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USPS structure puts it in a 'fiscal bind', needs business-minded reform

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Rachel Rhodes

Procedural changes at the U.S. Postal Service this summer, including slowing mail delivery and eliminating overtime, raised concerns among lawmakers about implications for the November election. Postmaster General Louis DeJoy will testify in front of the Senate Homeland Security and Governmental Affairs Committee on Friday, and the House Oversight Committee on Monday, August 24.

Rick Geddes

Professor, Cornell Jeb E. Brooks School of Public Policy

Rick Geddes, professor and founding director of Cornell University’s Program in Infrastructure Policy, is an expert on the funding, financing and operation of civil and social infrastructure. He says that the current structure of the USPS gives it few options to cut costs, and serious reform is needed.

Geddes says:

“The USPS is regulated by the Postal Accountability and Enhancement Act (PAEA) of 2006. Commentators often blame the PAEA for placing a burden on the USPS to pre-pay $5.5 billion annually to the Treasury to pre-fund retiree health care costs. However, the PAEA also relieved the USPS of about $5.1 billion annually in other payments to the Treasury, and the $5.5 billion prepayments ended in 2016 (since it was 10-year program). 

“The structure of the USPS places it in a fiscal bind because the PAEA places caps on rate increases, yet the USPS must still maintain its ‘universal service requirement’ roughly defined as delivery to all addresses six days per week – even as mail volume in the profitable first-class mail declined by over 47% since peaking in 2001. That is due mainly to the rise of electronic alternatives. Revenues from increased parcel post are not enough to make up the difference. 

“Postal policy leaves the USPS with few levers to stem the tide of red ink. Of those available, non-layoff cost cutting is a key lever; including eliminating overtime pay and removing collection boxes. The likely effect of those cost-cutting measures is to slow down mail delivery.” 

“The USPS needs serious reform, and it should take the form of liberalization. Liberalizing means allowing it to operate more like a regular business, which requires de-monopolization, commercialization and corporatization. Current proposals, such as the ‘Delivering for America Act,’ do not undertake major policy reform, and thus will not have a long-term effect on the USPS’ fiscal condition.”

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