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Saturday, May 9, 2020

ANALYSIS/OPINION:

Change is coming to the U.S. Postal Service.

President Trump has appointed a new postmaster general, Louis DeJoy of North Carolina, who is co-chair of the committee planning the Republican National Convention. Mr. DeJoy is an outsider — he comes from the logistics business and real estate — and is the first postmaster general not to come up through the ranks in more than two decades.


The president has a Postal Regulatory Commission board in place to carry out his proposed reforms. David Williams, an ally of the old regime and the only member of the Postal Regulatory Commission not appointed by President Trump, resigned last week over disagreements with other board members on the conditions they agreed to accept to get a $10 billion line of credit as part of the first coronavirus legislation. That leaves the board with three Republicans and only one Democrat.

Mr. Trump’s frustration with the slow pace of change and resistance to new thinking in recent weeks hastened the appointment of Mr. DeJoy. The president has noted that Mark Meadows, now his chief of staff but then the top Republican on the House Oversight Committee, last year asked Megan Brennan, the current postmaster general, to show how she planned to rectify the Postal Service’s disastrous finances. She still has not produced a plan, and now she never will.

The president, who has called the Postal Service “a joke” in recent weeks, has balked at requests from the Postal Service and some of its Democratic allies in Congress for a $75 billion no-strings-attached bailout. He says no money should be included in the upcoming fourth coronavirus stimulus legislation unless the agency raises prices on Amazon and other large shippers immediately.

The president is on the right track. The Postal Service doesn’t need a bailout; it needs new leadership and new thinking. The president also is right about the problem: The Postal Service doesn’t know how to price its products, specifically package delivery, in a way that permits it to balance the books.

First-class mail, the Postal Service’s most profitable product, has declined 44 percent since fiscal 2006. Marketing mail has declined 27 percent over roughly the same period. About 36 percent of the nation’s 34,600 postal outlets lose money.

But despite decreased demand and increased expenses, the Postal Service added about 13,000 employees and increased total compensation costs by $1 billion in just the last year — and that’s with new hires earning less and non-career employees increasing. Its compensation costs are higher than any other major shipper.

The products on which the Postal Service has a monopoly — first-class mail and the right to put things in mailboxes – are regulated by the Postal Regulatory Commission and generally rise only with inflation. But the so-called competitive prices — those in areas such as package delivery where private-sector firms also participate — are supposed to meet attributable costs.

And that’s the problem — they don’t. Even though it is exempt from state and local taxes, income and property taxes, parking tickets, vehicle fees or other charges — and pays federal tax to itself — the Postal Service has lost money for 13 straight years for a total of $69 billion. The number of weight of packages has climbed each of the last three years, but the more they increased, the more money the Postal Service lost — $3 billion in 2017, $4 billion in 2018 and $8 billion in 2019.

Mr. Brennan said at a Senate hearing last year the Postal Service could find itself unable to meet expenses by this September absent reform. It now says losses could go to $22 billion this year alone because of the COVID-19 pandemic and that the $75 billion is urgent to keep it afloat.

Meanwhile, the Postal Service is nearly $160 billion in the hole for pension benefits, retiree health benefits, workers’ compensation, outstanding debt and other expenses, thanks in large part to attempts by USPS management to balance the books by simply skipping pension and retiree health benefits.

This problem won’t be solved through another bailout. It will be solved by the Postal Service figuring out what it actually costs to deliver a package and passing along those costs to customers. The president’s task force on postal reform called governance, product pricing, cost allocation — how much of the expense the Postal Service incurs each day goes for package delivery as opposed to its constitutionally mandated universal service obligation — and its labor costs.

None of that has been addressed in the two years since. There’s been no study of whether to go to five-day delivery or the prospect of eliminating some unprofitable post offices or how to calculate pricing in a way that lets the Postal Service earn an adequate return on investment.

It is coming, though. Mr. Trump is convinced the Postal Service is undercharging shippers and doesn’t need gigantic bailouts to be profitable. And he’s about to put his theories to the test.

• Brian McNicoll, a freelance writer based in Alexandria, Va., is a former senior writer for The Heritage Foundation and former director of communications for the House Committee on Oversight and Government Reform.


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