Sunday, November 20, 2011

Life after the U.S. Postal Service

U.S. Constitution, Article I, Section VIII – The Congress shall have power to lay and collect taxes, duties, imposts and excises… 7) to establish post offices and post roads.

The USPS has been in the headlines again lamenting a $5.1 billion lost for the fiscal year ending September 30, 2011 on revenues of $65.7 billion. Are we bracing for yet another bail out?

Irrespective of the spin generated by the American Postal Workers Union (click here to read it), two fundamental problems have created the five-year streak of multi-billion dollar losses:

1) Competition with online services and private sector package delivery companies.

2) Cost of retiree benefits.

Competition

There is no question that first class letters have been hit hard by email. Though only representing about 3% of total revenue, letters from household to household have become a rarity and will continue to go the way of Buicks and hair salon “permanents” as our oldest generation moves on to the Happy Hunting Grounds.

Online services by banks, credit card companies, investment houses, the federal government, etc., have had a more dramatic effect. Fewer and fewer people receive their monthly statements in the mail. The Social Security Administration has replaced those monthly kisses in the mail with direct deposit.

The effect of these changes is that a greater percentage of what shows up in your mailbox is junk mail (aka advertising). On an average day, I immediately throw out all of the mail I recover from my PO box. Once in awhile, I open an envelope, quickly peruse the contents, and then throw it out.

This begs the question: Just how much (in terms of billions of dollars a year) should the taxpayers subsidize the USPS for delivering advertisements from private sector companies? Does this not represent an indirect transfer of taxpayer money to companies that offer low interest rate, guaranteed acceptance credit cards? Or to the Mitt Romney for President campaign?

On the package delivery front, UPS, FedEx and others offer strong competition featuring better websites, tracking tools, and on-time deliveries. It is an excellent example of how competition in a free market can lead to better service at a reasonable price.

Retiree Benefits

This is the 480,000 pound gorilla in the room. Although funding for the current retirees and survivors is in place ($42.5 billion), Congress has smartly required the USPS to fund future retirement benefits with contributions of about $2.5 billion per year. The American Postal Workers Union argues that this funding should be waived in order to shore up current operations. One might argue that this is a short-sighted view.

There are about 560,000 active employees of the USPS, the second-largest employer in the private sector behind Walmart, if you concede that the USPS is a private sector employer. It doesn’t receive any taxpayer money (yet), but Congress does allow it to borrow up to $15 billion per year.

At 480,000 strong, retirees of the USPS and their survivors almost equal the number of active employees. Promises of making changes to the retirement benefits system without affecting any current or retired employees are likely to be empty. That is, of course, unless taxpayers come to the rescue.

All of this stacks up to a shrinking number of employees (already down by 121,000 since 2007) and a tipping point of more people drawing on retiree benefits than the number of people contributing to the system. Click here to read how the USPS proposes to manage this issue.

Life after the postal service

I don’t know if it will ever come to it, but I started thinking about how I would manage my affairs without the USPS. What would take its place? Does anything need to take its place?

All of our bill payments and statements are handled online. Investment statements and transactions—all online. As a CPA, we send client organizers in the mail, but my software system has an online organizer feature. I send thank you cards to my campaign contributors, but could hand deliver most of them.

My guess is that competition for what’s left of the first class mail would result in UPS and FedEx creating a Buck-An-Envelope service that would deliver up to 8 ounces or so (about 8 sheets of paper) for $1. Though more than twice as much as First Class rates of today, I would use it because my need would be infrequent.

How would you manage without the USPS? Can you imagine that becoming a reality?

12 comments:

  1. Randy, normally I agree with you but this time you are off the mark. The USPS is in every way an agency of the Federal Gov and NOT a private sector company such as Walmart. Implying that the USPS is private Sector is misleading the public. I thought you knew better. All monies taken in are deposited into the Fed Treasury, not a private sector bank account. The Postal Service pays into both the Civil Service Retirement System and the new (1985) Federal employee Retirementy System. Most of the folks covered by CSRS are my age or older and retired. There a probably a few hangers on but not many. When we worked we contributed 7.5 percent of our base salary into the CSRS system. When I retired I was a Level 17 Supervisor. Up to that point I had paid in 80K over a 35 year career. The very second I retired that 80k bcame the government's money. For tax purposes I am "permitted" to amortize that 80k by deducting 190.00 a month from my taxable pension. To get my 80k back I have to live until I am 97. If I die before that my executor claims any remaining balance as an overpayment of taxes on my last Federal tax return. Accounting for that 190.00 a month payback is my responsibility. My check comes from the Federal Civil Service Retirement System not the Post Office. One more piece of evidence that yes, the USPS is a government agency. One more thing, our health care isn't free either as most think. As retirees we pay the same premium as all federal employees. It my case that amounts to about 12% of my pre tax pension.

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  2. Hi, Jim. Being a quasi-governmental agency, the USPS is often compared to private sector businesses. I included the phrase "if you concede that the USPS is a private sector employer" recognizing that many people don't consider it such. It's still an interesting comparison to Walmart to provide perspective of size but not how the two entities manage their retirement plans or health insurance benefits.

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  3. The USPS is an expensive, seldom useful, anachronism. Nothing of value or importance is moved by the USPS. For those items everyone uses FEDEX or UPS. Close the postal service down gradually over a five year period to allow those who still do not have internet skills to learn them or "move on". The funding is there to pay retirement benefits for current employees. "Bite the bullett" as additional funding is needed knowing that in 5 years the bleeding stops.
    Peter

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  4. I understand where your going Jim and I agree with most of what you have said, but I do think that paying about $5,000/yr for BCBS if you have it, is one great perk. If you are over 65, then my guess is that you spend $0.00 per year for Doctors and Hospitals. Not bad, not bad.

    Hang in there, you will do just fine.

    I am going to the PO tomorrow to get all my bills. I don't have a computer and if I did I could not use it for lack of technical knowlede. I do all my computing on earth with a calculatro. I hope the PO stays open just for me. Yes, I am selfish.

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  5. Anonymous: What? Are you posting to my blog using your IBM Selectric?

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  6. Actually anonyomous I pay just over 6k for health care, and guess what? As far as a great perk goes, with sereral hundred thousand members in the group spreading the risk I think 6k is a tad high but it is what it is. When I'm 65 in a couple of years I still get to pay the 6k. Why? Because federal employees must go on Medicare, and must keep their current plan. No changes are allowed. My BCBC simply becomes my backup to Medicare with the same premium. As for paying zero I have no idea where you get that from. We currently pay copayments on 2 levels. One for a GP another for specialists. All benefis are subject to a deductable and if you are hospitalized we pay a hefty co insurance. Claims we pay nothing for Drs. and hopitals are false. The average teacher in Sandwich has a better plan than a federal employeee if the truth were known

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  7. Jim, please correct me if I am wrong. As I understand, PO employees when they reach 65 take medicare and can then opt to just take the part b and d if they choose, there is no pointing of a gun to their heads to keep with the health plan they chose as an employee of the PO. You sound like a bright fellow and I doubt you would pay 6K a year if you did not get some kind of advantage. My pension is the same now as it was over ten years ago when I retired. My former company, a very big one, will be getting rid of their pension and its employees will have to rely on 401K and SS.

    I think the PO has a great deal. Now, I know you earned it and I do not begrudge you for it. Just don't cry, you are far better off than most.

    sent from my Olivetti

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  8. Personnel costs are certainly the biggest piece of the problem -- but how about consolidating facilities? There is no justification for having PO's every 2 miles as you travel down Cape -- they almost outnumber Dunkin Donuts.
    That was strictly a job-creation scheme, not anything to improve service!

    And forget Saturday deliveries -- we shouldn't have to subsidize an additional day of junk mail!

    We can't afford such nonsense.

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  9. @anonymous 2:01 PM

    I thinkest that if you could see the profit margine at the East Sandwich Post Office, then you would know why it WILL stay open.

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  10. Why is the East Sandwich Post Office the only one in town that can do passports? Because they needed a reason to boost its viability, that's why.

    And why is the counter service there so frequently surly? That I have no answer for, but it's a sad truth.

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  11. Any "profit margin" at East Sandwich is irrelevant when you consider that if the office was closed, that branch's business would just flow to other surrounding stations. Close 75% of the little Cape PO's, reduce duplicative staff and facilities, sell stamps at existing private retailers and you'll start to see some real savings.

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  12. Mr 2:42 PM. Oh, really?

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