Through executive order, President Donald Trump has created a Postal Service task force to “develop recommendations for administrative and legislative reforms” and to report its findings by August 10. The task force is comprised of senior administration officials including Treasury Secretary Steven Mnuchin, Budget Director Mick Mulvaney and Attorney General Jeff Sessions.
Postal Service reform is long overdue and should be an urgent bipartisan priority. Without prompt action, taxpayers could face a roughly $100 billion bailout. The financial security of postal workers and retirees is also at stake.
The Postal Service remains very important to much of the American public. While the growth of the Internet has lessened the Postal Service’s role in promoting commerce and communications, its operations are vast and significant. In Fiscal Year 2017, mail volume was 149.5 billion pieces.
Below are seven central issues policy makers should know and monitor while the task force proceeds with its mandate.
More than a decade has passed since the last major postal reform. On December 20, 2006, President Bush signed the Postal Accountability and Enhancement Act (PAEA), the most far-reaching change to postal laws since 1970. PAEA makes it easier for the Postal Service to raise monopoly mail prices, so long as this is within the rate of inflation. It also requires significant funding for retiree health care benefits and provides the Postal Service with more flexible pricing on packaging services. While there have been numerous attempts to materially change PAEA, they have not been successful.
The Postal Service’s financial condition is dire. For 11 consecutive years the Postal Service has reported annual losses totaling $65 billion. At the end of Fiscal Year 2016, the Postal Service’s unfunded liabilities, defined as benefits earned by its current and retired employees that are attributable to services already rendered, totaled $121 billion.
The U.S. Government Accountability Office (GAO) has included the Postal Service in its biannual High Risk Report to Congress since 2009. In the 2017 report, GAO said, “The U.S. Postal Service faces a serious financial situation that is putting its mission of providing prompt, reliable and efficient universal mail services at risk.”
Retiree costs are pivotal. One of the central features of PAEA is to require the Postal Service address its retiree health care benefit obligations through large annual payments.
In 2003, the Postal Service had unfunded obligations for retiree health benefits of approximately $48 billion. With health care costs then widely expected to continue to increase, and with more postal employees entering retirement, the obligations were expected to continue to significantly rise.
The Postal Service once welcomed and even endorsed the large payments that PAEA required. In the Postal Service’s 2007 Annual Report, Chief Financial Officer H. Glen Walker said,
“The new law (PAEA) also directs us to fund our retiree health benefits through a 10-year schedule of payments that range from $5.4 to $5.8 billion annually. The first of these payments was made this year. This is a farsighted and responsible action that places the Postal Service in the vanguard of both the public and private sectors in providing future security for its employees and augurs well for our long-term financial stability upon successful completion of the payments.”
Since then, however, the Postal Service has defaulted on $38.2 billion in payments to the Retiree Health Benefits Fund.
Among the proposals to address health care retirement benefits is H.R. 756 – Postal Reform Act of 2017 which would enroll Postal Service retirees into Medicare and amend the payments schedule. While Postal Service management strongly supports this legislation, the National Active and Retired Federal Employees Association opposes the measure.
There are no signs of a turnaround. There are no trends or indications that the chronic losses and mounting liabilities at the Postal Service will end, assuming the current operating model stays in place. These factors, combined with the glaring absence of a turnaround plan at the Postal Service, makes the task force’s work even more timely and important.
The Board of Governors must be staffed and revitalized. The Postal Service’s Board of Governors has a similar role to a corporation’s Board of Directors, which is to oversee operational and financial decisions and set strategic direction. Yet, the Postal Service’s Board of Governors has not had a quorum since December 2014, nor has it had any Governors since 2016. There are currently nine vacancies.
The Senate is currently considering three nominees submitted by President Trump. Whatever reforms the task force recommends and Congress enacts will require a staffed and functioning board if they are to be most effective.
The mission needs to be redefined. The Postal Service’s mission, also known as the Universal Service Obligation, is generally understood to be to provide the American public with trusted, affordable, universal service to help unify the country.
Yet today, new and emerging technologies can facilitate universal or near-universal communication at very affordable costs. Much of the American public relies less on paper mail than it did even a decade ago, while there is a dramatic increase in e-commerce. For these reasons the executive order directs the task force to review the Postal Service’s mission.
This could result in any number of recommendations such as that the Postal Service no longer have a monopoly over letter delivery and mailboxes, as well as reducing mail delivery in some or all areas to less than six days a week
Many other ideas will be considered. Beyond the core mission of the Postal Service, many other proposals are likely to be considered in conjunction with the task force’s work and Congressional action. This includes steps to strengthen the Postal Service’s ability to prevent opioids from entering the country via international mail.
There is also growing concern about the very low cost of many e-commerce shipments from China, which stems from an international agreement and puts many small American businesses at a competitive disadvantage to their Chinese counterparts. There is even interest in the Postal Service providing banking services.
The Postal Service has reached a critical juncture. It needs to adopt a new operating model to be strengthened financially and to best serve the American public. The task force has an essential role to play in making sure these changes are made sooner rather than later.
Paul Steidler is a Senior Fellow with the Lexington Institute, a public policy think tank based in Arlington, Virginia.
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