Lawmakers Must Examine Real Issues Plaguing the Postal ServiceRoss Marchand on January 26, 2021
This piece was originally published in Issues & Insights on January 25, 2021.
Most lawmakers and policymakers agree that the United States Postal Service (USPS) is in dire need of reform. Unfortunately, many suggestions for America’s mail carrier to get back into the black fail to address the root causes of the agency’s problems.
In a recent piece for The Nation, contributor Jake Bittle suggests direct taxpayer aid to the USPS and an end to the “prefunding” mandate. Bittle also advocates for postal banking, an idea floated (and rejected) many times. Any serious suggestion to reform the USPS must address the agency’s operational inefficiencies and bloated compensation. President Joe Biden, Congress, and USPS leadership must deliver on critical reforms to get the USPS back on the right track to fiscal solvency.
In his piece, Bittle speculates that, “lawmakers may have more appetite for direct aid [to the USPS] now that Trump is fading from view.” While this may be true, immediate liquidity isn’t really an issue for the struggling agency. The USPS reported more than $14 billion cash on hand at the end of fiscal year 2020 – more than it has had since at least 2005. Even if a taxpayer bailout delays bankruptcy from, say, 2021 to 2022, it will do nothing to solve the agency’s looming $160 billion worth of debt and unfunded liabilities.
To solve this larger, long-term solvency issue, Bittle suggests scrapping the prefunding requirement passed by Congress in 2006 that, “requires the USPS to fund retiree health benefits up to five decades in advance.” Bittle neglects to mention, though, that this iteration of the prefunding mandate ended in 2016. Now, the agency need only gradually write off these retirement health obligations (over a 40-year period) instead of footing the bill all at once. This relatively lax amortization schedule resulted in the USPS contributing about $800 million into its retirement health fund for fiscal 2020 – a small fraction of the agency’s $9.2 billion net loss that year. And, according to the USPS itself, eliminating the prefunding mandate “will not reduce our underlying liability for retiree health benefits, nor improve our cash flow or long-term financial position.”
Bittle also points approvingly to legislation that would allow the USPS to operate as a bank by providing savings accounts to the public. Postal banking proposals are nothing new and a dime a dozen, but don’t offer much hope to the USPS. Bear in mind that the agency already deals in some financial services such as money orders. Currently, consumers can stroll into their local post office and (for a small fee) send up to $1,000 to associates, friends, family members, or even themselves. But the agency has struggled to make money on these financial services in recent years. The USPS only netted about 10 cents per money order in fiscal 2019, compared to a 47-cent profit back in 2008. According to the inspector general, the agency has been behind the times in managing sales and digitizing money orders, leading to high costs and inefficiencies. USPS leadership would be wise to address declining profitability for their existing products rather than creating new products.
Overall, the agency’s operating revenue has actually been increasing over the past three years. It’s just that expenses have been increasing at a faster rate, driven primarily by bloated labor costs. From 2009 through 2014, the USPS made some progress in reducing these employee expenses, but an increased number of delivery points and package deliveries have reversed these savings. To get back on the right path, Postmaster General Louis DeJoy should work closely with lawmakers to introduce increased flexibility and allow the agency to hire lower-cost employees and contractors.
Additionally, the agency should look into expanding the contract delivery service (CDS) program, which contracts out last-mile deliveries to private parties. While the initiative has the potential to reduce labor costs, CDS contractors currently deliver mail to only about 3 million delivery points per year (compared to about 160 million delivery points overall across the country). Expanding the program could result in significant cost savings for the agency and alleviate current shipping backlogs.
Ultimately, there’s no one easy fix for the USPS. But prefunding and postal banking are distractions from the real issues plaguing America’s mail carrier. It’s time for the country’s leaders to get the USPS back on the right route and deliver real reform.