How to fix the US Postal Service

Congress can no longer ignore the need for a hybrid funding solution

The U.S. Postal Service will continue to face problems for years to come without a hybrid funding solution, Kearney writes. (Caroline Brehman/CQ Roll Call)
The U.S. Postal Service will continue to face problems for years to come without a hybrid funding solution, Kearney writes. (Caroline Brehman/CQ Roll Call)
Posted August 27, 2020 at 6:00am

Someone recently asked me which U. S. Postal Service I favor — one operated like a business, or one treated as a public service agency?  I answered, “Both. It does not need to be categorized as either/or.” 

As CQ Roll Call’s Chris Cioffi recently observed, “The 2020 fight over the Postal Service underscores its long-unaddressed challenges.” In recent weeks, the agency has been the subject of the most political and public debate in my 40 years in the mailing industry. Though the election brings a new sense of urgency to fix the Postal Service, it’s been broken for quite some time.

Two widely discussed — and necessary — elements of postal sustainability include (1) ensuring the Postal Service operates its business-like functions as efficiently and reliably as possible, and (2) fixing the pre-funding of retiree benefits.

But it’s the funding model for the Postal Service that most needs fixing. Today’s service should be financed by a combination of congressional appropriations (reflecting the post office’s public sector role) and customer fees (reflecting its commercial identity). 

This is not a new idea: It is how the Postal Service was funded for its first 200 years. Until President Richard Nixon signed the Postal Reorganization Act, or PRA, 50 years ago this month, we funded the agency with postage paid by those who send mail and annual appropriations by Congress, acknowledging mail delivery as a public service.

The PRA was intended to depoliticize and require the Postal Service to operate in a business-like fashion. The law changed to full funding by postage, regulated by a new agency, now the Postal Regulatory Commission. Public service appropriations were phased out by the 1980s.

Conversion to postage-only funding benefitted from the golden age of mail growth. Volume doubled over the next two decades, from 100 billion pieces in 1980 to 200 billion in 1999. These twenty years made it look like the postage-only funding model worked.

In 2006, Congress passed the Postal Accountability and Enhancement Act, just as the Great Recession began to take root, and mail volume peaked at 213 billion pieces. The new law doubled down on the PRA’s business-like emphasis at the inopportune time of mail volume plummeting, all the way to 142 billion pieces in 2019. 

The new law encouraged the Postal Service to cut costs and operate more efficiently, and to retain any ensuing profits for reinvestment. The service gained the freedom to price “competitive” package shipping. Congress also protected captive customers with an inflation cap on “market dominant” mail, which includes things like first-class mail, magazines and — yes — election mail.

But while the 100 percent mailer-funded model worked well during the boom years of the 1980s and 1990s, it did not work when mail volume declined and public service costs rose. Modern realities have proved that to fund a hybrid business-public service agency, we need hybrid funding by customers and by Congress. 

To achieve this, Congress must clearly define the Postal Service’s Universal Service Obligation, which includes everything it does that a profit-seeking private sector business would not undertake. And postal regulators should value the USO cost, and Congress should fund it with an annual appropriation.

For example, Congress should fund the requirement to operate thousands of post offices that do not cover their costs. A profit-maximizing business cannot continue money-losing locations — see how many private sector retail stores are now closing. But a public organization that serves the entire country can. Congress could fund many other public services, such as the cost of free postage for mail-in voting.

 Mailers will continue to pay for business-like delivery of their mail, as long as postage rates track the general rate of inflation, as required by the 2006 postal law. Postage rates were kept close to the Consumer Price Index from 1970 to 2006, and the price cap has kept them there since. Postal regulators are currently considering a proposal to add several surcharges over inflation to try to get mailers to pay for the funding gap. Such an ill-advised move would send a large portion of remaining mailers out of the mail system and only make the problem larger. 

We nonprofits have a lot in common with the Postal Service: We perform many vitally important public services that commercial and government sectors do not.  We also rely heavily on affordable, reliable U.S. Mail to achieve our missions with donations, memberships and publications. 

If Congress ignores the need for a hybrid funding solution, the U.S. Postal Service will continue to face problems for years to come — long after its role in the 2020 election and pandemic is complete.

Stephen Kearney is the executive director of the Alliance of Nonprofit Mailers, which works to preserve affordable, reliable U.S. Mail so that nonprofits can continue to fulfill vital missions. He previously served as a senior U.S. Postal Service official for over 33 years.