A Look Back at the Postal Reorganization Act of 1970: Part 1 of 2
(This is the first of two posts that explore the serious challenges faced by the United States Postal Service.)
In recent weeks, the USPS has made two announcements that were not really unexpected.
1. Effective July 10, 2022, the price of a first-class, one-ounce letter increased from $0.58 to $0.60 for stamped mail, and it increased from $0.53 to $0.57 for metered mail. Each additional ounce went from $0.20 to $0.24, while postcards increased from $0.40 to $0.44.
2. On August 1, 2022, Postmaster General Louis DeJoy announced that the USPS needed to lose or cut 50,000 workers just to break even, However, he offered the assurance that 200,000 people would be retiring within two years. If you do the math, that means that the USPS will lose about 150,000 more employees than the minimum needed to break even, so it seems to go without saying that the USPS will soon be hiring many, many, many new employees.
These two announcements have left many analysts shaking their heads and wondering whether the Postal Reorganization Act of 1970 actually doomed the very agency that it created.
What Was the Postal Reorganization Act of 1970?
In 1792, the Postal Service Act created the Post Office Department as authorized by the United States Constitution. In 1872, the Post Office Department was granted the status of a cabinet-level department. Today, cabinet-level departments include Homeland Security, Veterans Affairs, Housing and Urban Development, and Defense. Each department has a secretary, and these secretaries comprise the president’s cabinet of advisers. The PRA eliminated the Post Office Department and created the USPS as an independent agency. There are several differences between independent agencies and cabinet-level departments. For example, a president can fire any cabinet secretary for any reason at all, but a president must have legitimate, job-performance reasons to fire a head of an independent agency. However, perhaps the most critical change wrought by the PRA is that the USPS was created to be a self-funding enterprise that would not receive taxpayer funding. In a sense, the USPS, like Amtrak, is sort of a government corporation that is expected to generate enough revenue to cover its expenses. In the early days, it appeared that the USPS would be able to pay its own way, and there were many years in which the annual surplus exceeded $1 billion. Unfortunately, events would unfurl that would lead to many years of losses in excess of $1 billion annually, culminating in an announcement in April 2020 that the USPS was so broke that it might not be able to operate past September 30.
Why Is the USPS Struggling Financially?
When a private corporation starts to lose money, its directors typically employ a variety of strategies to turn around the financial picture. The company may close unprofitable locations, slash its workforce, streamline its offerings, or raise its prices. For the last 25 years or so, the USPS has primarily focused on the last option, but the unique nature of the postal service has not afforded it the luxury of choosing many of the other options. Furthermore, there were many events beyond the agency’s ability to control that cut deeply into its revenue.
1. First-class mail has always been the primary source of revenue. In 1926, the post office handled 15,266,000,000 pieces of first class mail, according to the USPS, but by 2001, that number was regularly exceeding 100,000,000,000 pieces annually. However, the 21st century saw the rise of the internet, and the availability of affordable computers meant that an increasing number of both businesses and consumers were going online. The post office charged for mailing letters or invoices, and it could take three days or more for delivery. Sending business or personal communications by email was faster and cheaper. In 2021, the USPS handled a mere 50,695,000,000 pieces of first-class mail.
2. The USPS faced increasing competition from FedEx, UPS, and other private carriers. Founded in 1907 as the American Messenger Company, UPS began as a service that ran errands and delivered meals from restaurants, packages, baggage, notes, and other miscellaneous items for businesses in Seattle. As the company expanded, it began offering a common carrier service, which meant that anyone could arrange to have a parcel picked up and delivered. FedEx upped the stakes when it was founded in 1971 as Federal Express. As its flagship service, Federal Express offered overnight delivery. Although the USPS has always had a monopoly on the delivery of letters, both FedEx and UPS offer options for letter-sized parcels, and both private carriers have taken substantial bites out of the post office’s parcel services. It should also be noted that the USPS was a bit late to the game in both parcel and overnight services. The post office did not begin its parcel delivery service until 1913, and it did not begin offering its Express Mail service until 1977.
3. Private companies began creating stores that could provide many of the same services as a post office. For example, a virtual mailbox service can accept letters and parcels addressed to clients and delivered by any carrier. Other stores can pack a customer’s shipment, then arrange for UPS or FedEx to pick it up from the store.
4. More than anything else, however, the financial problems of the USPS can be traced to the passage of the Postal Accountability and Enhancement Act of 2006. This requires the USPS to pre-fund health benefits for retirees to the tune of more than $5 billion annually. Most private companies and other federal agencies operate under the pay-as-you-go concept, which means that premiums are paid when they are billed instead of requiring payment in advance for benefits that will not be delivered until a future date.
How Much Money Does the USPS Lose Annually?
The annual net losses are staggering, especially when you look at the results for the years 2003 through 2021.
• 2003: $3.9 billion SURPLUS
• 2004: $3.1 billion SURPLUS
• 2005: $1.4 billion SURPLUS
• 2006: $900 million SURPLUS
• 2007: $5.1 billion loss
• 2008: $2.8 billion loss
• 2009: $3.8 billion loss
• 2010: $8.5 billion loss
• 2011: $5.1 billion loss
• 2012: $15.9 billion loss
• 2013: $5 billion loss
• 2014: $5.5 billion loss
• 2015: $5.1 billion loss
• 2016: $5.6 billion loss
• 2017: $2.7 billion loss
• 2018: $3.9 billion loss
• 2019: $8.8 billion loss
• 2020: $9.2 billion loss
Clearly, the USPS is in dire financial trouble, and help does not seem to be on the horizon. In our second post on this topic, we will examine the issue of rate increases and explore the reasons why rate hikes alone are not going to solve the problem
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