Independent Agency Takes Over U.S. Postal Service

Date July 1, 1971

The Postal Reorganization Act of 1970 replaced the U.S. Post Office Department with the semi-independent U.S. Postal Service, established to modernize mail delivery, make operations more efficient, and be self-supporting.

Also known as Postal Reorganization Act of 1970; U.S. Code 39 § 2002; Public Law 91-375

Locale Washington, D.C.

Key Figures

• Richard M. Nixon (1913-1994), president of the United States, 1969-1974
• Frederick R. Kappel (1902-1994), head of the President’s Commission on Postal Organization under President Lyndon B. Johnson
• Lawrence O’Brien (1917-1990), U.S. postmaster general under President Johnson
• Winton M. Blount (1921-2002), U.S. postmaster general under President Nixon

Summary of Event

President Richard M. Nixon signed the Postal Reorganization Act on August 12, 1970. The reorganization was the culmination of an effort begun during the administration of Lyndon B. Johnson, when the President’s Commission on Postal Organization, popularly known as the Kappel Commission, recommended that the Post Office Department be made independent and self-supporting.

The U.S. Postal Service, as an independent, government-owned agency, replaced the Post Office Department. An eleven-member commission managed the service. The commission was composed of nine governors who were appointed by the president and confirmed by the Senate. Their terms were staggered, and no more than five governors could come from one political party. Also serving on the commission were the postmaster general and a deputy postmaster general, both of whom were appointed by the governors. The postmaster general was no longer a member of the president’s cabinet. The new agency was phased in during 1971.

The Postal Service was freed from the financial control of Congress and was authorized to issue bonds for capital improvement. A limit of $10 billion was placed on outstanding debt, with a $2 billion annual limit on new issues. Proceeds of bond issues were initially used to modernize buildings and automate processes. The service was expected to move toward self-sufficiency but would continue to be subsidized until able to break even. The subsidy took the place of large rate increases.

Significant improvements were made to operations. Political appointments of local postmasters were replaced by a merit system. Specific criteria were established for hiring and promotion. Postal workers were given the right to negotiate for wages and benefits. Binding arbitration would be used to settle labor disputes. As part of the Reorganization Act, postal workers received an 8 percent pay raise.

The cost of stamps was raised to eight cents for first-class mail. A similar increase was instituted for bulk mail. Increases for second-class mail would be phased in gradually. A five-member Postal Rate Commission would have the authority to set future rate increases, with Congress retaining the right of veto.

New services were provided to customers, including the Priority Mail next-day delivery system and Mailgrams, letters sent by telegraph. To handle customer complaints, an Office of Consumer Advocate was established. The entire operation was decentralized. Regional directors were given greater autonomy, and the number of regions was reduced to five.

In 1970, the Post Office Department handled more than eighty-seven billion pieces of mail, making it the largest postal operation in the world. It was also the largest civilian government agency, employing more than 750,000 workers, a payroll comparable to those of General Motors Corporation and American Telephone and Telegraph (AT&T). The Post Office Department was plagued by problems in all phases of its operation. A deficit of $2.6 billion was expected in 1970. The operation relied heavily on manual work, with clerks able to hand-sort only eighteen letters a minute. Post offices relied on the airlines and Amtrak to deliver intercity mail. Route cutbacks slowed down the mail. Coast-to-coast delivery took ten days, and intracity delivery often took two days. Second-class mail delivery of newspapers and magazines was frequently delayed by as much as ten days.

The problems of the Post Office Department were widely believed to be caused by political influence. Postmaster jobs were filled by political appointees, and within-the-ranks promotion was considered unlikely for someone without political connections. The inefficiency and the lack of capital improvements were blamed on Congress, which often failed to appropriate funds for automation or building improvements. Within the Nixon administration, there was a strong desire to implement modern management techniques throughout government operations, including the post office.

Working conditions for postal workers were below the standard of industry of the time. The post office experienced a turnover rate of 23 percent, and yet it took thirteen weeks to hire a new worker. Post offices in some large cities experienced difficulty filling vacant positions; in 1970, more than nine hundred positions were unfilled in New York City. Post office jobs started at a salary of $6,176 per year, and the top pay grade was $8,440, reached after twenty-one years of service. Most buildings were not air conditioned. Many had no parking lots or cafeterias, and toilet facilities were often inadequate. Few post offices had doctors or first aid available for workers, and accident rates were high.

Prior to the Great Depression, Post Office Department jobs were desirable. After World War II, there was increased labor competition from industry, and the post office had difficulty attracting workers. The department, under the Civil Service System, was not able to pay differential rates in high-cost areas such as New York City. In 1970, 10 percent of that city’s postal workers qualified for welfare. After three years of service, garbage collectors in New York City were paid more than postal workers with twenty years of service.

The idea of reorganizing the Post Office Department originated with Lawrence O’Brien, who was postmaster general in the Johnson administration and who believed that the post office should be made independent and self-sufficient. President Johnson established the President’s Commission on Postal Organization and appointed Frederick R. Kappel, former chairman of AT&T, as chairman of the commission. In June, 1968, the commission recommended that the Post Office Department be reorganized and placed on a self-sufficient basis. President Nixon’s postal reform message on May 27, 1969, endorsed the proposal. Opposition reached a peak in March, 1970, when the New York postal workers staged an illegal strike. Congress then added a binding arbitration clause to the legislation. In April, 1970, the AFL-CIO, with George Meany as bargainer, reached an agreement with the government to end the strike. On August 12, 1970, President Nixon signed the Postal Reorganization Act, which authorized the creation of the U.S. Postal Service. On June 26, 1971, an eight-cent first-class stamp was issued that bore the U.S. Postal Service emblem, and on July 1, 1971, the service was born.

Significance

The Postal Reorganization Act shifted control of the postal system from Congress and the president to the managers of the new U.S. Postal Service. This provided immediate political advantage to the White House and Congress, which no longer could be directly blamed for the failings of the system.

Until 1979, the Postal Service ran annual operating deficits. In 1979, the service reported an operating surplus of $470,000. Deficits occurred even though postal rates rose significantly after reorganization. The cost of mailing first-class letters rose 150 percent from 1970 to 1977, with similar increases for second-class and bulk mail.

Firms were able to compete with the Postal Service to deliver bulk mail, but not first-class mail. After 1971, this competition accelerated. The business community showed concern about the increased cost of bulk-mail advertising and other kinds of business mail. The bulk-mail industry was the most affected by the change. After 1971, costs of bulk mail continued to rise, and service did not measurably improve.

Firms that entered the bulk-mail business at the time of reorganization were able to offer lower rates because they delivered advertising mail door to door. No mailing labels or sorting was necessary, thus reducing costs. Leading firms included Independent Postal Systems of America of Oklahoma City, Oklahoma; Consumer Communications Services Corporation of Columbus, Ohio; American Postal Corporation of Los Angeles, California; Pacific Postal System of San Francisco, California; and Continental Postal Service of Charlotte, North Carolina.

Some firms began delivering their own bills to customers. Virginia Electric and Power Company was able to deliver its own monthly bills for as little as five cents apiece in urban areas at a time when the Postal Service charged eight cents. Under the Reorganization Act, it was legal for firms to deliver their own first-class mail.

The greatest concern within the Postal Service was the increased competition from United Parcel Service (UPS), which soon had half of the small-parcel delivery market. The competitive advantage that UPS enjoyed resulted from its reputation for reliable, consistent, and rapid delivery and from its ability to charge lower rates than those of the Postal Service.

Management improvements in the new Postal Service focused on improving airmail service, with a goal of next-day delivery for airmail. Airlines depended on airmail for revenue. After reorganization, the Postal Service was able to negotiate terms with carriers. There was fear within the airline industry of the resulting increase in competition. Airmail standards set by the Postal Service were next-day delivery for destinations within six hundred miles, with all other deliveries to be made within two days. The Mail Express program was inaugurated, with door-to-door delivery by courier.

The Postal Service experienced a 35 percent increase in productivity in its first ten years. According to the Postal Service’s own reports, by 1980 the system succeeded in delivering 95 percent of first-class mail within one day. Intercity mail traveling less than six hundred miles was delivered within two days 86 percent of the time, and cross-country mail was delivered within three days 87 percent of the time.

The first U.S. Postal Service bonds were issued in October, 1971, in the amount of $250 million. The bonds were issued for capital improvement, with two areas of initial focus. A bulk mail system was designed to include twenty-one processing centers using modern technology, computers, and conveyor systems. The second project was a letter mail code sort system. A pilot plant was built in Cincinnati, Ohio, and used optical scanning equipment and other technologies to sort mail.

After the reorganization, there were significant cuts in headquarters and regional staffs. The new agency started with $3 billion in assets and $1 billion in cash, which could be invested in U.S. government securities. In 1972, the service ordered a hiring freeze in an attempt to reduce costs. Labor contracts did not allow a reduction in force, so inducements for early retirement were offered. Experienced postal managers responded to the offer, significantly reducing the Postal Service deficit for 1973. The loss of experienced managers, however, resulted in deterioration of service and public criticism. The backlash resulted in additional hiring and subsequent growth of the deficit.

Postal unions were able to negotiate no-layoff clauses in their contracts; nonunion postal employees did not have such protection and significant reductions in workforce levels occurred. From 1970 to 1980, the number of full-time-equivalent postal employees declined by forty-six thousand. After 1971, wages increased at a higher rate than that of other government workers, primarily because of cost-of-living adjustments included in union contracts. During the inflation-plagued 1970’s, postal wages more than doubled.

Federal Express was founded in 1971 as a competitor to the government’s mail operation; UPS continued to be strong, and other mail delivery services appeared. The reorganization of the Postal Service and the emergence of Federal Express and other overnight delivery services revolutionized the way business mail was sent and received. The 1971 reorganization of the Postal Service challenged that basic belief and made possible advances in mail delivery and processing.

Bibliography

Blount, Winton Malcolm. “Overhauling the Mails: Interview with Postmaster General Blount.” U.S. News & World Report, May 4, 1970, 46-51. Interview with the postmaster general at the time reorganization was under consideration by Congress. Shows the extent of operational considerations and the optimism of Post Office Department management for reform.

Fleishman, Joel L., ed. The Future of the Postal Service. New York: Praeger, 1983. Good critical analysis of the effects of reorganization on government, labor, business, and the communications industry. Includes international comparisons as well as detailed economic information. Recommends further restructuring and management improvements.

Fowler, Dorothy Ganfield. Unmailable: Congress and the Post Office. Athens: University of Georgia Press, 1977. Highly readable history of the Postal Service, from the appointment of Benjamin Franklin as postmaster general in 1753 to the formation of the U.S. Postal Service in 1971. Covers the important role the Postal Service has played in American history and the relationship between Congress and the postal service.

Fuller, Wayne E. The American Mail: Enlarger of the Common Life. Chicago: University of Chicago Press, 1972. Presents a history of political control of the post office, from establishment to reorganization in 1971. Balanced report illuminates both positive and negative aspects of this control. Epilogue recounts the congressional debate leading to passage of the Reorganization Act.

Geddes, Rick. Saving the Mail: How to Solve the Problems of the U.S. Postal Service. Washington, D.C.: AEI Press, 2003. Presents an overview of the history and performance of the U.S. Postal Service since its creation in 1970.

Nixon, Richard M. “Toward a Better Postal Service.” In Setting the Course, the First Year: Major Policy Statement by President Richard Nixon. New York: Funk & Wagnalls, 1970. Contains Nixon’s policy statements on the need for reorganization. Outlines the structural and political problems inherent in the Post Office Department as well as the basic objectives of reform.

Tierney, John T. Postal Reorganization: Managing the Public’s Business. Boston: Auburn House, 1981. In-depth study of the reorganization of the Postal Service focuses on managerial initiatives within the postal system and the changing dynamics of labor relations. Also shows the effects of competition on the operation of the Postal Service.

‗‗‗‗‗‗‗. “Untangling the Mess in the Post Office.” BusinessWeek, March 28, 1970, 78-80. Surveys the problems plaguing the reorganization of the Post Office Department. Covers all aspects, including labor, systems performance, management, and political influence. Includes discussion of the political concerns that led to reorganization.