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IMA Tax Policy Blog

Should USPS Enter New, Nonpostal Business Ventures To Improve Its Bottom Line?

By Richard Borean, The Tax Foundation — Chronic financial problems and the disappearance of its Board suggest otherwise

It’s well known that the United States Postal Service has faced financial issues for quite some time. In 2015 alone, the service lost $5.1 billion in revenue, and has suffered cumulative losses of $56.8 billion between 2007 and 2015.

Some policymakers have suggested that the service should diversify into new, non-postal ventures that could improve its bottom line. Other supporters of proposals to move in this direction include the American Postal Workers Union and Sen. Elizabeth Warren (D-MA), although the Postal Service itself is skeptical.

The non-partisan Tax Foundation released a report examining the case for the Postal Service’s diversification. The report concludes that it would be in the Service’s and consumers’ best interests if it stayed out of non-postal markets, citing political disinterest and various structural and financial uncertainties as red flags.

Key findings include:

Some stakeholders and policymakers argue the Service could strengthen its bottom line if it entered non-postal commercial markets like supply chain management and banking. However, there are many good reasons for the current limitation on non-postal commercial activities.

One reason is the danger that political interference would prevent the Postal Service from following sound business practices and further weaken it financially.

The political risk is illustrated by the Senate’s failure to confirm any Postal Service Governors since 2010. Only one remains in office, and his term expires in December.

Sen. Bernie Sanders (I-VT) has reportedly been using the Senate prerogative of placing holds on confirmation votes to express his displeasure with Postal Service efforts to reduce its footprint, and costs, as it struggles with declining mail demand.

The Postal Service’s disappearing Board of Governors underscores the point that the pocketbooks of mail users, taxpayers, and the Service itself are best protected if the government agency stays out of new non-postal commercial markets.

Political disinterest is vividly portrayed in the disappearance of the Service’s Board of Governors. At a time of significant financial struggles, when strong Board leadership is needed most, the Postal Service’s board has dwindled in size, leaving the organization without proper oversight.

Although the Board has an authorized size of eleven—the Postmaster General, Deputy Postmaster General, and nine independent members known as Governors, no more than five of whom may belong to one party—it is currently down to only three members. The only remaining Governor is former Congressman James Bilbray, and his term will expire this December.

This episode does serve one useful purpose: it furnishes a clear warning of the political interference which would undoubtedly follow if the Postal Service ventured into new non-postal, commercial businesses. Rather than focusing on diversification, the Senate should hold the confirmation votes needed to return the Board of Governors to its authorized strength.

The report also outlines various structural and financial arguments against the expansion into new markets. Some examples include:

Career postal workers’ compensation packages (wages and, more so, benefits) are high relative to those of comparable workers in the private sector. Those above-market costs decrease the odds that non-postal ventures will be profitable.

Contrary to assurances that non-postal endeavors will churn out profits to support mail service, there is apprehension the financing would run in the wrong direction, with traditional mail products, especially those within the postal monopoly, cross-subsidizing non-postal activities.

A bipartisan presidential commission recommended in 2003 that the Service’s non-postal ventures be limited, fearing they would otherwise distract postal workers and managers from their more important core mission of providing reliable and economical traditional mail service throughout the nation.

A number of unsuccessful non-postal initiatives in the 1990s and the start of this century convinced many in the policy community that while postal managers are highly skilled at moving the mail, they are much less adept in non-postal areas.

Full report: The Strange Case of the Postal Service’s Disappearing Board and the Warning It Provides