Cutting this service could save USPS millions, but politicians are fighting for it

The Washington PostJune 29, 2014 

— In the soggy, unforgiving tundra on the shores of the Bering Sea, Royala Bell defrosts a rack of beef ribs for dinner in a kitchen that doubles as a bedroom for six of her seven children.

A dead owl lies on the floor, ready for her husband, Carlton, to defeather it for a headdress. Fish dry on a line out back, for the larder in winter. On a small counter are some of the groceries the Bells consume from the Lower 48: Sailor Boy Pilot Bread, potatoes, Kool-Aid, Aunt Jemima pancake mix and a can of Coca-Cola.

The U.S. Postal Service paid to ship the items on a turboprop bush plane to this small settlement of Yupik Indians on Alaska’s western edge. The Bells brought them home on the back of their all-terrain vehicle from Hooper Bay’s only grocery store. The 12-pack of Coke alone cost the Postal Service $21 to get here.

Under a federal program exclusive to Alaska, the Postal Service is responsible for shipping more than 100 million pounds a year of apples, frozen meat, dog food, diapers and countless other consumer items to off-road villages in the sparsely populated outposts known as the bush. Over three decades acting as freight forwarder, the agency has lost $2.5 billion.

In many ways, the Alaska Bypass, as it’s called, keeps Hooper Bay and 100 other isolated areas in rural Alaska afloat. But groceries do not come cheap for Royala Bell, 43, and her neighbors, most of whom, like her family, survive on food stamps and federal subsidies.

“I think the food is too, too high,” the slight Yupik woman said of the prices at the Alaska Commercial store here, stretching her hands wide like an accordion. “It takes about $200 for a little tiny amount of groceries.”

Rural Alaskans are not the only ones paying a steep price. The system cost the Postal Service $77.5 million last year, agency officials said, with ordinary stamp-buying customers covering the tab, while a long line of commercial interests here benefited, from the airline and shipping industries to rural grocery chains.

Retailers pay the Postal Service about half of what it would cost them to ship the goods commercially; the subsidy allows them to charge a hefty markup on a can of Coke, for example, in some cases 30 percent or more. The agency, by law, must pay private air carriers well above market rates in the only corner of the country where airline prices are still regulated.

In the name of families such as the Bells, the late Sen. Ted Stevens, R-Alaska, pushed an earmark through Congress 33 years ago aimed at helping his constituents back home. But today, the Postal Service is going broke. On Capitol Hill, this is the kind of federal spending lawmakers in Washington have said they will swear off in a time of austerity.

Despite critics’ efforts, the Alaska Bypass has been untouchable. Few in Congress understand it. Tinkering with it would rankle politicians from other rural states who fear this could be the first step toward scaling back mail delivery to other far-flung places. And even with one of the Senate’s top power brokers gone, in Washington the legislative muscle of this most remote state remains ironclad.

When he created the system in the early 1980s, Stevens said it would not only subsidize “affordable” necessities for rural Alaska, but passenger and commercial cargo service in a state with seemingly more runways than roads.

Royala Bell paid $15.15 for a 12-pack of Coke, which began its journey to Hooper Bay on a wooden pallet of beverages. The pallet cost the Postal Service nearly $3,200 to fly here, according to analysts at Anchorage-based Northern Economics. In return, Alaska Commercial put about $485 in postage on the shipment. Not only is this well below commercial rates, it’s even less expensive – about 20 percent less per pound, postal regulators say – than customers anywhere else in the country pay to send a package via parcel post.

Throughout history, the U.S. government has often vowed to support Americans no matter where in the country they live. But critics question whether covering the cost of shipments to Alaska should fall on the Postal Service, which is losing billions of dollars as Americans are increasingly turning to the Internet to communicate and pay bills. The losses also come from a mandate to set aside $5 billion a year to fund future health-care expenses for retired postal workers.

Congress, meantime, has not been able to stabilize postal finances. An influential Republican congressman is pushing a bill that would relieve the Postal Service of at least some of the costs of the Alaska Bypass.

Alaska may be the least-populous state, with 732,000 residents, but its congressional delegation still carries weight, and has swiftly beat back every attempt to wring savings from the program or shift its costs to the state.

When Rep. Darrell Issa, R-Calif., chairman of the House committee that oversees the Postal Service, first proposed the changes in 2012, Alaska’s two senators, Lisa Murkowski, R, and Mark Begich, D, lobbied senators from other rural states to leave the Bypass alone. They won an opinion from the Congressional Research Service, which said having Alaska pay for the delivery service might be unconstitutional.

At at a hearing on Issa’s bill in March, he and other lawmakers highlighted a report from the Postal Service inspector general, who suggested that Alaska build more roads so groceries could be delivered more cheaply by truck.

Rep. Don Young, R-Alaska, shot back,”That’s the dumbest statement I’ve heard in my whole life.” Gov. Sean Parnell, R, has appealed to House Speaker John Boehner, R-Ohio, to keep Issa’s bill off the House floor.

As part of its obligation to provide universal delivery, the Postal Service ferries, flies, hovercrafts and even dispatches mules to a handful of other remote communities where letter carriers can’t drive. But only in Alaska do packages weighing at least 1,000 pounds – 930 pounds above the heaviest parcel post box allowed in the Lower 48 states – count as a universal service. Only in Alaska do flat-screen televisions, paper towels, charcoal grills, citronella candles and apples count as mail.

Before the Alaska Bypass, ordinary parcels went through postal sorting plants, as they do elsewhere in the country. But rising consumerism clogged the system. Larger shipments flew at expensive private freight rates. Stevens said a new system subsidized by postal revenue was needed to bring supplies to rural Alaska.

The soda bound for Hooper Bay was bottled at a Coca-Cola plant in Seattle and sent by container ship to Anchorage, where it was trucked to a cargo terminal at Ted Stevens Anchorage International Airport. There, pallets of Bypass freight are divvied up among five air carriers.

Twelve years ago, Stevens pushed through changes in the law that prevented new air carriers from competing for any of the Bypass business. Although Congress deregulated the rest of the U.S. airline industry in 1978, he ensured that the Alaskan skies would remain controlled.

The rates the airlines charge the Postal Service are not the result of competitive bidding or market forces but instead are set by the Department of Transportation, based on costs submitted by the airlines for fuel, labor, maintenance and terminal fees, DOT officials said. The government does not question the charges, but calculates the rates so the airlines on average make an annual profit of 15.5 percent. Carriers with below-average costs make even more.

“This is an incredible business,” said Ahmed Abdelghany, an aviation expert at Embry-Riddle Aeronautical University in Florida, noting that most commercial airlines struggle to hit profit margins of 2 or 3 percent.

In a 2011 report, the Postal Service’s inspector general concluded that the Alaska Bypass was a “broken” system that had strayed from the agency’s mission of universal service and instead become a subsidy for Alaska’s airline industry.

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