If you pay any attention at all to legislative efforts to address the Postal Service’s financial crisis, you’ll soon hear the phrase, “budget score.” Someone will say that a bill has a high score or a low score. But what is a budget score? What is the score for?
Budget scoring is part of a broader process to keep federal spending in check. The Congressional Budget Office (CBO) assigns scores to bills to show how they will affect the federal budget deficit. (Unlike most sports, a high budget score is usually considered bad.) Even though Congress placed the Postal Service off budget in 1989 and the Postal Service does not receive federal money for operations, the Postal Service often gets caught up in budget scoring concerns for two reasons: The first is off-budget spending is included in the overall measure of the budget called the unified budget. The second is that the Postal Service is required to pay in funds for pensions and retiree health benefits to certain on-budget accounts.Read More
The U.S. Postal Service recently announced that it would study approximately 3,700 postal retail facilities which are candidates for consolidation. Many policymakers and Postal Service customers have expressed concern over the effect these potential consolidations will have on access to postal services and as well as the social life of rural communities where the local post office acted as a gathering point for the community.
In an attempt to address some of these concerns, the Postal Service revealed plans to offer its services through authorized third party vendors, including drug stores, grocery stores, and office supply stores. These Village Post Offices (VPO) would be operated by the vendor and sell popular products and services such as stamps and flat-rate packaging.
The Postal Service’s primary benefit would be lower labor and facilities maintenance costs from replacing traditional, free-standing post offices with Village Post Offices. There are also potential benefits to consumers. First, postal services could be more conveniently accessed by customers who already patronize the third party vendors. Second, the co-location may actually help to strengthen community ties. Third, the VPOs may be open longer hours.
The past few years have been tumultuous for the U.S. Postal Service. Mail volume has dropped 20 percent to 171 billion pieces from its peak in 2006, and over the last four years experienced unprecedented financial losses totaling $20 billion. In 2010 alone, the Postal Service experienced its largest 1-year net loss of $8.5 billion.
Our Risk Analysis Research Center has published The Cost Structure of the Postal Service: Facts, Trends, and Policy Implications, which reviews the major components of the Postal Service’s 2010 cost structure and presents insights to the ongoing policy debate about the future of the Postal Service. Below are some of the paper’s key findings:
1. The mail business is labor intensive, and labor makes up 80 percent of Postal Service expenses. This means that in order to achieve real cost savings, the Postal Service has to cut labor costs. While ideally labor costs could be cut to match declines in volume, this is challenging because the Postal Service’s delivery network has significant fixed costs.
2. Since 1972, the total cost of benefits to the Postal Service has risen an astounding 448 percent above inflation, while the real amount spent on wages has declined by nearly 3 percent. This extraordinary increase in benefit costs is due to three factors: a general trend of higher benefit costs that has affected most U.S. companies, the gradual transfer of postal retiree benefit costs from the federal government to the Postal Service, and repeated overcharges for these retiree benefit costs.
The U.S. Postal Service has experienced a significant decline in mail volume in recent years, yet its contracted surface transportation remains largely unchanged. While mail volume dropped almost 16 percent from fiscal year 2008 to 2010, the Postal Service contracted out around 1 percent more miles of highway transportation over the same period. During the same time, the Postal Service has had considerable success minimizing the number of labor hours employees spend on mail processing.
The following factors may have mitigated the effects on transportation from a volume drop:
• Network Distribution Center restructuring.
• Postal Service efforts to move more mail from air to surface transportation.
• Postal Service efforts to sell the newly empty space to other shippers through a collaborative logistics program.
Transportation represents the second largest cost component for mail delivery after labor, but the Postal Service has substantially more authority to cut contracted miles. The Postal Service could use its greater flexibility to end unnecessary contracts, alter necessary contracts, or redesign the system altogether. Highway transportation provides a strong opportunity for cost savings.
What do you think of the current contracted surface transportation infrastructure?
How would you adjust to new mail volumes?
This blog is hosted by the OIG’s Risk Analysis Research Center (RARC).Read More
How can the Postal Service solve its financial problems? What is the future role of the Postal Service at a time when digital alternatives are replacing many of the functions of hard copy mail? These are the questions facing policymakers and the postal community.