Absent accountability and repercussions for bad management, organizations will keep repeating the same mistakes and use the same excuses to justify failure. Enter the U.S. Postal Service, an independent agency of the federal government.
For years, the USPS has posted disappointing financial statements, pointing to legislative restrictions as a way to deflect blame for abysmal performance. This quarter was no different, as the service posted a total net loss of $1.3 billion ($1.8 billion thus far through their fiscal year).
But even controllable losses (ie. not due to legislative mandates beyond the Postal Service’s control) ballooned to $656 million, up from $12 million in the comparable quarter last year. Regardless of the category of loss, the Postal Service would be wise to look beyond excuses and pursue reforms that would save taxpayers and customers billions.
In diagnosing its current predicament, the Postal Service points to transportation expenses, which “grew by $155 million due to highway contract rate inflation as well as higher fuel costs.” Much of the cost growth problem can be attributed to highway contract routes (HCRs), which are awarded to private carriers on certain specified routes. Despite spending more than $3.6 billion for more than 8,000 HCR contracts, the Postal Service demonstrates little oversight over these agreements.
Too often, contractors fail to perform satisfactorily a service requested by the Postal Service due to avoidable mistakes on the part of the contractor. These “chargeable irregularities” should result in the USPS getting money back from contractors. But, due to the widespread unavailability of necessary paperwork and a lack of complete reviews, the Postal Service loses tens of millions of dollars nationwide to contracts gone awry. For the Chicago Network Distribution Center alone, the USPS’s Office of the Inspector General estimates that $7 million is at risk for a mere 11 contracts renewed during the 2016 and 2017 fiscal years.
And, HCRs are only one aspect of controllable transportation costs faced by the Postal Service. The service will soon decide on a vendor for a $6 billion contract to build a fleet of vehicles (rumor is it is buying bigger trucks to handle a growing number of taxpayer-subsidized Amazon packages). Throughout the process, the Postal Service has made clear that half of the prototypes for the replacement vehicles will“feature hybrid and new technologies, including alternative fuel capabilities.”
Despite the rationale of minimizing the environmental effects of its fleet, phasing in “low carbon” technology will only balloon the service’s already-large debt. Examining global adaptation costs, Bloomberg New Energy Finance analysts found last year that electric fleets will remain more expensive than their conventional counterparts until at least 2022, even after government subsidies are taken into account.
Some controllable expenses are even more absurd, and do nothing to advance the Postal Service’s mission. Since 2014, for instance, the Postal Service has spent more than $16 million (from asset forfeiture and consumer fraud awareness funds) to finance the production of a TV crime drama called “The Inspectors.” As the only show on commercial television bankrolled by a government agency, the Postal Service has hoped to use the show to promote awareness about mail crime. But stilted writing and poor reception make it seem unlikely that the show is making real inroads to reduce fraud and illicit deliveries.
When faced with accusations of financial irresponsibility, the Postal Service resorts to what psychologists call “external attribution.” It’s all too easy to point to the required prefunding of retiree health benefits (created by the 2006 Postal Accountability and Enhancement Act), which the Postal Service claims is unduly harsh compared to what private sector companies are expected to provide. But the Postal Service fails to recognize that many firms voluntarily prefund, because they perceive that shoring up retirement assets will look good to investors.
According to the Congressional Research Service, around 25 percent of firms fund these benefits in advance. Faced with a troubled business model that would have resulted in debt with or without prefunding, a private Postal Service would likely have socked away retirement assets to demonstrate financial stability to investors.
But the Postal Service doesn’t have to justify its mismanagement to a group of investors. Instead, it enjoys the benefit of below-interest Treasury loans and wide-ranging tax exemptions at federal, state and local levels of government. Rather than bemoan their special status, the Postal Service can get to work in providing more HCR oversight and pursuing lower-cost fleet acquisition. These changes, coupled with fixing a hopelessly outdated package pricing formula, can ensure that the Postal Service will have better financial news the next time around.