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253 IRET Congressional Advisory 1 (2009)

handle is hein.taxfoundation/iretcgadv0250 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing the public about policies thait will promote growth and efficient operation of the market economy. March 17, 2009 Advisory No. 253 IS THE POSTAL SERVICE ABOUT TO ELIMINATE ONE DAY A WEEK OF MAIL DELIVERY? In every year since the mid-1980s, Congress has included language in appropriations bills directing the Postal Service to continue delivering mail six days a week.1' 2 At a Senate hearing in January, Postmaster General John Potter asked Congress to remove the mandate so that the Service, if it chose, could save money by switching to five-day-a-week delivery.3 Postmaster General Potter added that the Service wanted to have the option of curtailing deliveries but might not use it4 and that the day dropped would not necessarily be Saturday. (It might be a slow weekday instead.) He also said that the Service was not interested in moving to five-day-a-week delivery throughout the year but was only thinking of removing the sixth delivery day during the summer months, which is the Service's slowest time of year. The hearing, held before a subcommittee of the Senate Committee on Homeland Security and Governmental Affairs, was called against the backdrop of a sharp decline in mail volume in 2008 and an even steeper drop expected in 2009. The weakness in mail demand is primarily due in the short term to the recession (economic activity is a major determinant of mail volume), but a longer-term problem is the diversion of much potential mail volume to electronic alternatives (e.g., e-mail, direct deposit, on-line bill payment). The Postal Service's revenue was flat in 2008, at $75 billion, but it is falling in 2009 as a result of declining mail volume.5 The organization lost $2.8 billion in 2008, and it faces a much larger loss in 2009, unless it is able to implement significant cost savings. The Postal Service has moved quickly to adjust to the smaller mail volume and trim its costs. However, the severity of the recession, which has shocked households and businesses throughout the economy, and the many constraints Congress has placed on the Postal Service's ability to manage its costs are making the adjustment especially challenging. The witnesses and several of the Senators at the hearing agreed that the Service could realize major cost savings by streamlining its nationwide network of facilities. It was also pointed out that a huge share of the agency's costs is for labor (about 80%) and that some of the Service's employee fringe benefits are generous even compared to benefits at other federal agencies. The possibility of shifting to five-day-a-week delivery has been examined in the past. Most recently, in late 2008, the Postal Regulatory Commission (PRC) issued a major study on the Postal Service's universal service obligation (USO) and its statutory monopoly. The PRC Report included an analysis of the pros and cons of reduced delivery frequency, but did not make any recommendation regarding delivery frequency.6 However, the PRC concluded that delivery frequency is a legitimate issue to consider, and strongly recommended that the USO be interpreted flexibly in the future - as it has in the past - to help the Postal Service keep its costs aligned with its revenue so that g~,I S I g6~ I ~ee

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