Return to Sender: The Postal Service Reform Act of 2016

Even to the most neutral observer, the United States Postal Service’s (USPS) financial condition is dire.  Notwithstanding it $18 billion annual advantage over other private sector companies (exemption from income; state local sales; and property tax exemption; power of eminent domain; monopoly control over mailboxes; and a $15 billion line of credit from the U.S. Treasury) the USPS has posted more than $50 billion in losses since 2007 and faces $125 billion in unfunded liabilities.  Regardless of how the USPS arrived at this position, there is a broad consensus that reform is needed.

The arrival of the digital era ushered in the widespread use of email.  Consequently, first-class mail volume, over which the USPS has a monopoly, has decreased by 40 percent since 2001 and will continue to evaporate.  The USPS blames this decline for most of its losses, although package volume has been increasing in recent years, likely due to the rise of e-commerce and online retailers.  Despite its $18 billion in special advantages, USPS has been unable to break out of its inflexible business model, transform its top-heavy labor force into a nimble mission-oriented twenty-first century workforce, or address its tsunami of retiree healthcare and pension liabilities.

House Oversight and Government Reform Committee Chairman Jason Chaffetz (R-Ohio) and Ranking Member Elijah Cummings (D-Md.) have introduced H.R. 5714, the Postal Service Reform Act of 2016, in an effort to open a path forward for the USPS.  However, like the USPS’s level of service (which appears to be getting worse), the reforms contained in the package range from tepid to ill-advised.

The current iteration of H.R. 5715 misses the mark in several areas:  it contemplates allowing the USPS to expand its broken business model into competitive non-postal products and services, demands postal rate increases on monopoly products, creates a new chief innovation officer (CIO), and shifts billions in retiree healthcare liabilities to Medicare (and taxpayers)

Provisions in the bill would allow USPS to move resources from delivering mail to providing non-postal services, such as banking and financial services (ironic, considering their own financial woes).  No federal government agency should be permitted to compete with established private-sector businesses, especially when it is struggling just to meet its core obligations, delivering the mail.  The USPS has a long and dismal track record when it comes to embarking on new ventures outside mail delivery and has absolutely no expertise in mature, highly complex economic sectors, such as financial services.  It’s time to put an end to the USPS’s fanciful commercial dabbling and pie-in-the-sky fiscal fantasies. 

Furthermore, its costs and revenue data lack transparency, even to its own regulator, which continues to make it difficult to determine whether the agency is cross-subsidizing between different classes of mail, a statutory no-no.  These new and unrelated services will not only fail, they will be a distraction to the real issues facing the USPS.

The bill would establish a brand new bureaucracy within the already bloated USPS management structure, the CIO, with an eye toward generating more revenue.  The USPS doesn’t need a CIO to create new and better ways to achieve its core mission.  It needs the flexibility to make smart management decisions about the deployment of its workforce, outsourcing functions that can be more efficiently and cost-effectively performed by private sector contractors, and divesting itself of its surplus bricks-and-mortar burdens, all prospective actions which have been stymied in the past, either by poorly-negotiated, rigid union contract rules, or congressional obstruction and meddling.  As with any new layer of bureaucracy, the CIO will grow his or her turf, add more bureaucrats at a time when the USPS should be winnowing its middle management bloat, and become another losing cost center within the USPS.  Captive postal ratepayers will end up carrying the weight of those unnecessary new costs.  Further, rate increases on stamps and other products will only push away customers and accelerate the volume losses.

The shifting of USPS retirees’ healthcare liabilities to Medicare presents an even bigger fiscal nightmare.  The Medicare Trustees 2016 annual report shows that Medicare Part A will begin to run in the red in 2020 (two years earlier than was projected in 2015) and be completely depleted by 2028.  That additional burden, with an estimated cost of $8 billion annually, will deplete Medicare Part A even sooner and do nothing long-term to change the way the USPS does business.

There is a lot of room for improvement in H.R 5715; at a time when legislation should aim for bold, transformative action, the bill’s provisions offer half measures and more prospects for USPS bloat.  The best way to reform the USPS is to open the door to more private-sector competition, set the agency on a path to full privatization, and safeguard taxpayers against a massive postal bailout in the future.