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Will Cheaper Mail Kill the Post Office as You Know It?

By Mark White

Wednesday, April 13, 2016

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April 10 marked an important milestone: for the first time since 1919, postage rates decreased. For the United States Postal Service (USPS), this decrease will mean nearly $2 billion in annual lost revenue. Under the Postal Accountability and Enhancement Act (PAEA) of 2006, USPS must not raise postal rates beyond inflation except in special circumstances. USPS has been enjoying a so-called “exigent” rate increase, a temporary bump in their rates due to ongoing fiscal challenges. Last year, USPS lost their court case to extend the increase, and with Congress refusing to act, first-class mail rates have now dropped back to their pre-2014 rate of 47 cents.

The revenue loss comes at an inopportune time. USPS has been in a difficult financial position for the past several years, as the volume of first class mail has continuously declined while congressional constraints have made it difficult for the agency to respond.

There is widespread agreement that something has to change at USPS. What exactly that should be, however, is still very much a live debate. Earlier this year, the Bipartisan Policy Center’s event “USPS: The Path to Profitability” showcased this debate. Some, like Jim Sauber of the National Letter Carriers Association, argued that USPS can grow its way out of financial problems by expanding its services and introducing new products to complement its core business. Others, like Robert Shapiro, senior fellow at Georgetown School of Business and former undersecretary at the Department of Commerce, suggested that USPS should focus on fixing its core business and products before moving on to new markets.

A key reason for this disagreement? No true consensus exists about what the primary mission and purpose of the agency should be. Postal systems the world over deliver letters and packages to every (or nearly every) address in a given country. But as Robert Taub, acting chairman of the Postal Regulatory Commission (PRC), pointed out at the event, USPS’s Universal Service Obligation (USO) has a nebulous definition—it rests on a set of generally recognized agreements. The lack of a well-defined USO has clouded the agency’s path forward. Added to this is the organization’s lack of transparency regarding data and finances, which many experts stress makes it difficult for interested parties to fully understand USPS’s operations and agree on a given policy change.

These positions highlight an important characteristic of this debate: rather than a left-right gap, the major divides in the postal sector are primarily between stakeholders. There is no clear Republican or Democratic position on how USPS should change, making this area a natural fit for bipartisan solutions. Indeed, there does appear to be widespread interest in providing some form of relief from the retiree healthcare prefunding requirement that was contained in the 2006 postal reform act. Despite the possibility to ease the financial burden on USPS, many unanswered questions remain around what that relief should look like, the resulting implications, and other accompanying reforms that are needed. Congress has been unable or unwilling to provide comprehensive postal reform. Meanwhile, USPS’s cash crunch continues.

However, under PAEA, the PRC is required to begin a study of postal rates at the end of this year, with results expected sometime in 2017. The PRC will have to strike a balance between USPS’s need for additional revenues and the changing market for postal products. This review process has the opportunity to get under the hood of the USPS and provide answers to some of these most pressing questions. The future of one of America’s most long-standing institutions may well depend on their determinations here.