Posted on 06/26/2002 12:12:45 AM PDT by JohnHuang2
The cost of sending first-class letters goes up three pennies Sunday to 37 cents and is predicted to swell to double that in a matter of years as the U.S. Postal Service grapples with the grimmest financial crisis of its 227-year history.
The increase comes as prospects for legislative reform dimmed considerably when a House bill failed to make it out of committee last week.
The postage hike is part of the Postal Service's efforts to stem the red ink flowing through the quasi-governmental agency that serves as the linchpin of a $900 billion mailing industry that employs nearly 9 million workers and accounts for 8 percent of the country's gross national product, according to Sen. Daniel Akaka, D-Hawaii, who chaired a Capitol Hill hearing on the future of the agency last month. This week's hike follows a 1-cent hike in January 2001 and another two years earlier.
While some consumers outside a South Florida Post Office grumbled about the increasing frequency of postage hikes, others feel resigned to do their part in the war on terror.
"It's not a big deal. They need it to clean up after all the anthrax," Maureen Bradley told WorldNetDaily. "I'm sure there's a lot of waste that goes on that we'll never know about. ... But how else are you going to get a letter from here across the country for 37 cents?" she added.
The Postal Service posted a $1.7 billion loss last year, attributing it to a lack of mail volume due to the economic slowdown, weakness in the advertising industry, which accounts for 10 percent of first-class mail, and the Sept. 11 terrorist attacks. Postmaster General John Potter told Congress the fallout of Sept. 11 and the anthrax mailings would cost about $5 billion. The rate hike is being implemented three months earlier than expected to help reduce the projected loss for the year ending Sept. 30 to $1.5 billion from earlier estimates of $4.5 billion. Cost-cutting measures that include postponing capital investments and reducing the number of career employees through attrition by 20,000 this year make up the balance of the $3 billion savings in planned expenses.
"We don't like raising rates any more than people like rates raised," Postal Service Spokesman Gerry Kreienkamp told WorldNetDaily. "It's just that the business model no longer works; it's no longer sustainable in a changing market."
Congress reorganized the mail system in 1970, giving the Postal Service a monopoly over first-class mail, but allowing private competition for parcels and guaranteed overnight delivery. The Postal Service suffered a $1.8 billion loss in 1993 following a recession and then bounced back to posting profits between 1994 and 1999. In 2000 the Postal Service lost $199 million. Competition from rival carriers like United Parcel Service and FedEx, as well as the increasing use of the Internet for bill paying, has caused declines in volume for the Postal Service, which expects to lose 6 billion pieces of mail to its competition this year – the largest volume decline ever experienced in a single year.
"The long-term prognosis for the Postal Service's prevailing business model is grim," said Dr. Peter Johnson, an economist with the Direct Marketing Association. Johnson authored a DMA survey that found the upcoming postage-rate increase will accelerate the movement of younger Americans away from first-class mail for bill payment.
"Bill payment by first-class mail ... may go the way of the Hula-Hoop and the rumble seat," concluded Johnson.
A survey by the analyst firm the Yankee Group shows an increase in online billing fueled by growing Internet use and the anthrax scare. Yankee estimates 8.9 million households pay bills online and predicts that number to double by 2004.
"The diversion of first-class mail to electronic medium … is potentially as high as $18 billion," David Walker, comptroller general for the General Accounting Office, testified before Congress last month.
But the Postal Service's financial woes go deeper than increased competition, according to federal auditors.
The GAO reports the service's debt, fueled by chronic cash flow problems, is budgeted to rise to $12.9 billion by the end of this fiscal year. That's an increase of $1.6 billion from last year and only $2.1 billion below the statutory cap of $15 billion. Its major liabilities and obligations are estimated at close to $100 billion, and it has a negative net worth. Walker also noted the $300 million spent on dispute resolution with labor unions.
The Postal Service's performance incentives are another source of concern for critics. Despite ending last year $1.7 billion in the red, the Postal Service doled out $164 million to upper-tier employees. While the Postal Service defends the pay-for-performance plan as a more efficient substitute for general pay increases, one public advocacy group is crying foul.
"You do not give yourself bonuses when your company is in crisis and asking for bailout assistance," said Council for Citizens Against Government Waste President Leslie Paige.
In April, the GAO put the Postal Service on its high-risk list, called for comprehensive legislative reform and sought recommendations from the Postal Service for fixing the problem.
The Transformation Plan subsequently submitted by the Postal Service called for the reorganization of the service into a tax-funded operation, a commercial government enterprise that would become profit-driven and include flexible pricing based on market demand, instead of requiring approval from the Postal Rate Commission and the Postal Service board of governors.
The Postal Service is currently required by law to set prices based on costs, and it cannot close any of its 38,000 retail locations purely based on profitability. Its monopoly status comes with a mandate to provide universal service to all Americans at a uniform price. Spokesman Kreienkamp calls this universal service obligation the crux of the problem, pointing out that 1.7 million addresses get added to the system every year regardless of the volume declines.
"The mail carrier still needs to walk the route," explained Kreienkamp.
While the Postal Service, federal auditors and politicians agree on the need for legislative reform, its prospects dimmed considerably last week after proposed legislation that embraced the Postal Service's Transformation Plan failed to make it out of the House Committee for Government Reform. The "Postal Accountability and Enhancement Act," sponsored by committee Chairman Dan Burton, R-Ind., consisted largely of two previous reform drafts sponsored by Reps. John McHugh, R-N.Y., and Henry Waxman, D-Calif., and sought to help the Postal Service operate in a more businesslike manner. According to a committee spokesman who does not wish to be named, the 20-6 vote reflected unease among Democrats and Republicans over granting the Postal Service power to set rates and sell bonds, and indicates the power of rival UPS' lobbying engine.
"We've been in negotiations with [UPS] for five and a half years and basically have given them every concession, but they continually oppose any effort for reform," the spokesman told WND. "Teamsters didn't like the bill, and UPS is the largest employer of the Teamsters," he added.
"There was a lot not to like about that legislation," said Rick Merritt, executive director of the nonprofit watchdog group PostalWatch. Merritt cites the raising of the debt limit from $15 to $25 billion and language giving postal unions veto power over the presidential appointee to the board of governors as examples.
"The proposal operates from the same basic flawed assumption that the Postal Service has the ability of competing in the private sector," Merritt told WND. "The Postal Service has never been successful competing in the private sector. It self-admittedly pays its workforce 30 percent more than its counterparts. ... It's not the competition for market that drives private-sector efficiency, it's the drive for capital and fear of death. If you're leveraged by the government there is no fear of death."
Merritt advocates privatization, and the sooner the better.
"The Postal Service is currently destroying its assets. The sooner it goes in that direction, the more value you'll preserve," explained Merritt. But more immediately, he stresses the need for a fully independent audit of the entire agency: "You can't fix the problem until you know what it is. But the Postal Service's accounting practices are so bad that you can't tell whether you're making money or losing money on an endeavor."
In arguing for the preservation of the first-class monopoly, Postmaster General Potter told Congress, "Our lack of a monopoly would have competitors coming in and literally skimming the cream off the top. They would serve big cities at a reasonable price, but would not serve rural communities and certainly people in Alaska and remote parts of Hawaii would not have access to affordable services."
"Everyone depends on their mail so much that they can't fathom it wouldn't be delivered," said the committee spokesman. "But rural mail delivery will be the first to go without reform."
As for the postage rate hike, Merritt sees it only exacerbating the service's problem.
"It displays a lack of understanding of basic economics on the part of the U.S. Postal Service," Merritt told WND. "Not only is it the wrong thing to do from a consumer standpoint, it's the wrong thing to do from the financial standpoint because it will drive volume away. They're pricing themselves out of the market," he said.
What the hell does this have to do with the "war on terror".
Every time I go to buy stamps- even at the current price- I have to figure out "what do I cut out of my grocery list?" Smokes? Detergent? Paper towels?
As a result, we send less and less via parcel post, and do far more business electronically- 'phone, the web, etc.
This will only accelerate that trend. Any normal businessman knows that when your sales start dropping off, the last thing you do is raise prices- it just drives off even more customers!
What hooey! Both UPS and FedX deliver packages everywhere. However, beyond that rural mail delivery to every household SHOULD be ended. Let folks go to small centrally located boxes, like USPS uses in many urban neighborhoods.
The cost of rural delivery as now configured is way too high. If items delivered to rural residents is anything like we receive, most of it is junk we pitch without opening. Raise rates on junk mail, for openers. Where are the tree-huggers when you need them?
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