What the Democrats and Republicans Get Wrong—and Right

Last Sunday we kicked off a new series on Saving the Post Office. If you didn’t read Sunday’s issue — “Localizing the Post Office” — please check it out.

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The author, Bob Melville, is the founder of Civic Way, a nonprofit dedicated to good government, and a management consultant with over 45 years of experience working with governmental agencies across the US.

Highlights:

• It is time to honestly confront the structural ills besetting the US Postal Service (USPS) and reframe the debate about its future
• USPS’ business model imposes conflicting expectations—succeed as a public service and a private business, with universal service mandates, undue political interference and minimal support
• The USPS needs a new business model, not simplistic notions like privatization
• With new enabling legislation, a decentralized business model and robust federal investments, a modern, localized USPS can work better for all of us

Introduction

For many years, the US Postal Service (USPS) has been a source of salivation for Republicans. If they could privatize it, they could bolster their case for more tax cuts and less government.  In recent months, the President has challenged the integrity of voting-by-mail and denigrated USPS’ ability to deliver anything, especially mail-in ballots. Democrats have reacted predictably, promising to protect the USPS against privatization and ruthless service cuts, without offering any new ideas.

Media coverage has exacerbated the clash. Lurid images of rotting food. Eerie video clips of disabled mail sorters. Breathless reports of delayed prescriptions. The ill-timed appointment of a political opportunist as Postmaster General.  Unsurprisingly, many democracy advocates fear that recent USPS operating decisions—resource, staffing and service cuts—are designed to impair USPS’ ability to deliver mail-in ballots and thereby influence the outcome of the 2020 election.

Such concerns have merit, but no matter how well-founded, they could obscure issues that outlast the election. The USPS, one of our most revered and resilient public institutions, could be dismantled. Despite enviable favorability ratings (much higher than those of the President and Congress), the USPS has been organized for failure. Politicians have saddled the USPS with absurd laws and an antiquated business model, in effect demanding success without public support or private agility.

Perhaps the President’s ham-handed assault on the USPS will achieve what Congress has long failed to do, inspire a long-overdue national debate about USPS’ future. In this commentary, we hope to begin that debate, confront the structural ills beleaguering the USPS and share some ideas on how we can make it work for all of us.

Privatization’s Stubborn Ideological Allure

Since the 1970s, calls for privatizing the USPS have risen. Once the fantasy of a few libertarians, privatizing the USPS has become gospel for most Republican politicians (the latest privatization plan  was issued by the Trump administration in 2018). The debate has been disingenuously framed as a binary choice, privatization or status quo, with most Republicans advocating privatization and most Democrats defending the status quo. And the media has validated this false choice by echoing (accurately) stories about declining first class mail volume as though this reflected service needs.

At first glance, the argument for USPS privatization seems simple. Turn the postal service over to private enterprise and let them run mail services like a business—think Federal Express or UPS. No one disputes the efficiency of FedEx and UPS, but this glib pitch overlooks at least three inconvenient truths. First, the USPS cannot adjust its services to market variables like volume and profitability (e.g., it must deliver mail to every ZIP code in the nation, no matter how unprofitable). Second, the USPS is yoked to onerous pension obligations by law. Third, the USPS cannot quickly raise its prices to reflect its costs (e.g., the first-class stamp costs much less than the private base rate for a flat document).

The inescapable truth is that the USPS’ business model imposes unmanageable and contradictory expectations:  succeed as a public service—with universal service mandates—and as a business—with high usage, low costs and no appropriations. Unlike most government entities, USPS cannot receive taxes. Unlike business, USPS cannot quickly adjust pricing, modify services or close under-utilized branches. In short, no private company could make the USPS’ business model work, at least not without sweeping changes to the laws that underpin it.

The current Postmaster General, in his recent appearance before Congress, stated that the USPS has a “broken business model.” He was right about the business model; it is flawed and unsustainable. But his response was superficial and misleading. Our largest, successful corporations, when facing similar issues, have reimagined their business models. Many have migrated from conventional centralized structures to flatter, more agile structures. Even the US Army adopted a decentralized model, empowering highly-trained combat units to defeat Al-Qaeda forces.

H.L. Mencken once wrote, “For every complex problem there is an answer that is clear, simple, and wrong.” In the case of the USPS, privatization is precisely one of those “clear, simple and wrong” solutions. We can do better, by emulating large corporations who have adopted new business models to better serve their customers and fulfill their missions.

Our Founding Federal Agency

So how did we get here? Today’s USPS is controversial, but it has been with us since our founding. With its origins as a colonial and revolutionary communications system, the USPS is our oldest institution and the one most tied to our national experiment. In 1792, championed by our founding fathers and authorized by Article I, Section 8 of the Constitution, the Post Office was launched to help unify the disparate states, create an informed electorate and nurture our fledgling democracy.

Through much of the 19th Century, the Post Office was the largest and fastest-growing federal agency. From 1850 to 1890, for instance, the number of post offices rose from 18,417 to 62,401. Postal operations were politicized—first by Presidents Jefferson and Jackson—and infected by cronyism. During the Progressive Era (1890 to World War I), leaders like Theodore Roosevelt and Postmaster Generals like John Wanamaker (mostly Republicans), created a loftier vision for the Post Office, pioneering universal service, free rural delivery, parcel delivery and postal savings banks.

From about 1920 to 1970, the Post Office experienced its share of highs and lows. During the New Deal, and World War II, the Post Office played a vital role in supporting recovery programs and connecting solders with their families. However, during the Red Scare, the mails were used to attack civil liberties. Some Southern post offices refused to disseminate mail opposing Jim Crow and segregation laws and other offices barred sexual hygiene and reproductive freedom mail. During the 1960s, the Post Office suffered embarrassing fiscal losses and local service meltdowns.

In 1970, the pivot to privatization began. First, President Nixon signed the Postal Reorganization Act, transforming the Post Office from a federal agency to the new United States Postal Service (USPS), a public-private hybrid, governed by a board nominated by the President and confirmed by the US Senate. This law made the Postmaster General accountable to the board, barred general tax revenue subsidies, ended the spoils system and aroused the first stirrings of the privatization debate.

In 2006, President Bush signed the ironically-titled Postal Accountability and Enhancement Act. This bill further restricted the USPS’ ability to offer new services or align pricing with costs. Worse, it required the USPS to establish incur massive debt to pre-fund pensions and retiree health benefits well beyond the standards for other public and private employers, including those in the Employee Retirement Income Security Act (ERISA). The result of such political malfeasance? A business model designed to fail.

Too Big or Too Vital to Fail?

Somehow, despite a broken business model and incessant political interference, the USPS has survived. Perhaps it is too big to fail. In 2019, it generated $71 billion in revenue (44th on the Fortune 500 list). It has over 500,000 career employees and seven unions, including the American Postal Workers Union and National Rural Letter Carriers Association. It has 67 postal districts, 276 regional distribution plants, 31,000 post offices, 230,000 designated delivery routes, 229,000 vehicles and over 5,100 high-speed mail sorting machines.

Perhaps the USPS is too important to fail. Last year, it delivered 143 billion items, about half the world’s mail. Every year, it delivers about 5 billion parcels and 1 billion Christmas cards. Every day, it delivers nearly 500 million pieces of mail. It provides unparalleled service, including home delivery to every zip code and Saturday delivery. It has forged a special bond with rural areas, especially the most remote areas, and citizens who rely on the USPS for prescriptions and checks. Many post office facilities have become local treasures, with some recognized by the National Trust for Historic Preservation. The USPS has become the single most popular federal agency.

Still, the USPS’ operating issues cannot be denied. Its failure to seize a digital role made it highly vulnerable to changing communications. From 2007 to 2019, total mail volume fell by 31 percent. First-class mail, the USPS’ franchise product, has declined every year since 2001. Its fleet of 141,000 Grumman Long Life Vehicles (LLVs) is old, frail, inefficient and costly. Many post office buildings are obsolete and many built in recent decades have been cheap, bland and uninviting.

And the USPS’ finances continue to deteriorate. Unable to tap federal taxes, it must rely on declining service revenues to survive. Package revenues have risen, but not enough to offset the decline of first-class mail revenues (the first-class stamp is priced well below the associated delivery costs). The 2006 pension funding mandate has precluded profitability even in USPS’ best years. By 2015, USPS hit its $15 billion statutory debt ceiling and, by 2016, it defaulted on $48 billion in mandated retiree prepayments. It has failed to replace its LLVs and has sold or leased many valued assets, including historic post offices.

USPS and the Pandemic

The pandemic has highlighted both USPS’ value and vulnerability. Stay-at-home orders have made mail delivery even more essential than before—respirators to hospitals, medication to seniors, absentee ballots to voters and stimulus checks to citizens. However, while package volume has soared, first-class mail volume continues to fall. The USPS’ projected losses could approach $13 billion this fiscal year. Without additional federal aid, the USPS could become insolvent and be forced to suspend operations during the next fiscal year. Worse yet, working conditions have subjected many USPS employees to the coronavirus with up to 40,000 postal workers testing positive or taking sick leave.

The pandemic has placed the USPS in an uncomfortable spot regarding voting-by-mail (VBM). While the USPS has handled postal voting, including absentee ballots, for many years, this year is markedly different. The potential risks posed by in-person voting have increased the likelihood of dramatic VBM increases this year. And many states are simply ill-prepared for the increased volume. Many state laws, for example, establish deadlines for requesting and returning mail ballots that, as the USPS stated last month, “may be incongruous with the Postal Service’s delivery standards.”

The 2020 primaries served some cautionary tales. Due to late arrivals (after statutory deadlines), about 2,700 ballots were disqualified in the Wisconsin primary and about 70,300 ballots were disqualified in the California primary. As states ramp up their VBM processes for the general election, it becomes clearer that the USPS is but one part of the equation. The states must modify their laws to facilitate VBM (e.g., allow early ballot requests and tabulation). The 10,000-plus local election boards must acquire and organize the requisite resources (e.g., sorters and staff). And the voters must ensure that their registrations reflect their current addresses.

Setting aside concerns about the USPS’ recent operational moves, the USPS appears to possess sufficient capacity to process and deliver 150 million additional ballots to local election boards (well below the annual holiday volume). The USPS has been preparing for expanded VBM for months. Even before the pandemic, the USPS designated 500 regional election-mail coordinators to reach out to local election administrators, offer VBM kits and suggest best practices (e.g., electronic tracking technology to track mailed-in votes throughout process).

Regrettably, the USPS’ efforts to prepare for the 2020 election have been overshadowed by other circumstances. First, the President attacked the USPS in ways that could not help but erode public confidence. Second, he appointed a political donor (one plagued by questions about his donations and conflicts of interest) as the 75th Postmaster General. Third, shortly after taking office, the new Postmaster General implemented operational changes planned before his appointment (e.g., managerial reassignments, overtime restrictions, mail sorter mothballing, strict daily mail pick-up times and reduced post office hours).

While causality cannot be precisely determined, these changes have contributed to widespread mail delays and customer complaints. They may have undermined the USPS’ organizational stability and weakened its ability to process and deliver absentee ballots. They may have seriously damaged the USPS’ public image and perhaps set the table for privatization. And they may be distracting us from the pursuit of a new business model for the USPS.

A Localized Business Model for the USPS

The business model should follow vision, not the other way around. Instead of putting ideology first, we should determine our vision, goals and expectations for the USPS. Should it be a unifying, egalitarian force? If so, in what ways? Should it link rural communities and businesses with the rest of the world? Are there any unmet needs that the USPS could fulfill more efficiently than anyone else? Should it, for example, have a role in digital addresses and communications? Should it help maintain a more informed electorate? Should it even have a role in elections?

Once USPS’ goals are determined, its services should be reexamined in the context of those goals. Should it guarantee service to all Americans regardless of place or merely serve those living in densely-populated areas? Should rural services be continued to all residences (the last mile)? Alternatively, should it replace full home delivery with a hybrid community kiosk/home delivery model that incentivizes local governments to install kiosks? Should Saturday delivery be discontinued? Should USPS regulate digital addresses? Should it deliver non-partisan election information to all citizens at no cost?

Once we have chosen the optimal service model for USPS, we can design a new business model. If, for example, we conclude that most USPS services are no longer needed or affordable, privatization may be a sensible option. In contrast, if we want a full-service model, especially one that can be tailored to local needs, a decentralized business model would be a better fit. One option worth considering would be a business model blending centralization with decentralization. A franchise or network model could centralize enterprise-wide functions like pricing and procurement, regionalize logistical operations and delegate day-to-day decision-making to local post offices (e.g., service and staffing).

With the parameters of a new localized business model known, we should repeal all relevant laws (i.e., 1970 and 2006 Acts) and replace those laws with legislation flexible enough to accommodate the new model and inevitable adjustments. The new law should empower the new agency to assume any new duties (e.g., digital addresses and communications) and rebrand itself in accord with its new role. And it should clarify the national entity’s ability to ensure the ongoing alignment of regional and local units with national directives and strategies (e.g., a revocable federal charter).

Under its new enabling legislation, the new Postal Service should develop a comprehensive national service plan in accord with the new business model. That plan should address the following issues:

• Management of enterprise-wide functions (e.g., human resources, compensation management, collective bargaining, facility acquisition and vehicle procurement)
• Postal district organization and assignment
• Regional processing centers organization and assignment
• Local post office organization, siting, services, configuration and assignment
• Local delivery route network design and assignment
• Postal worker organization and assignment
• Balanced metrics for tracking performance (e.g., availability, equity, frequency and timeliness)

Two more thoughts. The assignment issue should address how resources will be transferred or shared with state, regional and local governments. The local post office service issue should address the services to be offered by each post office. To what extent, for example, should they become community service centers offering non-postal services (e.g., meeting venue, social hub, banking, permitting, utility aid, Wi-Fi hot spot, EV chargers, tourist assistance and election information)?

Investing in the Future

If we are to continue to have a national postal service, especially one providing a full array of services across the US, the federal government must invest in its future. This will require several federal commitments, including a multi-year budget that ensures adequate fiscal capacity for future operational needs, sufficient subsidies to offset losses associated with high-cost service mandates, a return to conventional pension funding requirements and full payment for any mail service discounts ordered by Congress (e.g., over $1 billion for nonprofit, local newspaper and disabled citizen discounts).

Congress should levy a small charge on online transactions and dedicate those funds to the new Postal Service. It should establish incentives for private parties to use USPS-approved digital addresses (e.g., no charge for transactions using USPS-approved email addresses). Congress also should require the development of a new asset management plan and termination of any non-compliant leases. Finally, it should invest in the modernization of postal resources, including modern equipment, electric vehicles and architecturally distinctive, locally compatible and energy-efficient post offices.

After years of political assaults and now the pandemic, the USPS is on the precipice of collapse. The answer to this crisis is not privatization, but rather a new localized business model, one that recognizes the interdependence of the USPS and the very ideas of community and America. To reunify Americans, promote civic discourse and preserve our democracy, we must reject simplistic, outmoded ideas like nationalization and privatization. Instead, we must reconstruct our best public institutions, like the Postal Service, and give them the power, funding and flexibility they need to work for us.