Op-Ed: Nonprofits and the Federal Budget Crisis

Nonprofit mail rates and the charitable deduction are under attack.

April 2011 By Geoff Peters

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Two seemingly disparate developments spur this writing. One is the fiscal disaster that is the United States Postal Service and the other is the unprecedented attack on the deductibility of charitable donations. I see these as related and stemming from the same problem.

The background on the Postal Service problems is, quite simply, that this government monopoly has been unable to keep its financial house in order due to spiraling labor costs, reductions in services and increasing rates. Oral arguments were scheduled on March 15 in the U.S. Court of Appeals for the District of Columbia Circuit on the U.S. Postal Service’s appeal of its loss of an exigent rate case that called for an average 5.6 percent increase. Whether the USPS wins or loses (and it will likely lose), it is clear that without intervention by the federal government, its “owner,” the USPS is unable to remedy its own failings. The intervention most commonly sought is congressional relief from a current requirement to prefund future retiree health care benefits to the tune of $5 billion.

During the health care debate of 2009-10, in order to find a way to “pay for” the huge costs of the proposed legislation, the Obama administration proposed to reduce the amount of the charitable deduction for higher income taxpayers, thus generating new tax revenues that could be used to offset the costs of the proposal. This solution was rejected by Congress but has made its way back into the current 2011-12 budget proposal by President Barack Obama.

I believe that both of these issues would, if resolved negatively to nonprofit interests, severely damage the ability and success of nonprofit fundraising. I also believe that the solutions will be very difficult to achieve given fiscal and budgetary realities at the federal level.

A brief look at USPS financial problems
The Postal Service identifies its own problems as having four aspects. Here is how it outlined them:

1. Declining mail volumes. After experiencing an 8.6 percent decline from FY 2008 to FY 2009, First Class mail volumes declined another 6.6 percent from FY 2009 to FY 2010. In FY 2010, First Class single-piece letters and cards volume declined by 9.8 percent.
2. Capped prices. The USPS complains because it has only been able to raise prices at the same rate as inflation in general. The fact that other logistics businesses and retailers have reduced prices during the recent recession seems to be irrelevant.
3. Universal Mail Delivery. The concern here is that the USPS is unable to reduce its costs for, among other reasons, political concerns. This includes a requirement to serve rural areas, five- vs. six-day delivery, and the fact that the USPS has some 36,000 local postal facilities. This is more retail outlets than Wal-Mart, Starbucks and McDonald's combined!
4. Workforce costs. The USPS employs 656,000 workers making it the largest employer in the United States.

• The average postal employee earns $83,000 a year in total compensation.
• 85 percent of its workforce is covered by collective bargaining agreements with four different unions.
• Labor accounts for 80 percent of the USPS’s cost structure.
• Most postal employees are protected by “no-layoff” provisions, and the USPS must let go lower-cost part-time and temporary employees before it can lay off a full-time worker not covered by a no-layoff provision.

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