The Postal Board of Governors’ 2001 announcement that the Postal Service was on the brink of financial disaster, expecting to lose multiple billions of dollars, was a major surprise to most postal observers. The expectation of impending financial disaster was difficult to comprehend since the Postal Service had operated with a positive net income for five of the previous six years. These positive net income achievements were prominently featured in the performance reporting of the Postal Service. Had the Postal Service reported as forthrightly that its total factor productivity (TFP) had declined in five of the previous six years, the bad financial news would have been less surprising.
Further, with the aid of more complete information, timely corrective action could have been encouraged and the prospect for poor financial performance averted. The General Accounting Office subsequently issued reports critical of USPS’s accounting systems and called for more transparency in USPS financial reports. The Postal Service’s response has been inconsistent at best.
Following the terrorist attacks of September 11th and the subsequent rash of anthrax-laden letters introduced into the mails, the Service’s first quarter FY2002 financial performance was expected to be negative. Confounded by a slowing economy and falling mail volume, the fact that total factor productivity declined 1.1 percent for the quarter relative to last year was similarly no surprise.
However, there has been no news on TFP reported by the Postal Service since the first quarter. The quarterly financial report posted on the USPS’s web site, in fact, removed reference to productivity altogether. But the Chairman of the Board of Governors and the Postmaster General have announced significant improvements in productivity for postal operating plants as new flats sorting technology has been deployed and combined with other efforts total work hours have been reduced by 42.9 million hours relative to last year. In fact, in a speech before the National Press Club on April 5th, the Postmaster General announced that the Postal Service was experiencing increasing productivity for the third consecutive year. No reference was made to total system productivity, but the inference seems clear.
Unfortunately, any inference that total system productivity is increasing is likely false. A precise assessment of total system productivity performance cannot be made from available data. But with total mail volume down 4.2 percent year-to-date and total expenses only down 0.3 percent, TFP is continuing to decline. The range of this decline can be estimated to be between 1.0 and 1.5 percent year-to-date. Left unchecked, a productivity loss of this magnitude would contribute approximately a $1 billion loss to the Postal Service’s bottom line by year-end. This is quite a different picture of management performance than that portrayed in the public statements of USPS officials.
If management is not focused on system-wide productivity improvement and bottom-line financial achievement as the ultimate measures of success, there is little chance the Postal Service will save the additional $5 billion as promised and hold the line on future postage rate increases.
A panel of experts should be convened to formulate performance-reporting standards for the Postal Service and, once formulated, these standards should be followed consistently. The right of the public to know the whole truth concerning USPS performance far outweighs the need to polish the Postal Service’s public image.
— Lexington Institute Adjunct Fellow Charles Guy, Ph.D. is the former Director, Office of Economics, Strategic Planning, U.S. Postal Service.
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