#postalproud

by Mitch Maley — The financial woes of the United States Postal Service came back into the spotlight recently, as part of the controversy over vote-by-mail and whether the federal service was being deliberately denied COVID-related relief funding in order to ensure that broad-scale mail-in-voting—which President Donald Trump has alleged to be rife with fraud, though there's no evidence suggesting that is the case—would be greatly hampered. But why is the postal service doing so poorly? The answer is more complicated than you might think.

The popular narrative from those who seem to be cheering the service's demise is that it's simply a matter of creative destruction, the economic term for when a new technology replaces an old one. Email, the story goes, has replaced snail mail and, as a result, the service is going broke. I guess this seems like a plausible narrative if you don't know how the federal service operates. In actuality, technology has been something of a wash. Stamps haven't been a big source of revenue is a long time, but the massive increase in online shopping has seen package delivery surge.

So why has the agency been hemorrhaging money for more than a decade? President Trump claims its inefficiency, along with being taken advantage of by companies like Amazon, whose owner Jeff Bezos also owns the Washington Post and has been targeted for ridicule by the president for what he sees as unfair coverage of the White House. A viral Facebook post, however, claims that "The Postal Service is not losing money because of Amazon. It’s losing money because in 2006, the Republican-led Congress passed a law forcing it to prepay its pensions for 75 years, which no other corporation does. This was meant to bankrupt it so its business could be privatized for profit. Without this law, the Postal Service would be turning a profit."

That's not exactly true, either, but it's close. In reality, the 2006 Postal Accountability and Enhancement Act, which was the agency's first major overhaul since 1970, required the USPS to prefund retiree health benefits for 50 years. And it wasn't really the lame duck Congress that tucked it in, so much as President Bush, who threatened to veto the massive piece of legislation if it did not include the health care prefunding, which assumes that every employee in the agency will stay on until they retire and then live to collect a pension. The requirement further burdened the agency with 10 years of statutorily-mandated payments of about $5.5 billion each year from 2007 to 2017, which of course wound up including a massive economic downturn in which the service did less shipping business than usual. 

As a result of all this, the US Postal Service has, on paper at least, lost money for 13 consecutive years and began defaulting on its future healthcare obligation payments in 2012 because not having done so would have meant the agency "would not have been able to pay our employees, our suppliers, or deliver the mail" according to a USPS fact sheet. A majority of those losses have indeed stemmed from the prefunding requirement. For example, in 2019, 83 percent of the $8.8 billion the USPA lost came from payments into its retiree pension fund and retiree health benefits fund. 

It's important to understand that no other government entity, or private-sector corporation for that matter, has that rigid of an obligation. Federal agencies all operate on a pay-as-you-go basis, as do about 2/3 of private sector corporations. The USPS's advance funding requirement places a financial burden of about $6.6 billion on postal service that would not exist if they followed a pay-as-you-go approach. The progressive Institute for Policy Studies found that if the costs of the retiree health care mandate was removed from the agency's financial statements, the Postal Service would've actually reported operating profits from 2013 through 2018.

And it's not just paying the prefunding requirement that's hurting the agency. The obligation has also impacted its ability to modernize by making strategic capital investments, which has cut another leg out from under its proverbial table—one that ending the pre-funding requirement alone would not fix at this point. So, what should be done?

For starters, it's important to understand that the United States Postal Service is just that, a service provided to taxpayers, not a for-profit business. It has the mandate of delivering mail to every address in the United States, which is something private-sector shipping companies like UPS and Fedex do not do. In fact, such companies routinely use the US Postal Service for many of their deliveries, passing on an upcharge to consumers. The postal service is also an economic generator in the sense that its function helps to create a lot of economic activity that then goes on to create separate tax revenue for the government. So, looking solely at its bottom line doesn't give the full picture in terms of its economic value to our broader economy or the US Treasury.

More importantly, if it went away, shipping costs would surely spike drastically and would no longer be uniform across the country, the way they are with the US Postal Service. It stands to reason that a lot of business would no longer be cost effective in terms of meeting demand at a viable price point. So while it might be good for a few private carriers who corner the market, it would be sure to have a negative net impact on the economy as a whole, including tax receipts. 

By making a few key changes, the agency would almost surely be able to regain its financial footing, the first of which would obviously be eliminating the absurd prefunding requirements. Integrating its health care benefits with Medicare by requiring retirees with federal employee health benefits to enroll in Medicare parts A and B at age 65 would also help. Another idea that has been floated is eliminating the requirement that the agency invest solely in U.S. Treasury bills and allowing for other comparably-safe investments with better returns. 

Postal banking is another idea that's been proposed. The post office already sells money orders and prepaid cards and up until the 1960s, it also offered basic banking services, including check cashing and checking/savings accounts. This idea would not only give the agency another revenue stream but would also help communities that are underserved in terms of banking see that less of their people are fleeced by low-end, high-fee money stores.  

So, no, the postal service isn't an antiquated dinosaur that's destined for the dust bin. It's an essential service that benefits individuals as well as the American economy at large. As such, it would be an enormous mistake for Americans to accept its unnecessary and indeed engineered demise just so that a handful of companies can increase profits for their shareholders.

For more, check out this video on our YouTube channel.

Dennis “Mitch” Maley has been a journalist for more than two decades. A former Army Captain, he has a degree in government from Shippensburg University and is the author of several books, which can be found here.