of the postal system for a couple of years. 

Without a cash infusion, Donahoe says, “the Postal Service will be forced to default on a financial obligation to the federal government, due at the close of the fiscal year on September 30, 2011.”

As Alexis Levinson of the Daily Caller explains, “No one quite knows what happens if the USPS does default. There is no provision in the law to deal with such an eventuality. But the word that echoed around the committee Wednesday was bailout.

Taxpayer bailouts for the Postal Service are inevitable, sooner or later.  The General Accounting Office has declared the USPS business model is “not viable.”   It’s hard to imagine a scenario in which public demand for postal services would increase.  (Well, Kevin Costner thought of one years ago, and made a horrible movie about it.)  Rate increases will only cause postal demand to collapse even further.  Public union demands have prevented the Postal Service from downsizing, and the immense liability of their collectively bargained benefits is a bomb waiting to detonate beneath the federal treasury. 

Republican Darrell Issa of California, now chairman of the House Oversight committee, once asked Postmaster General Donahoe’s predecessor “how many billions of dollars would have been saved” if he had “aggressively right-sized” his workforce long ago.  The postal unions don’t care about that, Representative Issa.  As a matter of statutory law, they don’t have to, remember?  The Constitution mandates the existence of the Postal Service.  The privilege of collective bargaining by public unions guarantees that it will become insolvent and require a bailout.  The business realities of the Internet age mean that it will be coming soon.

Update: Tad DeHaven emailed to point out that the relationship between the Constitution and the Postal Service is rather more nuanced than I stated above.  The Constitution gives Congress the power to establish postal services, but does not require it to exercise that power.  His fine scholarship on the topic can be read here

Mr. DeHaven has also produced a fascinating treatise about privatizing the Postal Service, which you can read here.  This is one of those ideas whose time has come.  Actually, its time came quite a while ago.


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