Postal Service Self Sufficiency, Financial Viability and the Business Model

No stakeholders and few members of Congress argue that the United States should provide postal services through a mix of user fees and tax revenues in a manner that highway, air, and rail passenger transportation are provided. The Postal Service and its supporters point with pride that since the passage of the Postal Reorganization Act, the Postal Service has covered its costs through postage revenue. For many years, no one questioned whether the Postal Service could be self-sufficient or financially viable as long as revenue just covered costs over the long run.

The Postal Service’s current financial crisis illustrates the failure of this lack of curiosity. The current postal reform debate continues to ignore this problem, just as the debate prior to the passage of Postal Accountability and Enhancement Act. No congressional hearing asked what financial goals are needed to ensure self-sufficiency and financial viability or more specifically:

  • If the Postal Service is to be self-sufficient and financially viable, must profitability and, more specifically, a specific level of profitability be the Postal Service’s financial goal?

The importance of profitability to self-sufficiency and viability is universally accepted in economically-advanced countries that have reformed their postal policy. This is why most posts outside of the United States have remained profitable, even in the most troubling financial time since the Great Depression.  For details see Michael Schuyler, “Most Foreign Postal Services are Profitable: The U.S. Postal Service Lags

Profitability, Amtrak and the Postal Service

The question of profitability was also raised in a recent Freakonomics blog post on Amtrak, which was discussed in the post “Amtrak Debate in Freakonomics Blog Suggests A Similar Debate for the Postal Service” In a response to Freakonomics, Gulliver, the Economist’s blog on business travel, honed on the core issue that the Freakonomics blog only tangentially addressed.

Here’s a good rule of thumb: if a government entity’s profitability is the main thing you’re worried about, it probably shouldn’t be a government entity. Nobody worries about the military or the courts being “profitable”. It’s probably not the right question about Amtrak, either.

What Should the Primary Policy Objective Be?

Guliver’s framing of the question for Amtrak is perfect for developing what should be the core policy question about the Postal Service, which can be framed in one of two questions that are mirror images of each other.

  • If the Postal Service’s self-sufficiency and financial viability the primary objective of postal policy, thereby mandating that profitability be the primary objective, why is the Postal Service a government entity?
  • If the Postal Service should remain a government entity, what policy goal should become the primary objective and how should annual operating budgets, as determined by a combination of postage revenue and appropriations, affect the level of service provided to meet those policy goals?

Self-Sufficiency and Financial Viability Drove Policy Debate Outside of the United States

The first question is the one asked during postal reform debates outside of the United States. Different countries chose different paths on keeping the national post as a state-owned entity. Countries that kept a for-profit post as a state-owned enterprise are countries that accept state ownership of for-profit enterprises. Countries that have extracted the state from for-profit enterprises have chosen to privatize their posts. With few exceptions, the United States does not have state-owned enterprises that are run to earn a profit. Therefore, it would be hard to imagine the United States maintaining the Postal Service as a self-sufficient, financially-viable enterprise as part of the government.

Other Policy Goals Dive Policy Debate on Transportation Infrastructure, Public Transit and Amtrak

The second question starts by assuming the Postal Service should be part of government. With this assumption, policymakers need to ask serious questions about whether all revenue must come from postage payers or whether some revenue should come from tax revenue including tax revenue to cover current payments for retiree liabilities.   Also, they must accept that the level of service that the Postal Service can offer is determined by the annual operating budget, which is limited by restrictions placed on raising revenue, as well as the level of appropriations.  In this scenario, the level of service provided by the Postal Service will be affected by its operating budget, just like all other  government services are affected by the size of an agency’s budget.

The second question is the question that is generally asked when talking about the nation’s transportation infrastructure, public transit and Amtrak. No one expects that highways, airports, or public transit to be for-profit enterprises. Therefore roads, public transit and Amtrak tend to be under-capitalized and face limits on the level of service provided, due to limits in revenue generated from users and general tax revenue. In the case of highways, the level of service is measured by the level of congestion and roads in disrepair.

The Postal Service’s current initiatives to optimize the retail network, change service standards and cut around 200 processing plants are similar to actions that highway departments, transit agencies and Amtrak have taken when revenue falls short and sponsoring governments do not increase appropriations. These transportation entities survive reductions in revenue by deferring maintenance and investments and cutting back service.

What Must Happen if Self-Sufficiency and Financial Viability Remain Primary Financial Goals

Congress is unlikely to back away from requiring the Postal Service to be self-sufficient and financially viable.  Therefore, maybe it is time to:

  • explicitly introduce profitability as a financial goal;
  • recognize that that goal cannot be met until the Postal Service has full freedom to operate its business, within the confines of its universal service obligation, and has full freedom to enter complementary markets and sign contracts with customers; and
  • recognize that the necessary freedom cannot exist as long as the Postal Service remains a government entity.

Therefore, it is time for postal service stakeholders, and in particular its labor unions to develop an acceptable path toward privatization.  Nothing less than their livelihood depends on it.

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2 Responses to “Postal Service Self Sufficiency, Financial Viability and the Business Model”

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  1. IOUSA says:

    That’s right lets privatize the USPS and leave rural America to fend for itself. Lets not look at the USPS management decisions since they only make good decisions. There certainly are enough of them and they don’t see any repercussions for their poor choices. How many USPS officials made more than the Secretary of Defense in 2010? 38 you say, well great for them. But the union workers are all to blame. and the 2006 Postal Enhancement bill that prefunds pensions for 75 years in 10 years so that the Federal government tax cuts did not make the US budget look as bad is just an anomoly. Then the PRC says that raising postal rates is illegal since they exceed inflation but the way inflation is calculated, the price of fuel is not included. Funny but UPS and FEDEX are allowed to charge fuel surcharges. But hey privatization is the answer to everything.

  2. uncommon sense says:

    It isn’t going to happen. If the government were to fully privatize the USPS the liabilities and assets would have to go to the new private entity. There is no way that the government is going to give the USPS the $325 billion in USPS retirement prepayments that they are holding. They have been counting that money as receipts to counter the real deficit numbers.

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