By: Paul Steidler
The U.S. Postal Service needs to be fixed. Its management and Board of Governors agree. The U.S. Government Accountability Office (GAO), Congress’s independent financial watchdog, has included the Postal Service on its high-risk list of government agencies since 2009.
With chronic annual losses, an outdated business model and significant long-term liabilities, the Postal Service will be out of cash in about a year with its borrowing authority exhausted. It is nearing bankruptcy.
Congress’s only serious attempts at postal legislation since the 2009 GAO designation leave much to be desired.
This spring the House Oversight and Reform Committee received a whopping request for $75 billion from the Postal Service on the claim that it would be out of cash as soon as June. Well, June came and went, and the Postal Service disclosed it will have enough cash to operate well into 2021.
The House of Representatives has included $25 billion for the Postal Service in the latest comprehensive COVID-19 bill that passed the chamber. That money is just not necessary for pandemic-related assistance.
The other legislative proposal involves eliminating the requirement that the Postal Service make annual contributions of more than $5 billion to its retiree health benefits fund.
The Postal Service has not made such payment since fiscal year 2010 and faced no penalties for these defaults. And no one expects the payments will be made anytime soon.
But why not just give the Postal Service tens of billions of dollars, kick the can down the road some more on reform, and let the Postal Service function inefficiently? Does anyone care so long as mail and packages still get delivered?
At the end of fiscal year 2019, the U.S. Postal Service had a negative net worth of $71.5 billion and unfunded liabilities of more than $160 billion. Taxpayers are on the hook for those costs. The Postal Service is supposed to be self-supporting, but left unchecked, these liabilities could mount and turn into significant taxpayer costs.
The Postal Service also needs reform because inefficient operations, and inappropriately priced services and products, create inefficiencies in the U.S. economy.
A key reform priority is that the Postal Service’s mission, or universal service obligation, be defined. The USO should focus on what the Postal Service is uniquely able to do and has primarily done throughout its history: delivering mail to every address in the United States.
This will still be a large market in the coming years. The Postal Service’s five-year strategic plan predicts mail should still be at least a $40 billion monopoly business by 2024.
The Postal Service needs holistic reform, not bandages. This involves understanding the costs for its products, something the Postal Service’s Office of Inspector General reported it does not know, and applying those costs into business decisions. Some product costs today are artificially high and some artificially low.
This distorts the full range of business decisions that must be made. It mucks up innovation in the world’s largest logistics system, whose efficient operation is key to the growth and resiliency of the U.S. economy.
Retiree Health Benefits
A common refrain for avoiding postal reform over the past decade has been to claim that if the Postal Service’s pre-funding requirement for retiree health benefits was eliminated the Postal Service’s financial problems would be gone. This is simply wrong.
The Postal Service has had large obligations for retiree health benefit costs going back to the Postal Reorganization Act of 1970. The law required the Postal Service to provide these generous benefits to its large workforce and for decades these benefits have been important in recruiting workers.
A 2003 postal task force report warned of the dangers of this liability which then accounted for $48 billion of the Postal Service’s $92 billion in debt. The report warned “Costs for retiree health care and pension plans are skyrocketing for all employees,” while noting that 45 percent of the Postal Service’s employees would be eligible to retire within a decade.
To fix this, the 2006 Postal Accountability and Enforcement Act (PAEA) shifted a $27 billion pension liability from the Postal Service to the Treasury Department. It also required the Postal Service to make annual payments of between $5.4 billion to $5.8 billion for 10 years into a Retiree Health Benefits Fund.
PAEA had broad support across the board and was viewed as a good faith effort to address the Postal Service’s troubled financial condition. Labor unions endorsed it and were at the signing ceremony with President Bush.
In a January 2007 newsletter about the enactment of PAEA the National Association of Letter Carriers (NALC) said the law’s enactment “was the fulfillment of NALC’s top legislative priority.” NALC President William Young said, “This law is the culmination of years of hard work by many NALC officers, the union’s legislative staff and our committed members.”
The Postal Service also embraced the retiree health benefits funding approach. Then Chief Financial Officer Glen Walker said, “This is a farsighted and responsible action that places the Postal Service in the vanguard of both the public and private sectors in providing future security for its employees, and augurs well for our long-term financial stability upon successful completion of the payments.”
Clearly, the Postal Service needs a new actuarial table for these payments. But some retiree health benefit funds should be set aside given that it is a large compensation cost that will only grow in the future.
The Postal Service also has approximately 500,000 retirees who rely on these benefits and many in its workforce are approaching retirement. This underscores the need for proactively setting aside assets for the program.
Furthermore, the retiree health benefits should not be cut. Retirees have earned the benefits.
Only through a total overhaul of the Postal Service’s structure can the agency be re-tooled. Congress has been warned about this for a decade and has at least a year until the Postal Service is out of cash. It should get to work on reform and eliminate gimmicks and half measures.
About the Author: Paul Steidler is a Senior Fellow with the Lexington Institute, a public policy think tank based in Arlington, Virginia.