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The twenty-five cent stamp; why it's here and why it shouldn't be.

The Twenty-five Cent Stamp

Do you know your nine-digit zip code? You know, the snazzy one with the extra four numbers that was supposed to bring your mail service into the 21st century? Well, if it escapes you, don't worry, you're not alone. Most people don't know their nine digits, let alone use them. The U.S. Postal Service has spent $1 billion in the past six years on special nine-digit scanners, a promotional campaign, and big discounts to get business to (please) use the new system. Yet after all that, only 6 percent of outgoing mail has a nine-digit zip code on it.

"Maybe it doesn't have as big a place as we thought five years ago,' conceded Postmaster General Preston Tisch in September. Well, what's a billion here and there? As it happens, to the Postal Service, it's nothing new. In the same speech in which Tisch acknowledged that Zip Plus Four hasn't changed our lives, he also admitted that the Postal Service had busted its budget (for the eleventh time in the past 16 years)--this time overshooting its projected $1 million deficit by $244 million. He also said he expected a $400 million gap for 1988.

Citing that huge deficit, Postal Service officials in May sent a new proposal for a postage increase to the Postal Rate Commission for review. If it is approved, as expected, first-class postage will jump 15 percent; the cost of second-, third- and fourth-class mail will rise more than 20 percent. Postal patrons take note: The 25 cent stamp has arrived.

In defending such rate hikes, the Postal Service argues that it is a business, by God, and a piece of mail has to pay its own way. But if the U.S. Postal Service was a real business it would have gone belly up years ago. After each financial fiasco, Postal Service managers face no shareholders, no competition and, unlike the old days when Congress directly controlled the postal system, few angry legislators. The Postal Service is probably the only bureaucracy besides the Pentagon allowed to go on a binge and never face the hangover. The Postal Service dwells in a Twilight Zone where it is accountable neither to government nor the market.

Lost and mangled

Until 1971, Congress controlled all wage changes, rates, and management and employment levels in the post office. Critics of this system charged that congressmen used their influence to dole out jobs and contracts to supporters. What was needed, they said, was more independence to keep costs down and politics out. After all, the Postal Service employs 806,000 people and spends $30 billion a year. Apart from the Defense Department, no federal entity buys more stuff than the Postal Service. "The Postal Service is the largest tenant, the largest user of trucks, the largest user of uniforms, and the largest user of rubber bands,' said David Minton, former chief of staff of both the House and Senate Post Office committees.

In an attempt to make the Post Office more businesslike, reformers created a strange modern hybrid, a quasi-independent government corporation called the United States Postal Service. But the architects of this system forgot one thing: The Postal Service is a monopoly. Without market competition on first-class mail delivery to keep it in check, the Postal Service has distinguished itself with deteriorating service, soaring costs and burgeoning debt.

Officials acknowledge that despite advances in communications and transportation, mail delivery is 10 percent slower today than it was 15 years ago. And costs continue to rise. Before reorganization the first-class rate was 6 cents-- having risen just 3 cents from 1919 to 1968. Since then, first-class postage has almost quadrupled, despite federal subsidies of $20 billion between 1970 and 1985. If the rate of inflation determined rate hikes, we would be paying 17 cents today for a first-class stamp instead of the proposed 25 cents.

Each new "businesslike' Postmaster General brought to the job a new technique for wasting money. The trend began even before formal reorganization. No doubt you've read the report of the 1968 Presidential Commission on the Postal Service, the one concluding that it needed managers who understood commerce, not politics. A year later, President Nixon chose general contracting mogul Winton Blount as postmaster general. Blount reigned from 1969 to 1971, and is to be congratulated for one of the Postal Services most expensive errors--the $1 billion National Bulk Mail System.

This was intended to make the Postal Service competitive with the United Parcel Service by creating 21 enormous bulk mail centers. But according to a Ralph Nader watchdog group, the system "lost money, slowed delivery, [and] mangled parcels.' Even the federal government uses the private United Parcel Service more than it does the Postal Service to mail packages. To be sure, the program had its fans. After he left office, Blount's construction company won $91 million worth of contracts to build four of the centers.

Next up was Elmer T. Klassen, a 40-year veteran of the American Can Company, who took over in 1972. Klassen started slashing--not postage rates or waste, but services and employees. By reducing Saturday window hours, street box collections, and mail deliveries, he cut the postal workforce by 30,000. But some essentials were spared the budget axe. In 1973, he moved the national staff to a new $30 million headquarters in L'Enfant Plaza. And the new frugality didn't keep the Postal Service from awarding big contracts to his friends, in one case giving $815,000 worth of business to the advertising firm of Charles Burnaford, a colleague of his at American Can.

To cool the controversy his policies had generated, Klassen vowed not to raise rates that year. Not until the election was over, that is. A secret White House memo, obtained by Jack Anderson, showed that Klassen deliberately avoided requesting a rate hike during President Nixon's reelection campaign. After the election, the deficit was announced: $438 million, more than double what it had been before Klassen took over a year earlier. The price of a stamp hopped from 8 to 10 cents.

His chosen heir, Benjamin Franklin Bailar, succeeded him three years later, declaring that the only problem with the Postal Service was its failure in "letting the public be aware of the good service they are getting.' Over the next three years, Congress poured $2 billion in emergency aid to cover huge budget deficits, and Bailar raised the price of the first-class stamp from 10 cents to 15 cents.

Billy and the jet

Then came the Bolger Boom. Imagine the roaring twenties, bathtub gin and razzle-dazzle musicals, and you will get some idea of the Postal Service's later years under Bolger. Although he was tight-fisted in his early years, particularly with labor, by the 1980s wasteful spending on consultants, elaborate modernization schemes, and executive perks caused the bubble to burst.

It was Bolger who pushed Zip Plus Four without figuring out how to get people to use it. Then there was PRISM. It started out as a simple computer system to help window clerks keep track of receipts. But before long, everyone else wanted in, including dock workers and supervisors in regional centers. The system got so complicated it didn't work and was cancelled this year. Another $50 million down the drain (cheap by Zip Plus Four standards).

Subsequent Bolger brainstorms included Intelpost, an international facsimile service that cost $1 million a year in promotion alone (charged, of course, to other classes of mail). The program's receipts in 1985 totalled $70,000, less than an assistant postmaster's salary. Then came ECOM, an electronic mail service that cost customers 26 cents per message and the Postal Service $2.00. Total loss: $100 million.

How on earth could Bolger keep funding such boondoggles? It was easy. During the Bolger era, the postage stamp went from 15 cents to 22 cents.

You might be wondering just how these enterprises could continue well after a real business would have jettisoned them. Surely the people in L'Enfant Plaza could see something was going wrong, even without the spur of the marketplace. It's "institutional hubris' argues Van Seagraves, publisher and editor of Business Mailers Review, a trade publication. "The bureaucracy becomes involved and the projects become ends in themselves,' he said. "The groups of people pushing PRISM, working with contractors, are . . . a long way away from basic postal service.'

While he may have avoided some corporate conventions (like cost accounting) Bolger did adopt at least one key element of private sector management. He got himself a jet, a nice Cessna Citation II, at $1.6 million. Never mind that he announced his hankering for a plane at the same 1983 board of governors meeting where he proposed a 15 percent rate increase.

While Bolger justified the jet as necessary to carry postal officials to those hard to reach rural areas, the Postal Service used it mostly to travel to large cities easily accessible by commercial airlines. Twenty-one of the jet's 150 trips were to New York City alone, according to a congressional report. The plane also flew empty for one leg of 18 different trips and carried only one passenger on 58 trips. The jet, the report said, was "both underutilized and used inappropriately.'

Bolger set the stage well for his successor, Paul N. Carlin, who used the jet to fly to New York with his wife at a cost of more than $1,400 for a dinner with Forbes magazine executives, according to The Washington Post. Carlin was, however, cost-conscious enough to reimburse the Postal Service for his wife's fare--$58. The extra irony here lies in the fact that Forbes had long enjoyed special treatment from the Postal Service as a recipient of its Red Tag Service (first class service at second class prices for favored clients). Malcolm Forbes should be all too happy to send his own jet for the postmaster's dining pleasure.

$900 peanuts

Where there's waste and abuse, of course, there must also be fraud. In 1986 the vice chairman of the postal board, Peter E. Voss, pleaded guilty to three felony counts of defrauding the government by helping a Texas-based manufacturer obtain a $250 million contract for new zip code reading machines in exchange for kickbacks. Voss also pleaded guilty to embezzling $43,817 by billing the Postal Service for first-class airline tickets when he actually traveled coach.

To investigate the corruption, the Postal Service asked for help from Joseph Califano's law firm, Dewey Ballantine, which was serving as counsel to the Postal Board of Governors. But there's reason to suspect that the firm might be less than zealous in pushing for postal reform. From January 1985 to April 1987, Dewey Ballantine collected more than $1 million in legal fees from the Postal Service--even though the Service already has more than 100 lawyers.

Then there was John McKean, the accountant who helped Ed Meese, then White House counsel, obtain $60,000 in unsecured loans and was shortly thereafter appointed to the Postal Board. Defending himself and Meese during the attorney general's confirmation hearings, McKean racked up legal fees of $97,773 with-- you guessed it--Dewey Ballantine, and got the Postal Service to foot the bill. While having the Postal Service pay his legal bills brought McKean a flurry of publicity, it did not cause him to lose his job. To do that, he had to go a bit further by convincing Bolger to hire a particular California law firm to represent the Service in labor negotiations. The General Accounting Office later charged McKean with using "his position . . . to influence the postmaster general's award of a contract to a client of his own accounting firm.' McKean then resigned.

Dewey Ballantine isn't the only beneficiary of the Postal Service's largesse. In 1985 Postmaster General Albert V. Casey gave John T. Garrity, an old Harvard Business School chum, a $900-a-day, no-bid contract to advise the Postal Service on a reorganization scheme. Although federal agencies are barred from paying consultants more than $263 a day, the Postal Service's unique status enables it to pay whatever someone asks. "His typical rate was $1,000 but we worked it out,' Casey explained. "My God, it was peanuts.' After picking up $156,000 for seven-and-a-half months' advice, Garrity grabbed a $117,000 nobid contract in 1986 to evaluate his own recommendations. Nice work if you can get it.

Cooking the books

Wage inflation has also contributed to the increased postal rates. Postal salaries are one-third higher than comparable private sector union wages, according to economists Michael Wachter and Jeffrey Perloff. The Postal Service spends 83 percent of its budget on labor. By contrast, United Parcel Service spends 59 percent of its budget on labor, and Federal Express spends 51 percent. And that's not because their workers are exploited; UPS's 150,000 employees are unionized and some of their Teamster truck drivers earn more than $40,000 a year with overtime.

Postal wages also outstrip other federal salaries. The starting pay of a clerk or letter carrier is $20,094, plus an annual cost of living adjustment; with wages and benefits the average postal salary is $31,000 annually. While postal wages were roughly comparable to those of other federal workers in 1971, a typical postal service employee now makes $5,500 a year more than a comparable worker in other federal agencies, a gap that will grow to $8,400 under the new contract, according to Postal Rate Commissioner John Crutcher.

How does the Postal Service reduce labor costs if they must pay high salaries? They hire more postal workers. Carlin recently gave local postmasters the freedom to hire as many workers as they needed. The Postal Service then grew by 100,000 in less than a year.

Why don't tough management negotiators just slam their fists on the bargaining table and say no to further pay increases? One reason, Crutcher argues, is that management has used pay raises for workers to justify pay raises for themselves. "It is far different in industry and business,' Crutcher said. "There, if the manager does a good job in bargaining with unions, that is if he keeps their wages reasonable, he gets a bonus. It's just the opposite in the Postal Service.'

And don't forget that wages are the one area in which congressmen, ever mindful of the postal workers in their district (and their PACs), have maintained interest. For example, after Bolger proposed that the Postal Service institute a second, lower wage, Rep. Silvio Conte, the ranking Republican on the House Appropriations Committee, introduced legislation to block the move, quickly undercutting the management bargaining position.

But think of all you get for your money, postal officials say. Did you know that 97 percent of all mail is delivered on time? Ninety-seven percent? Postal Service officials explain it like this. The United States is divided into eight postal zones. The postal service calculates the "optimal delivery date' for first- and second-class mail by taking the number of zones a piece of mail must pass through and then subtracting one. If a magazine is dropped off at Zone 1 by 5:30 in the afternoon, it should, in theory, arrive at its destination within Zone 1 the very next day. (Theory remember.) If it enters Zone 1 in New York but must travel to Zone 8, California, then it should be there in a week. According to the Postal Service, almost all of the mail arrives by the optimal delivery date.

But the Postal Service has been known to cook the books. Postal investigators recently found that postal workers making "random' mail checks were weeding out late letters from the sample. Clerks who played it straight and thereby showed the Postal Service in a bad light, the investigators found, were confronted by their supervisors. In at least two instances, when honest clerks refused to relent, they were demoted. In Atlanta recently, 11 supervisors were demoted or suspended for tampering with the results; investigators, on the other side of a two-way mirror, filmed them removing stale mail. Small wonder. Postmasters get cash bonuses for good numbers (funded by our rate hikes) and since they know the day before which routes will be sampled, it is easy to encourage good "performance.'

25 cents a lick

In filing for their latest rate hike, postal officals have once again invoked the rhetoric of the bottom line. Without the hike, they say, the system will sink $6 billion into debt by October 1988. The mail has to pay for itself, they say.

This is the double standard of the postal service: it has little accountability to Congress or to the consumer. Its watchdog, the Board of Governors, to which each president makes a few appointments, essentially rubber stamps the actions of management. (Since reorganization it has never killed a rate hike.) But when catastrophe threatens because of poor planning, the Postal Service turns to Congress and the consumer for another bailout.

Not surprisingly, during moments like this, when the rates goes up, the little guy bears most of the burden. The most recent rate proposal is no exception. In second-class mail, the largest circulation magazines, heavy with advertising, will face about a 10 percent increase. By contrast, small circulation magazines with few ads will suffer increases of more than 20 percent. Where the Postal Service must compete with other services--in overnight mail, for example--the proposed price will actually drop, with the minimum charge falling from $8.35 to $7.74, and the maximum fee tumbling from $104.95 to $70.00. But in first-class mail, where the Postal Service is the only game in town, we'll all start licking 25 cent stamps.

In the world of quasi-independent government entities, that is what's known as business as usual.
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Author:Szegedy-Maszak, Marianne
Publication:Washington Monthly
Date:Nov 1, 1987
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