Debunking the Postal Service “Default”
The U.S. Postal Service is about to miss another big payment, but don’t be fooled by those who want to use this “default” to justify efforts to dismantle a delivery network that underpins U.S. economic growth. On Sept. 30, for the second time in as many months, the Postal Service will not make a $5.6 billion payment to the Treasury Department and nothing will happen.
Postal workers will continue to serve individuals and businesses in every corner of the country. Post office doors will remain open. The Postal Service will still pay its bills.
This “default” is not a crisis. While the Postal Service does face serious operational challenges, 75 percent of its losses for the first 10 months of the fiscal year are a direct result of an unnecessary congressional mandate requiring the Postal Service to “pre-fund” future retiree healthcare 75 years into the future. This payment is not required of any other company or agency in the country. Meanwhile, USPS also is forced to overfund its pensions.
No one disputes the need to adequately fund retiree health benefits. That is not the issue. But this mandate undermines the Postal Service without providing any real benefit to future retirees. By mandating these payments, Congress has forced the Postal Service to spend more time addressing a congressional accounting gimmick than on developing a real plan to restructure and reform USPS for future growth and success.
Even worse, some in Congress are using this manufactured “crisis” to promote legislation that would cut mail service, slow deliveries and eviscerate an institution that has served Americans and the U.S economy well for more than 230 years. That is the real crisis.
Here are the facts:
- In 2006, Congress passed legislation that required USPS to pre-fund – within 10 years – most retiree healthcare benefits for the next 75 years. It was an accounting gimmick adopted to comply with short-term budget scoring rules that applied to legislation at the time. The resulting annual payments have cost the Postal Service $31 billion, accounting for more than 80 percent of its red ink since 2007.
- The Postal Service is the only U.S. institution – private or public – that is required by law to set aside money for future retiree health benefits. Some private sector businesses choose to do so, but at much lower levels than the congressional mandate for USPS. The Postal Service already has set aside $45 billion for future retiree health benefits – more than any other organization in America and enough to pay for decades of future retiree healthcare. In addition, Postal Service pension funds are overfunded by tens of billions of dollars.
- The Postal Service’s “default” will not have any impact on pension or healthcare benefits of current retirees. These costs are covered as part of the Postal Service’s operational budget.
- As a direct result of the pre-funding mandate, the Postal Service has reached its debt limit. In 2005, before pre-funding, USPS was debt free. Today, it holds $15 billion in debt – all of which is traceable to the congressional accounting gimmick.
Congress should address the pre-funding burden and give USPS more freedom to innovate and explore new business opportunities. The Postal Service is not a dying institution; it remains a vital part of our country’s social and economic fabric – delivering more than 550 million letters and packages a day. It can evolve to serve a changing society – as it has done throughout its history – if it is given the opportunity to develop a forward-looking plan to address its challenges in a strategic way. But it can’t do this by cutting services in a panic, simply to address an artificial crisis.