The United States Postal Service faces a major policy shakeup at a time when package delivery has become more central to Americans’ lives than ever.
A growing reliance on e-commerce has driven demand for direct-to-door shipping for everything from textbooks to toothbrushes. And to the casual observer, USPS is playing what looks like a seamless part in the process, with more and more packages delivered the “last mile” to customers’ doors by government workers.
But future retirement costs are snowballing and traditional letter mail has dropped drastically since 2006, when Congress made its most recent effort to modernize the mail delivery system and fix its finances. Package revenue is growing at a steady clip, but it pales in comparison to the cratering in letter mail volume. Combined with nearly $150 billion in unfunded liabilities facing the agency, USPS could face a taxpayer bailout and a possible radical drop in services if lawmakers don’t act.
President Donald Trump’s December task force report makes a strong pitch for a legislative overhaul. The report, released Dec. 4, said Congress and the executive branch should change how the mail carrier operates to increase revenues and remain off the taxpayers’ back for unpaid-for debts. While not calling for outright privatization, the report suggests the White House is looking to shake up the agency’s labor and business models to cut costs and increase efficiency.
The stakes with a collapse of the Postal Service are profound. Seniors could lose steady access to prescriptions, companies’ shipping models could be disrupted and retirees and employees could lose out on health care, income and wages if the USPS is forced to cut costs to meet retirement demands. Without sufficient cuts or additional money raised, taxpayers could be on the hook to pay for billions in deferred retirement and health liabilities after years of Congress doing nothing.
“It’s the 21st century and the Postal Service is basically a 20th century paper-toting entity. You adapt or you die,” says Kevin Kosar, vice president of policy for R Street Institute, who has written on Postal Service finances.
Year after year the agency continues to end up in the red. USPS reported a $3.9 billion loss for fiscal 2018 in mid-November, marking the 12th consecutive year of net losses. That was largely blamed on a 3.2 billion piece drop-off in letter mail. As a result, USPS missed $6.9 billion in payments for pension and retirement health benefits for the most recent fiscal year. Despite being required to make the payments by law, USPS hasn’t made them since fiscal 2010.
“Growth in our package business will not offset the continuing declines in our mail business. . . . Simply put, absent legislative and regulatory change, we cannot generate enough revenue or cut enough costs to pay all of our bills,” said Postmaster General and Chief Executive Officer Megan J. Brennan in a Nov. 14 call with reporters on the financial results.
USPS receives no tax dollars for operating expenses and relies on sales to fund operations. But that could change — and service could get a lot more expensive and less reliable as a result — if the federal government doesn’t step in. Already in rural areas, residents are stuck feeling the effects of a decline in letter mail instead of a package delivery renaissance, triggering frustration so severe it’s reaching Washington.
In its approximately 70-page report, the White House broadly recommends changes to the carrier’s employee compensation, business models, and debt restructuring. The report didn’t call for the outright privatization of the mail carrier; rather, it emphasized a need to change the business model so that “correcting the failures and inefficiencies” of the private sector.
Changes by Congress and internally through the administration of USPS would allow, the task force wrote, for the generation of more revenue from commercial mail products to defray the costs of essential service, such as delivering prescriptions to residents in rural America who have no other viable option for getting their mail.
Besides the report, the federal government has fired multiple warning shots this year that change is coming. USPS has also set a number of postage increases that go into effect Jan. 27 in an effort to boost revenue.
Meanwhile, Congress has been hard at work pushing two bipartisan overhaul bills through committee in the House and Senate in 2018. But the election and the president’s sudden interjection into a policy debate that’s been raging for years has unexpectedly changed the stakes.
It’s not an easy problem to solve. Annual operating revenue of nearly $70 billion represents a massive volume of mail that is supposed to pay for operating costs. But time is running out: the nation’s mail carrier is on track to drain all available funds stocked away for retiree health care by 2030. That’s why a future scenario where the agency has to pay benefits on an as-needed basis could trigger a financial meltdown that leads to higher prices and worse service.
In the House Oversight and Government Reform Committee, ranking Democrat Elijah E. Cummings of Maryland and Government Operations Subcommittee Chairman Mark Meadows, a North Carolina Republican, have been pushing for a fix. Meadows identified retooling of the system as a top priority after the exit of the postal overhaul’s (HR 756) original sponsor, GOP Rep. Jason Chaffetz of Utah, who resigned from the House earlier in 2018.
In the Senate, Delaware Democrat Thomas R. Carper has authored similar legislation (S 2629) with powerful co-sponsors: Democrats Heidi Heitkamp of North Dakota and Claire McCaskill of Missouri, as well as Republicans Jerry Moran of Kansas and Roy Blunt of Missouri. But two major advocates for a change — Heitkamp and McCaskill — were just voted out of office.
Conflict between Congress and the White House could complicate an overhaul.
Cummings, in line to become Oversight and Government Reform chairman in January with Democrats in the majority, railed against Trump’s sudden postal focus at a committee hearing in June.
“Instead of working with us, President Trump unilaterally appointed a task force to come up with his own ideas about the Postal Service,” Cummings said.
The Government Accountability Office has been ringing the alarm bell for years, placing the agency on its “high risk list” and issuing a damning report about the retiree funding cliff in August. According to that report, USPS had about $149 billion in unfunded liabilities and debt at the end of fiscal 2017: $62.2 billion for unfunded retiree health benefits, an estimated $42.0 billion for pension benefits, $17.9 billion for workers’ compensation and $11.9 billion for other liabilities, as well as $15.0 billion in outstanding debt — the statutory limit. There’s slightly more flexibility now as the agency paid down $1.8 billion in debt in fiscal 2018, with another $2.2 billion payment scheduled in fiscal 2019. The White House’s task force report, which is slightly more updated with the inclusion of fiscal 2018 data, puts total unfunded liabilities slightly lower at $139.6 billion, $43.5 billion of that for pensions.
Trump’s task force establishment was accompanied by other signs that he wants a big shakeup. The administration proposed privatizing the agency as part of a governmentwide reorganization proposal released in June.
On Twitter, he’s chided USPS as Amazon’s “Delivery Boy,” and suggested the online retailer is ripping off the Postal Service to ship on the cheap. The president has also personally lobbied the postmaster general to raise rates on Amazon, according to multiple reports earlier this year.
Trump’s inclination isn’t outrageous — that private industry might be benefiting more than what it’s paying for the convenience of a national mail system designed to reach every door. Other lawmakers, Republican and Democrat, are suspicious of the same.
But Trump’s basic assumption is incorrect, as turning a profit on package delivery is required under law.
And the conflict represents a larger problem the Postal Service seems to encounter at every policy turn: There’s a general misunderstanding from those who can make a change about what numbers are actually important to turn things around.
For example, part of why the financial mess is so big now is that in 2006, with e-mail taking a bite out of traditional letter delivery, lawmakers grew concerned about USPS’ ability to pay retiree benefits but ended up contributing to the agency’s financial difficulties.
In the 2006 law, Congress required an aggressive prepayment schedule for future retirement benefit costs to ensure that there would be enough to meet pension and health obligations while USPS took steps to become more competitive with the private sector. On paper, it looked like a cost-free fix as well, something that lawmakers are always looking for: The law required USPS, technically an “off-budget” agency,” to park nearly $56 billion in prepaid health benefits over a decade into a new “on-budget” fund, magically creating revenue the Congressional Budget Office “scores” as an offset for other spending in the bill.
Nonetheless, within a few years, USPS found itself unable to make the required prepayments, missing $38.2 billion in required prepayments for retiree health care from fiscal 2010 to fiscal 2017. That occurred after the agency hit its $15 billion statutory debt limit, in part by borrowing billions for the benefit payments that were later halted.
Postal Service data tell a story of declining mail volume followed by a paring down of the agency’s facilities to cut costs. Package growth is a rare bright spot. And the White House report quickly received an unwelcome response from a major group of online shippers that utilize USPS’s package business.
For one, there’s been a big drop-off in the postal physical footprint. USPS data show that from 2006 — when Congress last approved a major overhaul of the system — to 2017, the number of post offices with individual postmasters — the building blocks of the local mail system — was reduced by just over 900, from 27,318 to 26,410.
Factoring in other facilities such as branches and stations that the agency doesn’t officially call post offices, retail locations have shrunk by more than 2,300 just since 2008.
And mail volume has tanked, with the annual number of pieces handled now approximately 63.6 billion below the flow in 2006.
Letter mail seems to have stabilized somewhat — annual mail volume has hovered around 150 billion pieces for the past five years although it still fluctuates, as the fiscal 2018 results showed.
But USPS notched an organizational record for the most packages delivered in a single day in December 2017, at 37 million.
Some stakeholders, including American Postal Workers Union President Mark Dimondstein, don’t think the projections are as grave as the reports imply — as long as Congress fixes the problem it created, and soon.
“There are challenges, there’s no question that first-class letters are less, but our saying is the internet taketh and the internet giveth,” Dimondstein says. “The Postal Service is a wonderful service — it belongs to the people of the country, and it is the low-cost anchor of the package delivery system.”
As mail volume has dropped off, package services are making up an increasing portion of USPS’s business, with the latest results in fiscal 2018 showing package delivery contributed $21.5 billion of the total $70.62 billion in revenue.
That’s a big contribution to the agency’s bottom line. In 2017, USPS reported that packages contributed $7.15 billion after factoring in expenses.
“If you look at what the Postal Service does . . . packages are the most profitable piece of its business,” says John McHugh, spokesman for the Package Coalition and a Republican former congressman from New York who worked on the 2006 Postal Service law.
“If you’re interested in doing something to help the Postal Service to become more financially stable, the last thing you want to do is negatively impact that one positive portion of the Postal Service’s business,” McHugh says.
The Package Coalition is a group of major business interests, including Amazon, Express Scripts, the Columbia Sportswear Company and the National Retail Federation. It formed this summer in anticipation of postal legislation moving along with White House action.
Following the Dec. 4 report’s release, the coalition issued a statement bristling at task force suggestions: “… by raising prices and depriving Americans of affordable delivery services, the Postal Task Force’s package delivery recommendations would harm consumers, large and small businesses, and especially rural communities,” McHugh said in the statement.
In contrast, those shipping everything but packages fear a parcel fixation will prevent a larger overhaul of the agency’s letter business, which operates at a loss even before retirement liabilities are considered.
Broadly, the House and Senate bills target the same issue: eliminating required prefunding for retirement health and pension benefits. Both bills propose to require health benefit recipients enroll in Medicare to cut costs.
House and Senate bills would also make permanent half of a price increase USPS imposed during the recession to recoup economic losses that expired in 2016. And USPS would be allowed to offer more “nonpostal” services to increase revenue, such as providing public internet access, check cashing and notary services. The Senate bill also proposes to expand shipping alcohol through the mail.
“The main thing we wish now is that the Postal Service would do things to retain the customers that they have and even grow the volume of mail because it needs a certain critical mass to survive as the nation’s universal mail service,” says Stephen Kearney, executive director of the Alliance of Nonprofit Mailers, who worked at USPS for 33 years.
Kearney estimates nonprofit mail makes up to 10 percent of annual deliveries. But rising mail costs could lead some nonprofits to stop using mail for fundraising and other activities, further eroding volume, he says.
For Kosar of the R Street Institute, the federal government must adapt or risk losing one of its oldest communication networks.
“The public and Congress need to wake up to the fact that all signs point to the Postal Service being at a high risk of financial collapse,” Kosar says.