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258 IRET Congressional Advisory 1 (2009)

handle is hein.taxfoundation/iretcgadv0255 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 that will promote growth and efficient operation of the market economy. September 4, 2009 Advisory No. 258 HOW DOES THE SALES DECLINE AT THE POSTAL SERVICE COMPARE TO THOSE AT LARGE PRIVATE-SECTOR BUSINESSES? HOW DO THE RESPONSES COMPARE? Executive Summary So far in fiscal year 2009, the Postal Service's mail volume has plunged 12.6%, and it's revenue is down 8.4%. It expects a yearly loss exceeding $7 billion. The recession is responsible for most of the decline, with electronic diversion also hurting. Although the Postal Service has rarely confronted falling revenue in the past, sales declines are common at private-sector businesses, especially during nasty recessions. Among the large U.S. companies on the Fortune 500 list, 32% suffered revenue drops in 2008 and 25% lost money, with similarly bleak numbers expected for 2009. Taking the Fortune 500 as a benchmark, the Postal Service's numbers are worse than average, but it is far from alone. Sales declines are almost always traumatic, and some Fortune 500 companies fail, but most pull through successfully. What can the Postal Service learn from the many Fortune 500 businesses that overcome revenue decreases? The primary response of private-sector companies, especially during recessions, is vigorous cost management. Media reports and company announcements are filled these days with stories about belt-tightening by companies, their workers, and their suppliers. The Postal Service is trying to follow this strategy and has reduced its 2009 spending by more than $6 billion, relative to earlier plans. However, political pressure and numerous restrictions written into law impede the Service's ability to rightsize its workforce, bring wages and fringe benefits into line with those in the private sector, and close or consolidate excess facilities. The Postal Service's leaders have done a remarkable job given the constraints, but the government enterprise lacks the cost-control tools it needs to be self-supporting while delivering affordable, reliable mail service. Until now, a major, albeit de facto, pillar of the Postal Service's business model has been that revenue growth would compensate for inefficiencies that serve political ends but do not advance the agency's core mission. However, the growth-will-counterbalance-wasteful-spending pillar of the business model is now broken. The Service can be financially solvent while fulfilling its core mission, but only if Congress allows it to better manage its costs.

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