In its spring issue, Washington Monthly ran a thoughtful piece by New Jersey Congressman Bill Pascrell, which argues that legislative mandates to sock away money for promised retiree benefits have sapped the United States Postal Service of the funds it needs to adapt in a changing postal environment. And, while it gets a lot of things right about the problems the postal service faces and the burden the pre-funding requirement causes, the solutions it proposes stand to make the agency’s financial situation worse, and to distract from efforts to help it update its business model.

It’s been more than 13 years since the last major postal reform, as the Postal Accountability Enhancement Act (PAEA) was passed in 2006. Facing the looming costs of postal retirees and the associated threat to the self-funding agency’s financial future, a primary function of the bill was to mandate that the USPS start saving. However, as Pascrell acknowledges, the bill has proven unsuccessful in its efforts to place the agency on sound financial footing.

In large part, this is because of the awkward timing of its mandates. Around the time of its passage, despite having declined by around 5.5 billion pieces since 2001, first-class mail volumes were still relatively high. More recently, however, that decline has accelerated—from more than 98 billion pieces in 2006 to less than 57 billion in 2018. Such a decline necessarily has led to a corresponding decline in profit and thus the ability of the USPS to make the payments mandated by the PAEA has been diminished.

One logical solution would be to transfer obligations for postal retirees to Medicare or some other government account. However, this is only a short-term solution because although it would fix the problem for the postal service, it would merely transfer the burden elsewhere within the federal government. And, the government would then be forced to fund the ongoing obligation without a direct say in, for example, the USPS personnel matters that would affect how much it owes.

And to add insult to injury, the payments themselves never necessarily had to be a problem but rather were made so by a particularly short-sighted policy decision. Specifically, federal law requires that any funds the USPS saves for retirees must be invested in inflation-indexed financial instruments that minimize risk of loss. And while that may seem like a fiscally responsible choice, the downside is that when the economy grows—as it has in recent years—postal retirees don’t share in the bounty. Therefore, the current underfunding is, at least in part, the price of insulating taxpayers from economic downturns. However, if the agency had been legally allowed access to the less-conservative investment options other government bodies use, much of the burden of retiree benefit prefunding may have been avoided, as the USPS’s own inspector general has noted.

However, as Pascrell goes on to consider, rules relating to retiree benefits and the money to pay for them are only some of a few important laws that keep the postal service from achieving its statutory mission of providing universal postal service without direct taxpayer subsidies. Most notably, the agency is statutorily prevented from expanding its services outside the mail business. Such a prohibition was designed to safeguard the USPS from any political or social forces that might pressure it to expand its mission beyond serving as the nation’s social safety net for letters. And, in large part, the underlying rationale was to ensure that it could remain self-funding. Accordingly, one of the primary policy mechanisms set up by the PAEA is the requirement that the cost of each postal product must cover the amount it costs the USPS to offer it.

However, in response to the agency’s financial woes, many have suggested that it should be allowed to expand its business model into other areas. And, for his part, Pascrell identifies the prospect of allowing the post office to enter into banking, “perhaps the most promising” of these proposed new lines of business.

But, there are a host of reasons why the post office shouldn’t enter into banking. Perhaps the most obvious one is that lending money is risky. Nevertheless, in order to address this objection, those who want USPS to do it have argued that it should tailor its business model to attract the kind of customers who use pay-day lenders because these types of borrowers are traditionally non-reliable, which means that the postal service could charge higher fees, as payday lenders do. However, such a proposal is a double-edged sword, as these customers often default on loans. In practice, this means that no matter how many fees the agency would be able to charge, the prospects of actually collecting that money would likely be bleak and this would do little to rectify its cashflow problem. And, in any case, such a model is directly at odds with the expectation that the USPS charges very low fees.

Moreover, actually making money in the banking market would require the USPS to reach customers others can’t or to be more profitable at lending money than other lenders. And, while it is true that the post office’s universal delivery model is able to physically reach some places banks may not, the internet already allows established banks to reach almost everywhere too. And, with respect to physical locations specifically, local credit unions are already common in all but the smallest towns—and this is to say nothing of national lenders. This means that there is no guarantee that the USPS will be better at lending money than existing banks. And, as noted, this is compounded by the fact that a fundamental part of banking is pricing the risk of nonpayment by those who borrow. This simply can’t be done effectively by an agency that is required to simultaneously offer better rates than private lenders and to remain self-funding.

As an agency of the United States government, the postal service could seek to address any number of social goals. And while it may be true in theory that postal banking would help one cross-section of America, the USPS already has a population it’s tasked to serve—those with little private access to delivery services. How much these groups overlap is unknown, but distracting America’s ailing delivery company with efforts to make it a bank would risk the further degradation of an agency that is already failing to transform its core business.

To be sure, transforming a dying state enterprise into a proper social safety net for mail is a path fraught with risk—for Congress, for the agency itself and for everyone who uses the mail. But if we are to fix the problems that currently plague it, allowing its retiree accounts to take on a more diversified investment portfolio is a far sounder option than dabbling in uncharted territories that are already capably served by private enterprise.