ALTERNATIVES
THE POSTAL SERVICE MUST PURSUE
SHORT-TERM
ALTERNATIVES TO RAISING POSTAGE RATES YET AGAIN
MPA
Supports Long Term Legislative Reform But Immediate Action
To Reduce
Costs and Rationalize Operations Is Essential
MPA supports the recent call by the Postal Service Governors for legislative postal reform to address "a situation which, if not addressed, will begin to have a significant and negative impact on the economy." In a letter to Congress the Governors cite changing markets, an outdated regulatory framework, and restrictive labor law provisions as problems. They "see alarming trends that seriously threaten the future of America's mail service." MPA agrees that basic reforms are needed. More than 85% of magazines are delivered through the mail and MPA needs a viable and competitive postal system.
But MPA strongly disagrees with the Governors' claim that they "have taken appropriate steps to address the situation." In fact, they are conducting business as usual, preparing to request this summer a huge increase in postage rates only months after the last major price boost this January. This is precisely the wrong action: hiking rates at this time will have a significant and negative impact on the Postal Service and the economy. It would be counterproductive, accelerating the reduction of mail volume in response to the higher price of mailing.
Long-term reform is necessary, but decisive near-term action by the Governors to reduce costs and rationalize operations is essential. There are several actions USPS should take:
Freeze hiring. The Governors say they "have directed that nonessential activities be curtailed or eliminated." But the number of postal employees has grown to nearly 900,000 (200,000 more than 1980) despite billions invested in "labor saving" automation equipment. According to the General Accounting Office, 130,000 USPS employees will be eligible to retire in 2001-2002. With normal attrition of 3 percent a one-year hiring freeze would save almost $700 million in the first year and $1.4 billion annually thereafter.
Reduce excess capacity. What "nonessential activities have been eliminated?" Has a single unneeded plant been closed? The Postal Service has almost 500 "mail processing plants." About one-third of these plants process only about 10 percent of the mail. Consolidating these facilities so that the remaining plants process an average amount of mail would allow the Postal Service to close 50-100 plants thereby reducing costs significantly.
Increase productivity.
The Governors claim "we have achieved record productivity . . . over the
last several years." Productivity in 2000 may be a record for the Postal
Service (2.5 percent increase), but it was negative in 1999 and over the
last decade has been woefully behind the private sector. Postal Service
Total Factor Productivity (TFP) dropped .6% between 1990 and 1998 (the
last year for which private sector TFP is available) - while private
non-farm TFP increased by 7 percent and private manufacturing productivity
grew by 13.9 percent! If the Postal Service been able to achieve the same
TFP growth as the private non-farm sector, its expenses would be $4.6
billion less than they are today. Had it been able to match the TFP growth
of U.S. manufacturing, its expenses would be $8.3 billion less than they
are today.
Make prudent use of existing borrowing authority. The Postal Service has statutory authority to borrow up to $15 billion. Through January of this year its outstanding debt was only $7.5 billion. It should make prudent use of this authority to address any cash flow problems.
Leverage existing assets. The Postal Service owns billions of dollars in real estate, which it carries on its books at far less than market value. USPS headquarters (L'Enfant Plaza) has a market value exceeding $100 million. Faced with a short-term cash flow problem, a prudent private sector business would explore selling and leasing back some of these valuable assets.
Most businesses faced with a financial crunch would tighten their belt, cut back on unneeded activities, and compete more vigorously. The Postal Service must act decisively to reduce costs and rationalize operations - not raise prices. As prices increase, more and more people will use e-mail, faxes and other methods to get their message through. The Postal Service must not cause a "death spiral" by repeatedly raising prices causing mail volume to decline and then raising rates again. The Postal Service should concentrate on providing incentives that will increase mail volumes.
WHAT'S NEW | RATE HIKE | PRESS CENTER | WHO'S SAYING WHAT | CONTACT US