Next Washington Debacle: The Broke Postal Service

As the USPS runs out of money, Congress yawns.

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No matter how disgusted Americans get with their elected officials in Washington, the mail, at least, usually arrives on time. But Congress may soon foul that up, too.

The U.S. Postal Service is in such dire financial condition that if it were a regular corporation, it would be preparing to file bankruptcy. Over the last five years, the postal service has lost about $20 billion, with another $9 billion loss likely for 2011. Cash flow is so tight that unless Congress steps in, the postal service won't be able to make a big payment due to its retiree healthcare plan at the end of September. That would be the equivalent of a default on its obligations. By next summer, there may not be enough money to meet payroll. The postal service would be insolvent, and the mail would stop coming.

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Congress probably won't let that happen, but it seems unlikely to make the post office a gleaming example of national pride, either. Since 1971, the postal service has functioned as an "independent establishment" that gets no annual appropriation from Congress, is financed mostly by its own revenue and operates like an ordinary business. But in reality it's a quasi-corporate operation at best, still subject to micromanaging by Congress and prevented by law from making the kinds of decisions necessary to stay healthy and relevant. While still an integral part of daily life for millions of Americans, the postal service is also an outfit that has fallen way behind the times, like Border's bookstores or the Blockbuster video-rental chain—both of which declared bankruptcy recently. And it can't catch up without highly politicized reforms that have to go through the Congressional meat-grinder.

Congress is now trying to figure out how to save and revive the nation's mail service. The postal service itself has proposed an aggressive reform plan to cut $20 billion per year in costs and start turning a profit, which would entail the end of Saturday delivery, the closure of hundreds of underused post offices, and other steps that would make it more competitive. But that's controversial and might not get a green light from Congress. Meanwhile, the postal service is enduring a slow bleed while its facilities—and reputation—wither. So next time you put down the postal service, make sure to save some of the sting for Congress, which has handled the problem with the same dysfunctional indifference it has shown toward other national priorities. Here's how Congress has helped make the mail service a national embarrassment:

Hamstringing its finances. The post office's biggest problem has nothing to do with the price of stamps. More than anything, costs related to pensions, healthcare and workers compensation are what's pushing the USPS off a cliff. Those costs add up to about $22 billion per year, or 30 percent of all postal expenses, according to the Government Accounting Office. Other companies have faced similar problems, but the postal service faces unusual limits on its ability to manage costs, such as an obligation imposed by a 2006 law to "prefund" a large portion of its retiree healthcare plan, instead of a more typical pay-as-you-go arrangement. The postal service also claims that mandated payments to its pension plans since the 1970s have left them overfunded by somewhere between $57 billion and $82 billion. That's money, in other words, that has been unavailable to help fund everyday operations.

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Legislation proposed by Democratic Sen. Tom Carper of Delaware would let the USPS tap those surpluses to help finance healthcare premiums, and provide more flexibility in terms of how it manages worker benefits. But begging Congress for permission is about the worst imaginable way to grapple with costs that other big companies battle every day, with the most inventive (and sometimes ruthless) measures they can devise. No company can be efficient if it must seek regulatory relief to rein in its biggest and hardest-to-control costs.

Making it obsolete. The postal service still has the essential mission of delivering mail to every community in America, which private companies like FedEx or UPS would probably charge a lot more for, especially for rural addresses that are hard to reach. But Congress has still micromanaged the postal service through a strict set of rules governing what it can and can't do while fulfilling its mandate of universal mail service. The USPS can't deliver wine or beer, for instance, even though FedEx and UPS can. It can't sell non-postal products, even though it controls an enviable network of retail outlets in central locations in most towns and cities. And even though it's technically allowed to close post offices on its own, without seeking Congressional approval, that's often impossible in reality, since members of Congress routinely pull strings to make sure no town on their turf loses its post office—no matter how unprofitable it may be.

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The postal service also has a basic business problem: Its core business—delivering physical products by the mail—is in natural decline, thanks to the Internet and digital communication. Some companies, such as IBM and Apple, have found ways to reinvent themselves as their core product line seemed headed for the dustbin. It usually takes strong leadership, insight into the future and a willingness to take risks. Other companies, like General Motors, Kodak and Sears, clung to a dying business model for way too long, and paid the price. The postal service has some innovative ideas of its own, such as closing many underperforming post offices, opening low-cost kiosks or postal stations inside grocery stores and other retailers, and offering other services at its own retail outlets, to bring in some extra cash. It has also been lobbying hard to end Saturday delivery, which it says will save $3 billion per year.

Private companies make those kinds of changes to their business model all the time—at least the survivors do. Netflix recently hiked its movie-subscription rates, and stuck by them despite vocal complaints from customers. Ford eliminated dozens of unprofitable dealerships and killed its aging Mercury brand. Apple shifted its focus away from computers, toward phones and music players. The postal service, meanwhile, is stuck with a business model that has barely changed in decades, and so far Congress has resisted most of the changes it has sought. It doesn't take an MBA or a Congressional hearing to realize that clinging to mail service in the digital era is a formula for going broke. The Carper plan would provide more flexibility, but opposition in the House of Representatives could water that down or scuttle the reforms completely.

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Waiting until disaster is near. This sounds depressingly familiar, doesn't it? The USPS has been seeking sounder finances and greater independence for several years, yet Congress has sat on its hands to the point that default seems likely and insolvency is even possible. There's an obvious parallel to the national debt, a topic that has launched a thousand speeches but precious little action, except for the near-default over the summer and a weak agreement to cut the debt by far less than nearly everybody thinks is needed. The same goes for entitlement reform and a Swiss-cheese tax code with loopholes for anybody who can hire a lobbyist. Washington has become a place where big problems go to get argued to death and resolved at the last possible minute, at the highest possible cost, which explains why consumer and business confidence in the government is at record lows.

After many tries at postal reform, Congress once again has a chance to remake the postal service into a respectable modern corporation. But that won't happen unless Congress relinquishes its own prerogative to interfere. Don't stand by the mailbox waiting for deliverance.

Twitter: @rickjnewman

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  • Corrected on : Corrected 9/14/11: This story was corrected on Sept. 14, 2011 to indicate that Sen. Carper is the sole sponsor of the postal service legislation.