Committee for a Responsible Federal Budget

The Postal Service's Woes Continue

Aug 1, 2012 | Other Spending

The United States Postal Service (USPS) is slated to default on a $5.5 billion dollar payment to the United States Treasury tonight at midnight, underscoring the continued financial turmoil and budgetary insolvency of government-managed programs. The impending default marks the inevitable culmination of a turbulent several years for the USPS, which has borne the debilitating effects of a post-recession economy and a dramatic reduction in mail delivery volume in light of the rise of the Internet. For now, the default will not affect the USPS's operations or its retiree health benefits, since the benefits are currently funded, but it spells trouble for the future.

One reason for the USPS's woes lies the Postal Accountability and Enhancement Act, a bill enacted by Congress in 2006 that commanded the Postal Service to make annual multi-billion dollar payments for a period of ten years as an outlay for future healthcare plans for retirees. According to The New York Times, postal workers cited this as a “major reason for the postal service's financial crisis,” causing the USPS to lose over $20 billion over the past four years. What made sense in the pre-recessionary bullish economic climate in which this bill was passed six years ago now seems to be propelling the Postal Service down an unsustainable path. In addition to today’s turmoil, the USPS is expected to default on a payment of another $5.6 billion on September 1. Payments of about this magnitude are made annually and will continue to be made until 2016, but the USPS has to make two payments this year to make up for one that was delayed last year.

Like with our overall fiscal issues, Congress has been unable to come to an agreement on a plan to solve the Postal Service's financial problems. While the Senate passed a bill that would infuse over $11 billion dollars into the agency to help it avert imminent default back in April, the House has so far not acted on USPS reform beyond the committee level. In an op-ed today in POLITICO, Rep. Elijah Cummings (D-MD) urged House leadership to take up the Senate's bill.

In terms of budgetary effect, the House bill (HR 2309) that has not yet passed the full chamber saves $20 billion while the Senate bill (S. 1789) costs $6 billion.

2013-2022 Savings/Costs (-) in Postal Reform Bills (billions)
 House BillSenate Bill
Authorize Five-Day Delivery Week$21$9
Transfer of Retirement Contributions$0$0
USPS Changes in Spending from Changes in Retirement Contributions-$5-$6
Changes in Payments to Retiree Health Benefits Fund$0$0
USPS Changes in Spending from Changes to Health PaymentsN/A-$11
Increased Credits to People Who RetireN/A***
Elimination of Annual Appropriations$1N/A
Payment from Alaska$1N/A
Change in Mail Service Rates***N/A
Changes to Workers' CompensationN/A***
Total Savings$20-$6

Source: CBO

***Less than $500 million

Though the post office has advocated reducing working hours, closing more than 13,000 post offices, and close half of its processing centers, the agency would continue to lose money in the future after running up a $25 billion deficit since 2007. This fiscal year alone, the agency has lost over $25 million a day and expects to lose over $14.1 billion annually.

Back in October, we offered a few suggestions on how to save the Postal Service from bankruptcy. As default approaches quickly, it is more important than ever for Congress to consider the options before them and to take a strong stance on reforming the USPS in ways that both cut down on frivolous spending and open channels for increased revenue. Congress will need to make the difficult decisions and compromises to ensure the vitality of the Postal Service into next year and beyond.