Debating the future of the USPS

Darryl J. Anderson, a Washington DC-based lawyer who has served as General Counsel to the American Postal Workers Union, has posted a rebuttal to the recent paper by Brookings scholar Elaine Kamarck which put the case that the US Postal Service (USPS) “must be broken into two separate entities”. In a blog posted on the Economic Policy Institute’s  (EPI) website on Tuesday (3 November), Anderson claimed that Kamarck’s essay “grossly misstates the facts about the central cause of the Postal Service’s financial crisis”.

As previously reported by Post&Parcel, Kamarck’s essay – published in September and entitled Delaying the Inevitable: Political Stalemate and the U.S. Postal Service – maintained that USPS “faces a wide assortment of problems that threaten its survival”, and her suggested remedy was to split the organization in two.

“One organization should be a public sector organization with the sole mission of delivering on the universal mandate of delivering mail service to all Americans,” said Kamarck. “The other organization should be privatized so that it is out from under the laws and regulations that make innovation and flexibility all but impossible.”

That “other organization” would be active in markets like parcel delivery, where it will compete with the likes of UPS and FedEx.

In his counter-blast on the EPI website, Anderson said that the “central cause of the Postal Service’s financial crisis” – which he claims that Kamarck “grossly misstates” – is the statutory requirement to pre‐fund retiree health benefits.

Anderson then set out his perception of the issue: “Current law, enacted in 2006, requires the Postal Service to pre‐fund these benefits over a 10‐year period at a cost of $5.5 billion per year. Kamarck writes (citing a Report by the Postal Regulatory Commission) that retiree health benefits caused ‘$22,417 million in expenses out of a total net loss of $5.5 billion in fiscal year 2014’. Wrong. The $22.4 billion figure Kamarck cites represents the liability the Postal Service accrued over a 10‐year period due to its inability to make all the pre‐funding payments mandated by the 2006 law.

“Kamarck misses what the Postal Regulatory Commission Report clearly shows: The $5.7 billion pre‐funding expense for 2014 exceeded the Postal Service’s $5.5 billion net loss for the year. For 2014 operations, the Postal Service had a positive net income of nearly $1.4 billion. (The Postal Service also had a positive net income based on operations in 2013 and in the first half of fiscal year 2015.)”

Anderson went on to question Kamarck’s assertions about the “dramatic decline in the volume of single piece first class mail”, and said that her recommendation that the Postal Service spin off its parcel business “relies heavily, and repeatedly” on a study that was financed by UPS.

“There is a rich irony in Kamarck’s naïve suggestion that the competitive products portion of the Postal Service should be set free to “compete and innovate” along with other private‐sector companies,” argued Anderson. “This would be like feeding a small fish to the very large predatory companies that dominate the parcel delivery markets.”

According to Anderson: “UPS and FedEx so dominate the parcel delivery market that we should be concerned that they have no competition. UPS controls 52% of the parcel market and FedEx controls 30%; the Postal Service is a very distant third, with 15% of volume and 13% of revenue.”

In his EPI post, Anderson also argued: “There is a fundamental fallacy in Kamarck’s suggestion that the Postal Service’s universal delivery network should be maintained but separated from the rest of the Postal Service. The delivery service is the most expensive segment of Postal Service operations and the most difficult to make more efficient. This is not a criticism of the efficiency of letter carriers or of the delivery network, which are excellent. The Postal Service is consistently rated the federal agency that Americans most appreciate and respect. It delivers to every address in the United States, something no other delivery service is willing or able to do. It is a critical part of our national infrastructure.

“This expensive infrastructure and the universal mail service it provides are being supported, as Kamarck and UPS observe, by giving the Postal Service exclusive access to mailboxes and a monopoly over letter mail. But Kamarck fails to appreciate the important supporting role played by the Postal Service’s mail processing network. Kamarck and others routinely dismiss the mail processing network as a financial burden that needs to be reduced as much as possible.

“In fact, it is a profit center for the Postal Service. It delivers a very valuable service – sorting, processing, transporting, and preparing for delivery billions of pieces of mail on a daily basis – and then handing that mail over to the delivery arm of the Postal Service. The economic value of this activity has never been correctly analyzed and measured. It provides substantial economic support to the rest of the Postal Service.”

Wrapping up his case, Anderson said: “Kamarck’s suggestion that the profitable parts of the Postal Service should be split off and privatized, leaving behind the most expensive part of universal service, would not be viable even if she had her facts right. It would deprive the Postal Service of vital financial and logistical support.

“Although Kamarck denies it, the fact is that the Postal Service is and can continue to be financially viable. It should not be dismembered, and certainly not at the behest of private‐sector companies waiting to devour its remains. We need to do what is best for the public interest.”

Anderson took Kamarck to task for using a study commissioned by UPS, so we should in fairness flag up his links to the American Postal Workers Union and point out that while the EPI describes itself as a “nonprofit, nonpartisan think tank” it also says that it “proposes public policies that protect and improve the economic conditions of low- and middle-income workers”.