April 14, 2021
PMG DeJoy has been briefing mailers associations and editorial boards about his new strategic plan. But he is clearly not open to changes or criticisms. He intends to implement the plan as is.
The postal plan is based on overcoming a forecast of $160 billion in losses over the next ten years. Inherent in that outlook is a further 37 percent drop in mail only volume to only 75 billion pieces in 2030 from 120 billion in 2020. It is very convenient to predict a massive decline in mail volume just before you begin adding rate increases three to four times the rate of inflation. Then you can say after the fact that the volume would have dropped anyway. No price effect on volume.
The plan also predicts a base-case decline in package volume to pre-pandemic levels, in contrast to widespread belief that permanent e-commerce increases have taken hold.
Mail volume has dropped 30 percent since its peak at 213 billion in 2006. During that time, we have experienced three major shocks that should not be repeated—the great recession, the 4.3 percent exigent rate surcharges, and the Covid-19 pandemic.
The forecast has already been proven to be off with its prediction of a $9.7 billion loss this year, when USPS has a $52 million profit through the first five months. If the current year forecast is that far off, how can you base a ten-year plan on such a questionable ten-year outlook?
The USPS strategic plan moves its main mission from binding the nation together to increasing package market share at the expense of some of the best private sector businesses. This might make sense if USPS were a private business.
The plan has very little strategy to try to overcome a predicted 50 percent drop in mail volume. Indeed, it hopes to throw gasoline on the decline by raising rates multiples higher than inflation over the next ten years.
Most of the “growth” strategy in the plan is predicated on taking market share away from FedEx, UPS, Amazon, and others. To bet the future of an essential government agency on beating some of the world’s best companies at their own game is risky.
Merriam-Webster defines a tax as “a charge usually of money imposed by authority on persons or property for public purposes.”
USPS managers love to remind us that they operate without the help of taxpayer dollars. But that is a technical distinction without substantive meaning. The agency certainly benefits from its membership in the executive branch of the U.S. government. Like other agencies, USPS enjoys federal, state, and local tax exemption. USPS borrows at rates below those charged in the private sector. They don’t even have to pay parking tickets. All of which is fine and makes sense.
The most important distinction from private sector businesses is the legal monopolies granted by Congress to the agency for mail delivery and the exclusive use of household and business mailboxes. The organizations that fund USPS have choices and competition for every service they buy, except for hard copy mail delivery.
If an agency with a monopoly is granted the ability to increase rates much higher than normal inflation, it has been given the moral and practical equivalent of a tax. It has little to do with private sector pricing flexibility or power. Those are earned by successful businesses, not granted by the government.
And the Postal Service didn’t get permission to tax from elected officials like other government entities. It only had to convince five Postal Regulatory Commissioners. Whether their order survives a federal court review remains an open question.
The new USPS plan is heavily dependent on large taxes on the private sector. They equal $44 billion of the $160 billion goal.
Like his predecessors, PMG DeJoy has complained about the “unfunded mandates” imposed on USPS by Congress. A more positive description for the functions required of an essential agency would be “public services” or “universal service obligations.” It is well known that USPS performs many important non-business functions for the citizens of our nation at great cost—usually estimated north of $5 billion. Delivery and accessible post offices in vast rural areas are prominent examples.
Yet, when PMG DeJoy is asked why not request that Congress fund these mandates rather than charge mailers for them, he responds, “It’s the law.” The new postal plan assumes that USPS must continue to be “self-funded” or “self-sustaining.”
But it’s not really about the agency funding itself. It is about the senders of mail (mostly businesses and organizations) paying the full load while the rest of the citizenry gets a free ride. USPS is the only federal agency that delivers important stuff to your home or business six or seven days a week at no cost to the recipient. No wonder USPS enjoys high ratings in popularity surveys. It is perceived as a handy, free service.
The problem is that the mailer-funded model only worked well for a short period of time, an experiment you might say, during the hyper-mail-growth decades of the 80s and 90’s. It didn’t work before and hasn’t since.
But while insisting it must accept the funding law as it is, USPS bases $58 billion of the $160 billion plan on federal law changes. USPS wants to change the law to adjust the pre-funding of postal retiree health benefits, to require Medicare use by postal retirees, and to reduce USPS pension obligations for Civil Service Retirement System retirees. And why not? From a postal perspective, these are relatively painless changes.
But changes from hybrid government-mailer funding to the mailer-funded model passed in the 1970 Postal Reorganization Act appear to be off-limits in the minds of postal managers.
It seems that the most basic choice here is between (1) the postal plan and (2) changing the funding model for USPS to include appropriations for public services. The choice is between (1) a risky mission shift that depends on taking market share from the private sector in package delivery while taxing the captive private mailing sector heavily, versus (2) requiring the general public to contribute to highly-rated government public services it receives every day.