Most Americans by now have heard via numerous press accounts that the United States Postal Service (USPS) is on the brink of default in the absence of Congressional action. Now this does not mean that the mail system is going to shut down all of a sudden. It means that the Postal Service will violate the law by not making its $5.5 billion debt payment to taxpayers for the unfunded liability of providing federal healthcare benefits to its workers. Accordingly, USPS is asking Congress to both relieve them of this payment (a bad idea and something conservatives have fought for years) and untie their hands to cut some of their costs (a good thing). Fortunately, Darrell Issa, the Chairman of the Government Reform and Oversight Committee with jurisdiction, is fully engaged with trying to prevent the former and pursue the latter.
Issa deserves tons of credit. It is a thankless task to try and reform the Postal Service when its threatening to shut its doors and every local postmaster is whining to their local congressman to forestall the doom. Furthermore, nobody comes to Congress with a burning passion to take on postal reform, and very few committee chairmen are willing to spend their political capital to reform programs within their jurisdiction in a manner that ultimately lessens their power. In fact, former chairmen like Tom Davis repeatedly put forward “reform” bills that were bailouts by another name, designed to placate the labor unions and corporations that benefit from artificially cheap mail.
Thankfully, Issa has said enough. He told his colleagues there would be no more bailouts and proposed reforms to allow USPS to shed costs and compete without federal assistance. But this promises to be a major fight, and it will be interesting to see how a Republican Congress handles this difficult political football.
As stated, the source of much of the controversy are these debt payments and whether they are fair to USPS. First some history. In 1970, USPS was converted from a federal agency into a quazi-private, self-financed entity (think Fannie and Freddie without the upside) where it would have the benefit of the system’s assets but also the responsibility of its liabilities. However, this principle has not kept the Postal Service from being relieved of its liabilities through the years—or being bailed out in the language of most Americans. In 2003, Congress and USPS came up with a nifty way of disguising these bailouts. They decided that USPS had “overpaid” into the Civil Service Retirement System, meaning that it would overpay its pension obligations many years from now if everything held steady at current rates and market conditions. But since lowering USPS’ pension payment by itself would have resulted in a huge loss to the Treasury and a resulting increase in the deficit, beyond what even the bill’s sponsors could justify, they put the money in an escrow account within the Treasury until they could figure out what to do with it. Of course, that didn’t stop them from letting $7 billion in walking-around money seep to the Postal Service to do whatever it wanted with.
In 2006, Congress required USPS to direct most of the “overpayment” to prefunding its large unfunded liability stemming from the cost of retiree health care costs (while again giving USPS a couple of billions in bailout money to subsidize their operations) that taxpayers would otherwise have to cover. It is this prefunding requirement that has become the bane of every USPS defender and, in their talking points, the source of all of its current woes. Each year, they call for this requirement to be waived or loosened, and in 2009, Congress obliged. The main House bill (with its cosponsors) to bail out USPS is here.
Issa is proposing instead to reform the Postal Service and control its costs, namely excess infrastructure and excessive labor costs. The Postal Reform Act (H.R. 2309) creates a Postal Reorganization Commission similar to a military base realignment commission to shutter $1 billion per year in post offices, $1 billion per year in mail processing facilities, and 30% in management facilities. H.R. 2309 allows the Postal Service to shift to 5-day delivery and brings its retirement and health benefits down to the level of federal workers, which is generous considering federal workers have much better benefits than the private sector. Importantly, it also creates a Solvency Authority with broad authority to return USPS to financial solvency in the event of a default. The Authority could renegotiate expensive collective bargaining agreements or unilaterally make changes in the absence of an agreement. It’s not perfect—the Authority would have to abide by the principle of “universal service” and have access to an additional $10 billion line of credit to the Treasury with USPS property acting as collateral. But overall the Postal Reform Act is the first postal reform bill in recent memory that lives up to its own title. Its starts from the worthy premise that costs need to be controlled and the Postal Service doesn’t need a bailout.
At the end of the day, however, Congress needs to catch up with the rest of the country and realize that in a world of electronic mail, the Postal Service’s moment in the sun is over. It’s time that it be allowed to join and compete on equal footing with the private sector and be spun off completely from the federal government. It should be relieved of its universal service mandate and government-sanctioned monopoly. It should also be allowed to compete without an act of Congress. In short, it should be completely privatized. H.R. 2309 is a commendable step in that direction, but we must not lose sight of our ultimate destination because the country may be ready to get there sooner than we think.