This week, the House of Representatives is expected to pass H.R. 3076, the “Postal Service Reform Act.” This bipartisan compromise legislation is described as “landmark legislation” that makes “foundational reforms” to ensure the United States Postal Service (USPS) is on the road to fiscal stability and financial viability for years to come. While NTU would not characterize H.R. 3076 as either “landmark” or “foundational,” H.R. 3076 is perhaps the most serious attempt at postal reform in nearly two decades, and members of Congress from both parties deserve praise for starting this overdue conversation. Unfortunately, much more work lies ahead on enacting the meaningful structural reforms to USPS that taxpayers need.
Lawmakers are advancing a 70-page postal reform bill because the financial condition of the USPS is dire. Despite maintaining a government-granted monopoly over the delivery of first class mail, the USPS has not been profitable for the past fifteen years. As a result, the Postal Service has required a draw of $93 billion from the Treasury in order to cover fifteen years of collective deficits. Due to these steep losses, alongside $140 billion in unfunded liabilities and general debt, the Government Accountability Office (GAO) regularly labels the Postal Service “high risk.” Without structural changes, USPS will continue to rely on multibillion-dollar infusions from taxpayers in order to remain solvent. In fact, the GAO noted in a report from May 2020 that “USPS's financial viability has been on our High-Risk List since 2009 due to the need for action to address USPS’s poor financial condition. USPS cannot fund its current level of services and financial obligations from its revenues.”
For many years government watchdogs such as NTU have sounded the alarm bells that on its business-as-usual trajectory, USPS would not be economically viable in the 21st century. In the end, USPS needs reform, not bailouts that kick the can marked “insolvency” down the road toward the not-so-distant future.
A direct monetary bailout of the Postal Service is absent in H.R. 3076 - a welcome change from previous USPS “reform” bills - but taxpayers should be aware that this legislation does provide major leniency for many established USPS obligations. Though there are some positive changes that would marginally improve its financial situation, over a relatively short period of time those positives could be overwhelmed without timely additional action from Congress. The USPS is meant to operate under a model of “self sufficiency,” and if this is to be achieved over the long run, lawmakers would be wise to utilize the debate time for H.R. 3076 to discuss next steps now, before the bill-signing ceremony pronounces the Service’s problems as miraculously “solved”..
As the House moves toward passage, NTU offers our take on the strengths and weaknesses within the Postal Service Reform Act, and other reforms that would meaningfully address the structural challenges at USPS.
Weaknesses
Scraps the Pre-Funding Mandate. Perhaps the most concerning provision within H.R. 3076 is the complete elimination of the pre-funding requirement. For the uninitiated, postal reform legislation enacted in 2006 (P.L 109-435) requires the USPS to pre-fund its retiree and health benefits to guarantee that the benefit will be there when current employees are eligible to draw on them in the future. Keeping the pre-funding requirement protects current and future employees by not deferring payment of retiree health care costs later on when employees are already retired. Many opponents of prefunding payments claim it has hastened the decline of USPS’s financial condition, but this is not true. Even though the USPS is required by law to pre-fund its retiree and health benefits, over just the past eleven years, it has failed to pay an estimated “$51.9 billion in payments to the fund since 2010, and the fund’s balance is declining” according to a September 2021 GAO report. NTU supports a pre-funding requirement to tackle the future tidal wave of benefit payments that will come due in the not-so-distant future.
While it may be prudent to adjust the pre-funding levels or frequency of payment, it is short-sighted to end the provision completely. In fact, according to a December 2018 report from the Task Force on the United States Postal System, the task force “does not believe that this general policy should change or that the liability for USPS retiree health benefits should be shifted to the taxpayers.” USPS’s defenders claim that pre-funding is an unfair burden to bear, but from the taxpayer’s perspective, more agencies and government-chartered entities should be concentrating attention on this type of planning (as one component of the DoD did with its retirement systems). Although USPS’s retirement system is not devoid of all sound actuarial practices, it is not subject to certain requirements for private-sector plans like ERISA and Pension Benefit Guaranty Corporation premiums. Reverting back to the old PAYGO ways would not help USPS make the suitable payments into the necessary funds that can help to offset the lack of those protections.
Codifies Six Day a Week Mail Delivery. H.R. 3076 removes delivery flexibility by codifying a requirement that USPS deliver mail to all addresses six days per week. Though package volume has increased due in large part to online shopping at the height of COVID-19, its most profitable mail services - first class mail, marketing mail, and standard mail - have declined substantially and are expected to fall further. Consequently, with fewer letters and potentially fewer packages as the pandemic dissipates, the high frequency of delivery may not be justified. As a result, the additional day of delivery may not be worth the cost and USPS should instead have the flexibility to reduce the number of delivery days, in consultation with all stakeholders. According to the 2018 report of President Trump’s Task Force on the Postal Service, elimination of Saturday mail could save as much as $1.5 billion annually.
Integrates USPS Health Obligations Into Medicare. Another provision within H.R. 3076 that raises long-term concerns is the offloading of USPS obligations onto the federal government, notably Medicare. The Postal Service currently offers health care benefits to employees and eligible retirees through the governmentwide Federal Employees Health Benefits Program. This legislation would require most USPS employees and retirees to sign up and enroll in Medicare when eligible. This would increase postal retirees’ level of participation, which is currently estimated to be 92 percent of workers enrolled in Medicare Part A with only 76 percent of workers enrolled in Medicare Part B. By requiring additional participation in Medicare, it would shift primary responsibility for covering certain health care services to Medicare instead of USPS. Requiring retirees to use Medicare would decrease the USPS costs but increase Medicare’s costs, according to the GAO.
Some would argue that this shift might benefit taxpayers in the short run, since USPS health benefits (sometimes more generous than Medicare) would become a future taxpayer liability anyway. But since the Trust Fund that supports Medicare is nearing insolvency, burdening Medicare with even more obligations could hasten its decline. This provision is simply moving the massive financial obligations off of USPS’ books and onto the federal government - an unfair ask of taxpayers already suffering from a federal debt level that just passed $30 trillion.
Strengths
Codifies USPS Performance Targets. Perhaps the most pro-customer reform contained in H.R. 3076 is the requirement that USPS report performance information for market-dominant products. This reform will help USPS identify inefficiencies within its delivery network and allow for the shifting of resources to ensure mail is delivered in the most efficient manner possible. USPS would also need to provide the PRC with annual performance metrics to ensure accountability.
Requires USPS to Identify and Implement Operational Reforms. From a taxpayer perspective, the best reform within the legislation is the requirement that the Postal Regulatory Commission (PRC) conduct a study on inefficiencies within the collection, sorting, transportation, and delivery of mail. PRC would then be required to rectify and correct each inefficiency listed in the aforementioned study. This would help reduce costs and therefore help USPS reach profitability in years to come. Taxpayers, USPS, and other stakeholders deserve to know concrete areas where the service can improve in order to keep the Postal Service accountable.
Twice Annual Study on Financial Condition of USPS. H.R. 3076 would require the Postmaster General to submit a report twice a year on the financial and operational condition of USPS, including actual mail and package volume and the effects of rate changes. More frequent reports documenting the Postal Service’s finances could help the Postal Board of Governors and the PRC make more timely decisions that benefit USPS’ bottom line. Like the aforementioned positive reforms, this will help identify and rectify broad inefficiencies.
Conclusion
While this bill does include some positive changes, it could have done much more. Labor costs, which are the most significant cause of excess expenses at the USPS at about 91 percent of revenue, are not addressed in this legislation. It also does not effectively address the need to close excess or underutilized facilities and post offices, which is also a significant source of costs. Without a BRAC-style process that requires regular evaluation of USPS’s excess real estate, progress in reducing this area of expense could be slow. The legislation wisely avoided the direct threat of encouraging USPS to offer financial services products, such as check-cashing or traditional banking, and creates more transparency around nonpostal services offered at post offices. However, taxpayers did not get any proactive statutory language prohibiting the practice. Members of Congress who want to put the interests of taxpayers first should speak up for more reforms now, while this legislation is being considered and USPS is under the spotlight.
It would be inaccurate to proclaim H.R. 3076 the culmination of postal reform. While it makes several improvements at the margins, it would not thoroughly protect taxpayers from a future bailout of USPS’ financial obligations. It is encouraging to see Congress address this subject in a bipartisan fashion, but the resulting bill is missing several comprehensive postal reforms that, sooner rather than later, taxpayers will need to avoid a massive shock to their wallets.