A proposal pending before the Postal Regulatory Commission would authorize the U.S. Postal Service to dramatically increase prices on consumers, while the agency’s long-standing financial mismanagement is largely ignored.
In recent years, the Postal Service’s already precarious financial situation has worsened. In the last decade, the agency has reported more than $65 billion in losses while consistently missing quality targets. In 2017 alone, its deficits totaled $2.7 billion.
In response to these soaring deficits, the Postal Regulatory Commission, which has oversight authority over the Postal Service, is considering a plan to substantially increase postal rates over the next five years.
Yet the commission’s proposed remedy fails to address the agency’s fundamental challenges; it merely injects more money into a dysfunctional system. Before the commission contemplates increasing rates, it should demand accountability for the policies that have contributed to the Postal Service’s current predicament.
Ever since its founding, the Postal Service’s foremost responsibility has been to deliver letter mail to every residential and business address in the country. To help fulfill this universal service obligation, Congress has granted the Postal Service a monopoly over letter mail. These market dominant services are generally profitable; a recent report estimated that they generate $2.16 in revenue for every dollar in attributable costs.
The Postal Service also offers a range of services that face private market competition. These competitive services include issuing money orders, delivering food, and shipping packages.
There is troubling evidence that the Postal Service may be shifting the revenues and profits from market dominant services to competitive services, as well as shifting the costs and risk from competitive services to market dominant services.
These competitive services account for about 30 percent of the Postal Service’s revenue, but federal law only requires them to cover 5.5 percent of the agency’s fixed and institutional costs — expenses like delivery infrastructure, administrative support, and building maintenance, none of which can be attributed to a particular product or service. As a result, market dominant services contribute far more to these overhead costs. This divergence is so severe that market dominant services pay 58 cents per dollar of revenue toward fixed and institutional costs, while competitive services pay only 8 cents per dollar of revenue.
In other words, it appears that the profitability of market dominant services is being used to prop up non-essential competitive services that otherwise would not be financially sustainable. But that is exactly backward. If the Postal Service is to offer competitive services, those services should improve the Postal Service’s ability to carry out its core mission of delivering letter mail, not undermine its financial stability.
To allow competitive services to freeload off of the profitability of market dominant services is irresponsible and unnecessary. If the Postal Service dropped its competitive services tomorrow, consumers would still have numerous options to purchase these services from rivals. UPS, FedEx, and DHL would still ship packages; Giant’s Peapod, Instacart, and Fresh Direct would still deliver food; and existing financial institutions would still provide money orders.
The Postal Service’s pattern of mismanagement must not be allowed to continue. Raising rates on consumers to preserve the short-term solvency of the Postal Service while ignoring fundamental problems in the agency’s cost structure is not a solution.
The American public deserves transparency and accountability from its government agencies, especially one as crucial as the Postal Service.
Liam Sigaud writes for the American Consumer Institute, a nonprofit educational and research organization.
