The Postal Service Is in Deep Trouble. Here’s One Way to Get It Out.
On one hand, it has revealed just how much we depend on the U.S. Postal Service. It is the lone government agency that visits our homes and businesses on most days, and with stores largely shut down, the USPS is keeping us supplied with food, clothes, distance-schooling materials for kids, prescription drugs, and books to keep our minds off what’s happening outside our doors. Private delivery companies move a lot of packages, but don’t go to every household in the country; often they pay the USPS to carry small packages the final stretch.
In this crisis, the postal service matters even more: Tens of millions of Americans received a postcard from the Centers for Disease Control recently that reminded them to socially distance and take other precautions. Some of the people who qualify for relief checks from the IRS will receive them in their mailboxes. And in November, with the virus still on the loose in the population, millions of worried Americans will depend on the USPS to vote.
At the same time, the crisis is threatening to wipe out the Postal Service financially. The vast portion of mail is sent by businesses, so Covid’s stalling of the economy has cratered mail volume. How much we do not yet know, but volume may already be down 30 percent. And as it does, it may irreparably damage an agency that for years has been running multi-billion dollar deficits and weighted down by $130 billion in unfunded employee benefits. Depending on the magnitude of the revenue drop-off, the agency may run out of liquidity and be forced to cease operations this autumn or winter. Which has not happened the post office’s two-century history.
So far, Congress hasn’t moved to bail it out. This is in part the fault of USPS leadership, which played its cards badly in the run-up to the recent $2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Reportedly, representatives of the USPS and at least one of its unions quietly went to Capitol Hill and briefed some members of Congress, according to an individual who was in one of the meetings. On the whole, it did not go well. Only a few Democrats publicly spoke up for helping the agency, and the GOP and President Trump balked when a $30 billion bailout was dropped into a version of the House’s Covid legislation. Ultimately, the CARES Act offered only a $10 billion supplemental lending line to the postal service.
Last week, USPS leadership tried again, telling the House Oversight and Government Reform Committee that the agency needed an eye-popping $75 billion to avoid going belly-up. More Democrats are calling for an emergency appropriation to the postal service, but the GOP have maintained a stony silence, likely put off by liberal activist messaging that Trump and their party want to bankrupt the post office and sell it off to vulture capitalists.
In neither case did the post office’s front office publicly share data that would help skeptical or simply baffled legislators come around to supporting its big ask. By law the agency is supposed to file a publicly available report with the Postal Regulatory Commission when it faces a material change in its financial condition. There are no signs that it has done so. What legislators and the public know about the USPS’s financial health is little more than a few scattered data points that have appeared in news stories.
No doubt the USPS is hurting badly, and it could run out of cash and shut down. With the economy already in a freefall, a shutdown of the USPS might just tip the country into a depression. (When some postal workers went on strike in 1970, President Richard Nixon called out the National Guard to fill in; the possible economic calamity was that large.)
But if it really wants Congress to open the purse strings for a rescue plan, the agency needs to put its cards on the table. Postmaster General Megan Brennan should get on Zoom and give a public presentation that shares the data on where mail volume, revenues, and operating costs are and where they are headed. Then Congress needs to strike a grand bargain for postal reform—a deal that would both save the post office from short-term insolvency, and align the agency’s revenues and costs over the long term.
Any reform effort may have to come via the next Covid-19 legislation, which means the reforms need to be straightforward and packaged to draw support from the right and the left.
Here’s a straightforward plan for how it could work, which would only require modest changes to law and would share the burden between the biggest stakeholders: the public, USPS workers, and the mailers and shippers who pay the USPS’ operating costs.
First, Americans need a guarantee that their mail will help them get through crises like this one, and the USPS needs money to do it. The USPS should be provided with a $1 billion annual appropriation in exchange for committing to deliver medicines and other critical supplies in the event of a national disasters. Presently the agency gets no extra financial support when it serves in a crisis. Strangely, it is not actually required to do anything in a crisis by either postal law or Executive Order 13527, the Obama-era directive on national responses to anthrax and biohazard attacks.
To their credit, the USPS workers have served valiantly during Covid-19; if the country gets hit with another pandemic or anthrax attack, we need the postal service to be funded and ready to deliver test kits and medicines. As late as the 1970s, Congress gave the USPS an annual public service obligation appropriation to help it cover the costs of delivering mail to every American household, no matter how remote. The same principle applies here: public safety is a national good, so pay the Post Office for the work the country expects it to do.
Second, the Postal Service needs the liberty to fix the way it funds its retiree health benefits fund, which has a $70 billion shortfall. Although it’s expected to find a way to fund these obligations, the USPS only may invest in U.S. Treasuries, which deliver paltry annual returns. A U.S Postal Service Inspector General study made it clear that this investment strategy all but ensures the agency will default on these obligations to its workers and the taxpayers will have to bail them out. Most federal pension dollars are invested much more broadly, and the USPS should be authorized to invest some of the more than $40 billion in its retiree health benefits fund in index funds. With the stock market so low, this plan — which has support from some on the right as well as one of the postal unions — could produce huge financial returns if enacted quickly. Legislation already exists to make this happen, and it can be cut and pasted into the rescue package.
Third, the USPS should be authorized to raise its prices a little more — after the Covid-19 economic downturn ends. Presently the law limits price increases for most paper mail to the consumer price index. Amending the law to let the post office raise prices at the CPI plus 1 percent could bring in an additional $700 million in revenue per year. Mailers dislike price increases, but done sensibly they work. When the agency’s regulator gave it an 4.3% “exigent rate increase” in 2015 and 2016, the post office reaped an additional $4.6 billion in revenue. Congress also should direct the USPS to further increase prices on parcels, which USPS is free but sometimes hesitant to do.
Fourth, the postal service should be free to choose to stop delivering paper mail six days a week — once all the stimulus checks are in the public’s hands. Again, demand for paper mail has plunged, and it is financially irresponsible to force mail carriers to haul mostly low-margin advertising mail more than five days per week. The USPS should remain free to continue delivering parcels on weekends so long as they actually make money on them. (And President Trump has his doubts.) Studies done some years back indicate cutting a day of mail delivery could trim $1 billion or more in USPS costs annually.
Fifth, the USPS needs to further reduce its compensation costs. Paying its employees accounts for 80 percent of USPS’s budget. The reduction could be achieved through buyouts. Congress could appropriate $5 billion to the agency to use to give 100,000 of the most senior employees $50,000 buyouts tax free. Dropping 100,000 employees might be more cuts than USPS wants, but it can always hire new, and less expensive, replacement employees.
Sixth, the U.S. Treasury should forgive the USPS’s present debt, which is around $10 billion. Just wipe the books clean, because paying these debts is draining the Post Office’s cash, which should be invested in new delivery vehicles and overdue capital upgrades. Public debt already is $24 trillion, so the public is not terribly harmed by assuming this additional debt — especially if it helps stave off the collapse of the USPS.
Seventh, and finally, postal operating costs tend to go up because collective bargaining always produces agreements that raise compensation costs. Unions are right to drive a hard bargain for their members, but they are aided and abetted by federal arbitrators who almost always side with the unions over management. The law should be amended to require that collective bargaining decisions consider the financial health of the USPS. The late Sen. Tom Coburn (R-OK) pushed hard for this reform years ago, but was stymied by complaints from postal unions. This change is way overdue — USPS cannot be expected to survive if most of its overhead cost is uncontrollable, especially in an era of lower demand for mail.
All told, these reforms would cost American taxpayers around $16 billion — far less than the massive bailouts proposed to date. And unlike them, they actually would fix the agency’s structural deficit, grow USPS revenues, lower its costs, and alleviate its debt load. Compared to the more than $2 trillion in Covid-19 aid enacted to date, $16 billion is a drop in the bucket.
The U.S. Postal Service is too big to fail. We all depend on it more or less, and so long as the coronavirus is around, we’ll be especially reliant on it.