In the past three months, the U.S. Postal Service has defaulted twice on payments it owes the federal government and reached its $15 billion borrowing limit from the U.S. Treasury. In short, USPS now owes a total of $11.1 billion that it does not have, and has no financial cushion should its revenues dip.
These developments are flashing warning lights. They not only dig the service deeper into a financial hole that only Congress can help it climb out of, but they erode business confidence in the postal system’s future. As customers’ confidence declines, more mail will be pulled from the system, worsening USPS’ condition.
The Postal Service’s importance to the economy is often overlooked, but beyond delivering to every American everywhere, USPS serves a mailing industry constituting 7 percent of GDP. It’s a $1 trillion cog in the wheel of commerce, delivering everything from statements to publications to prescriptions to packages of goods ordered online, and continuing to be the most affordable means of small-business advertising. More than 8 million private-sector jobs depend on it, including mail users and the paper, printing and technology industries that supply them.
With losses mounting and defaults piling up, there is great urgency to reform the Postal Service. Unfortunately, the House of Representatives adjourned until the “lame duck” session without voting on a postal reform package. The Senate passed a comprehensive postal bill last April.
A solution will not be easy; the Postal Service already is cutting costs substantially, but far from enough. Congress must act on many of the common-sense steps already incorporated in House and Senate bills to put the Postal Service back on a path to prosperity.
First, USPS must be streamlined and restructured; it is too large and costly for its current amount of mail. We’ve seen encouraging steps from USPS in closing processing facilities and revising plans to shutter rural post offices in order to address public and congressional concerns. Many rural post offices will now remain open on a part-time basis or with postal services consolidated inside other local businesses, such as grocery stores.
In paring down its network, USPS must continue to provide universal service to every American, even while wringing substantial savings out of restructuring. This is a tough balance to achieve, but it can be done if Congress provides more flexibility to downsize.
Second, Congress must reform the Postal Service’s pension system and return money that USPS has overpaid into the Treasury. Postal overpayments into the Federal Employees Retirement System total some $13 billion. Returning this money to the Postal Service would allow it to fund a large-enough number of early-retirement incentives to enable the necessary reduction in its stubbornly high — 80 percent — and no-longer-affordable personnel costs, as well as for other uses, such as paying down its debt to the Treasury.
Third, the collective-bargaining process between USPS and its unions must be examined and reformed. For example, if the Postal Service and a union cannot reach an agreement, arbitration is used to resolve disputes. However, arbitrators are not required to consider the Postal Service’s overall financial condition in reaching a decision. This has permitted the bypassing of a hard economic fact of life, and placed USPS in further financial peril.
Fourth, it is essential to reform the devastating retiree health care prepayments that the Postal Service must make. These prepayments are the source of the agency’s $11.1 billion in defaults over the past two months, and a major contributor to its precarious financial condition overall. The payments set by Congress are too high, and the Postal Service cannot meet them. Congress should stretch the payments out over 40 years instead of the 10 years under current law. The Senate made this a centerpiece of its postal reform legislation, and the House should follow suit.
Finally, compromises on complicated issues, such as the one in the Senate bill concerning Saturday delivery, are essential.
USPS is surviving on razor-thin margins; the defaults are a clear indicator that it is living paycheck to paycheck. Any turn for the worse financially could jeopardize its ability to deliver the mail. But that won’t happen if Congress acts soon.
Art Sackler is co-coordinator of the Coalition for a 21st Century Postal Service, which represents businesses and industries that rely on the mail service.