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It's Time to Have a Serious Conversation About USPS Reform

10/22/2020

The U.S. Postal Service (USPS) has been a big focus in national politics in the months ahead of the 2020 presidential election. The USPS’s significant fiscal problems are long-standing and well documented. Mail volume has steadily declined to 142.6 billion pieces in FY 2019 from 213.1 billion in FY 2006. The USPS, which is a self-funded entity by law, hasn’t posted a budget surplus, or profit, since FY 2006 and reported a loss of $8.8 billion in FY 2019, which ended months before COVID-19 hit the United States.

Through FY 2019, the USPS’s operating deficit was nearly $75 billion and, according to the Government Accountability Office (GAO), has long-term unfunded liabilities of $161 billion. These funded liabilities represent several different items, including unfunded liabilities for pension benefits, health benefits, and outstanding debt.

With the election soon behind us, one hopes that Congress will be serious about fiscal problems facing the USPS and begin considering reforms to bring the USPS into the 21st century. Putting the USPS on the backs of the taxpayer through subsidies and bailouts is not the answer. Structural reform is the only way to address the USPS’s fiscal problems.

With COVID-19 hitting the United States, Congress did step in to help. Back in March, Congress extended the USPS a $10 billion line of credit in Section 6001 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. An agreement on the terms of the loan was reached at the end of July. The USPS noted in its third-quarter filing that it had “sufficient liquidity to continue operating through at least August 2021.” However, the USPS added separately that the loan “merely postpones the impending liquidity crisis and the borrowings must be repaid in a period where cash shortages are forecasted.”

Division A, Title III of the Heroes Act, H.R. 6800, passed by the House in May, would provide $25 billion for “revenue forgone due to the coronavirus pandemic.” This funding would be available to the USPS through September 30, 2022. The $25 billion that Democrats want for the USPS is equal to 35 percent of USPS revenues for FY 2019. The funding came with a mandate that the USPS purchase personal protective equipment (PPE) for USPS employees, as well as required additional cleaning of USPS facilities and delivery vehicles. The Heroes Act wasn’t considered on the floor of the Senate, although Democrats did attempt to pass it by unanimous consent, an effort which was unsuccessful.

In August, the House returned to Washington for a day to consider the Delivering for America Act, H.R. 8015. This legislation was proposed in response to reasonable and necessary operational changes proposed by Postmaster General Louis DeJoy, who subsequently suspended the changes after congressional Democrats complained and the media backed them up with negative press about the changes.

Section 3 of the Delivering for America Act appropriated $25 billion to the USPS, with no strings attached. The bill also would prohibit any operational changes to the USPS through January 2021 or the end of the public health emergency declared by the Secretary of Health and Human Services on January 27, 2020, whichever date comes later. The Delivering for America Act wasn’t considered in the Senate.

In September, before the House adjourned for the election, the House passed an updated version of the Heroes Act, H.R. 925. Division A, Title V of Heroes 2.0, as it was called, gave the USPS $15 billion “revenue forgone due to the coronavirus pandemic,” available through September 30, 2020. Like the original version of the Heroes Act, there was a mandate that money be used to “prioritize the purchase of, and make available to all Postal Service employees and facilities, personal protective equipment, including gloves, masks, and sanitizers, and shall conduct additional cleaning and sanitizing of Postal Service facilities and delivery vehicles.”

Given the weight of the USPS’s fiscal woes, reform is a necessity. Here are some ways Congress can address the USPS’s responsibility. This is by no means exhaustive, but these reforms would put the USPS on the right track.

Currently, the USPS delivers the mail six days a week, Monday through Saturday, excluding federal holidays. Back in 2011, the Obama administration first proposed allowing the USPS to reduce the number of service days to five. The administration proposed the reduction in services days as recently as its FY 2015 budget proposal (see page 1362). The proposed move, along with other proposals, was an effort to save the USPS money.

Earlier this year, the GAO pointed to the New Zealand Post as a foreign example of reducing mail delivery days as mail volume declined. The New Zealand Post reduced urban service to three days and rural service to five days. Germany may consider reducing Deutsche Post's service days because of declining mail volume.

Congress, of course, would have to give the USPS the statutory authority to reduce the number of service days at the USPS’s discretion. The National Association of Letter Carriers and the National Rural Letter Carriers’ Association opposed the reduction in service days.

Another issue is cross-subsidies. The USPS isn’t supposed to use its monopoly services (mail) to subsidize its package service to compete unfairly with private carriers like the United Parcel Service (UPS) and Federal Express (FedEx). In fact, the prohibition on cross-subsidies is law in 39 U.S.C. 3633(a).

The USPS’s package service is the most popular service offered. As Chris Edwards of the Cato Institute explains, “The USPS is becoming less of a mail company and more of a package company. In 2018, first‐​class mail revenues were $25 billion and falling, while shipping and package revenues were $22 billion and rising. The future is on the package side of USPS’s business, and the best way to embrace that future is with a privatized corporate structure.”

The USPS, however, is giving its package service an advantage by cross-subsidizing it. A 2015 study by Robert Shapiro found that USPS does use its monopoly on mail to subsidize its package service through several benefits that it has (including property tax exemptions, gas tax exemptions, and toll exemptions) over its competition, which, as the study explained, “artificially distort the prices and returns on private sector delivery services by diverting demand from more efficient and otherwise lower-cost providers to the USPS’s competitive operations.”

Shapiro wrote, “[T]he best way to end these crosssubsidies and promote a more efficient and innovative marketplace is to separate the USPS’s two business lines into separate entities that do not share facilities, equipment, workers and financial assets.”

Congress must reinforce the law by forcefully prohibiting cross-subsidies and requiring separate and transparent accounting for the USPS’s monopoly services and its packaging and shipping service.

The USPS’s unfunded liabilities are a big focus. USPS employees tend to earn more than private-sector workers. Shapiro’s 2015 study notes that “the average USPS employee receives about $18,700 more per-year in total compensation than the average American private-sector employee.” Although we disagree with proposals to end the pre-funding requirement for Postal Service Retiree Health Benefit Fund (RHBF), we do believe that Congress should move away from defined benefit pension plans to defined contribution plans. This will help get the USPS’s labor costs, which are three-quarters of total costs, under control.

The Coalition for a 21st Century Postal Service proposed several reforms in a recent letter to the House Oversight and Reform Subcommittee on Government Operations Chairman Gerry Connolly (D-Va.) and Ranking Member Jody Hice (R-Ga.). We share many of the recommendations in this letter, including permitting market investments of pension and health retirement funds, co-locating services for all levels of government to post offices, and allowing advertising on post offices and post office vehicles.

That said, we oppose some of the recommendations of the Coalition for a 21st Century Postal Service. We strongly disagree with ending the pre-funding retirement for the RHBF. As we mentioned in our key vote against the USPS Fairness Act, H.R. 2382, the RHBF faces $70 billion in unfunded liabilities. Eliminating this pre-funding requirement sets taxpayers up for a bailout of the RHBF when the fund is depleted in FY 2030. We also strongly disagree with any emergency appropriations for the USPS like were proposed in both versions of the Heroes Act.

The reforms mentioned in here aren’t the only ideas that have been proposed, and we are open to many of these ideas to help bring the USPS back on a sustainable path. Congress should not, however, subsidize the USPS with taxpayers dollars. Bringing the USPS into the 21st century should be the goal.