The Nine Towns Study: The economic impact of post office closings on small places


April 27, 2012

How do post office closings affect the economic life of small towns?  The Postal Service has not done any studies about the question, but a consulting firm has just released a report analyzing how closing the post offices in nine towns in Iowa would affect residents and small businesses.  Like a similar study done about the economic impacts of closing a mail processing plant in Illinois, the Iowa report shows that closing postal facilities can have seriously adverse economic consequences for customers, residents, and small businesses.

The study could not be more timely.  Among the amendments added to the Senate bill on postal reform passed this week was one proposed by Senator Mary Landrieu (D-LA), which, if it makes into the final legislation that's sent to the President, will require the Postal Service to determine the impact of postal facility closures or consolidations on small businesses (section 205 of the bill).

Entitled “Impact of the Closure of Post Offices 
in Northwest Iowa,” the new study concludes that the money the Postal Service would save by closing small rural post offices “will be far less than the additional costs that will be placed on the businesses and residents in those communities.”  In fact, the report estimates that these communities will suffer economic losses that are five times greater than what the Postal Service will save.

The report focuses on nine very small towns — average population, 180 — so one can only imagine how much more severe the impacts would be on larger towns.  As for the country as a whole, if closing small post offices can have this kind of effect on small towns, what will happen when the downsizing is writ large?

The nine-towns study is a microcosm of how the Postal Service's plans will affect the country.  If closing one post office has indirect effects on the rest of the town's economy at a ratio of one-to-five and anything like that happens nation-wide, the Postal Service's plan to save itself $2 billion a year by downsizing the retail network could cost the country $10 billion.  You don't dismantle something as big as the U.S. Postal Service without suffering some serious side effects.

The report identifies several areas where communities would lose out economically:

Travel to another post office: The study estimated that customers would need to drive about seven additional miles to a post office when the one in town closed.  There are 337 businesses in the nine towns — typical small-town shops and restaurants and services — and each would probably need to make at least one trip to the post office every week.  That comes to 245,336 miles and, using the IRS reimbursement rate, about $136,161 in travel costs each year.  

In addition, the study estimated that each resident would need to travel to the post office once every two months, for an additional 134,988 miles and $74,918 per year.  For businesses and residents together, that's $211,000 a year in additional driving costs.

That's probably a conservative estimate.  The Household Diary Survey suggests that the average household sends someone to the post office once a week — much more often than the Iowa study assumed.  Plus, a witness to the Postal Regulatory Commission for the Advisory Opinion on the Retail Access Optimization Initiative estimated that closing 3,652 post offices would cost Americans $232 million a year in extra fuel costs.  That's $63,500 per post office, compared to about $23,400 per post office in the Iowa study.  

Lost business productivity: Since most of the businesses in the nine towns are small — over 90% have 5 or fewer employees, and half have only one — many businesses would need to close while someone went to the post office or pay a worker’s time to make the trip.  The study estimated a productivity loss of $163,562 for all the lost time.

Increases in other business costs: The study estimated that businesses would incur additional costs by being pushed to use FedEx and UPS, by getting into electronic mail (broadband costs, technical support, etc.); and so on.  Additional costs: $25 per month per business, for a total of $242,700 per year.

Lost business and jobs: Businesses near the post office would suffer lost revenue, and that could also mean lost jobs as well.  The study estimated that the equivalent of 16 jobs would be lost, or $400,000 in lost income (some of which would be covered, at least temporarily, by unemployment compensation). 

Adding up the numbers indicates that the total economic impact of closing just those nine post offices would be on the order of $735,335. 

The study could only estimate how much the Postal Service would save by closing the nine post offices since they are still under study as part of the RAOI and no financial numbers have yet been released.  Based on other Iowa post office closings for which numbers are available, the study estimated that the Postal Service would save $154,352 per year by closing all nine post offices.  That may be low balling the savings a bit — the average small post office closing probably saves the Postal Service about $25,000 or $30,000 — but it's in the ballpark.

Bottom line, then, closing the nine post offices saves the Postal Service about $150,000, perhaps $250,000, while the nine communities suffer economic losses of over $700,000 — maybe a lot more.  

The study also considers the environmental impacts on air quality of all the additional driving, the social impacts of losing a source of community identity, and the difficult-to-quantify impact on a town’s ability to attract and maintain businesses when there’s no post office.  As the study observes, “It will be extremely difficult, if not impossible, for the communities without a post office to attract a company to their community.  Without a post office, these nine communities will decline over time because they cannot grow existing businesses or attract new businesses.  In addition, it will be a challenge for these communities to attract new residents.”

The nine-towns study provides strong evidence that closing thousands of post offices will have far-reaching economic impacts on small towns and on the country as a whole.  It's hard to imagine what unintended consequences there might be to the Postal Service's five-year plan to cut costs by $16 billion.  Clearly, we need a lot more studies like the Iowa report to give us a better idea of what those effects could be. 

The study was commissioned by Northwest Iowa Development, an organization devoted to promoting business growth by attracting new corporations and skilled talent to the region.  The study was conducted by Smart Solutions Group, a consulting firm that provides economic development services for communities, counties, regions and states throughout the U.S.

(Photo credits: Three of the nine Iowa post offices in the study — OyensWashta, and Quimby.  For more about Iowa post offices, see Iowa Backroads.)

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