‘Neither snow nor rain nor heat nor gloom of night stays these couriers from swift completion of their appointed rounds,” reads the inscription over the entrance of the James Farley Post Office in New York City. Unfortunately, that list does not include crippling debts.
Today, unless Congress acts — which seems unlikely to the vanishing point, given partisan disagreements over how to address the problem — the United States Postal Service is set to default for the first time in the 237-year history of the U.S. Post Office/Postal Service, failing to make a $5.5 billion payment to the U.S. Treasury for future retiree health benefits.
This news is just the most recent development in a long list of postal woes. The USPS estimates that it is losing $25 million a day, and the agency faces another $5.6 billion payment in September that it also lacks the ability to pay. Moreover, having lost nearly $25 billion in the last five fiscal years, the Postal Service is looking at widespread service cuts; it would like to close up to 3,700 post offices and 220 mail-processing plants by 2015.
The default, should it occur, will not immediately affect services — trucks will still be on the roads, payroll will be met, and current retirees will get their checks. Instead, the default will affect the USPS’s fund for future retirees, an obligation established in the 2006 Postal Accountability and Enhancement Act. Up until then, the Postal Service simply paid retiree health benefits when they came due. The new law required the agency instead to account for 75 years’ worth of retiree benefits on its balance sheet and to begin to pay down its unfunded liabilities. It gave the USPS a ten-year period to transition to the new system.
The rationale behind this provision was that a pay-as-you-go plan for retiree benefits does not work with an industry in severe decline. At the rate at which the USPS has been losing money, Congress was concerned that when current workers retired, there would be no funding for their pensions and health benefits.
However, in practice, the obligation to continue providing universal postal service while setting aside billions for future benefits, coupled with a stark decline in revenues, has proven to be a disastrous combination for the USPS’s balance sheet. The deep-running fiscal problems have collided with the proposed solution, culminating in a default of payment.
But the default is just the tip of the iceberg, revealing the larger, fundamental problems that plague the USPS. “While this is not a short-term problem, it is a serious sign of trouble,” James Gattuso, a senior fellow at the Heritage Foundation, told National Review Online. “It is an obsolete business. That fact is undergirding the entire thing — the business is shrinking because people are not mailing things the way they used to.”
In particular, demand has been dwindling for first-class mail, which used to be one of the agency’s largest profit sources. And these falling revenues have been coupled with high operating costs — stemming from rising labor costs and an extensive, expensive distribution network — that have finally caught up with the Postal Service.
However, this is not just a problem of mismanagement, as some have alleged. While poor organization may be a factor, much of the blame falls on the shoulders of Congress and its burdensome requirements for the agency. “It is easy to say that the Postal Service is managed poorly,” Gattuso says, “and it certainly has been. But I don’t think any manager would have been able to save the Postal Service as it was set up.”
“Congress has not given the Postal Service the commercial flexibility needed to adjust its costs,” Professor Richard Geddes of Cornell University told NRO. “A private business would have that flexibility to adjust costs and services to maximize profits. Postal managers are probably doing the best they can within the constraints of the law, but the law has put them in this difficult situation.”
Many options have been suggested for restructuring the USPS, from increased federal funding to wholesale privatization. Currently, there are bills in both the Senate and the House designed to address postal reform, but they are currently far apart on substance. In addition, it seems highly unlikely that the House will even take up the issue before the August recess.
The Senate passed a measure in April that would allocate $11 billion to the USPS for it to avoid default and make other needed expenditures. However, amendments chipping away at the bill — particularly regarding closings of post offices in rural areas — hampered its momentum. In the House, some Republicans have introduced a more aggressive bill, outlining stricter cuts while permitting the USPS to close facilities and renegotiate its labor contracts.
As of now, both bills have stalled out and will have to wait until September before they are even considered again.
While it is uncertain which of these — if either — may be the right choice, it is clear that the need for reform will remain pressing until some solution is adopted. Nonetheless, it appears that before any decision is made, the Postal Service will default on a payment for the first time since the Post Office was founded by the Second Continental Congress in 1775.
— Harry Graver, vice president of the Buckley Program at Yale, is an editorial intern at National Review.