Why Washington won't address soaring deficits
Financial collapse of the United States Postal Service is coming
The Postal Service will run out of cash in five years. Postmaster General Megan Brennan shared this alarming news in her testimony before the House Oversight and Government Reform Committee earlier this month. The immediate consequence of such insolvency of the agency would be that the largest postal system in the world, which moves 150 billion pieces of mail every year, would be dead in the water. This is something that has never occurred during the long and storied history of the Postal Service.
If you think these primary effects would be devastating, the secondary effects would be catastrophic. More than 500,000 postal workers would be without wages. Magazine companies, which send millions of glossies each month, would have to find local deliverers. Retailers that sell through catalogs would see their main advertising medium vanish. The paper and printing companies that they work with would see their revenues plunge. Prescription drug deliveries would be disrupted as health care companies scramble to find alternate means. Jury summons, voting materials, ballots for our troops overseas, and international shipments would stop flowing.
During the hearing, Republican Representative Mark Meadows demanded that the Postal Service produce a plan to save the agency. To date, the plan has consisted of trying to trim back costs, including by reducing the number of hours worked by employees, and reaping more revenues by delivering more parcels. As Postmaster General Brennan had noted, these efforts have not at all solved the problem.
The Postal Service is in dire financial straits because its revenues are insufficient to support its operational costs and liabilities. Mail volume is down 31 percent since 2007, and annual revenues of $72 billion are the same as they were a decade ago. The agency has around $120 billion in unfunded debt and obligations, most of which flow from compensation and benefits owed to its significant cohort of employees and retirees.
This slow moving financial catastrophe comes as no surprise to close watchers of the Postal Service. Back in 2007, Postmaster General John Potter indeed told Congress at the time that the business model of the agency was already broken. He warned, "With the diversion of messages and transactions to the internet from the mail, we can no longer depend on printed volume growing at a rate sufficient to produce the revenue needed to cover the costs of an ever expanding delivery network."
However, doing something to fix the problem has proven exceptionally difficult. Congress has tried to solve it many times, but postal policy is tricky because postal politics is complex. Consumers enjoy not having to support the agency with their tax dollars, and residents in rural areas are not thrilled at the prospect of reducing the days the mail carrier delivers. Unionized postal employees would rather not have their pay cut or more of their work outsourced to the private sector. For profit mailers and the charities that often rely on the mail to raise funds do not want to postal price increases. Neither do online sellers who want to keep low parcel rates and comprise $19 billion in annual revenues for the Postal Service.
Finding a sweet spot between these diverse demands is not an easy task. The challenge is made all the more difficult by the voices who continue to deny the fact of the financial crisis of the Postal Service. Remarkably, one will still hear the claim that the agency would be fine if Congress did not have to prefund its retiree health benefits. Never mind that the agency is not making the legally required prefunded payments and that these health benefits have to be paid eventually, lest retired postal workers be stiffed.
The recent testimony on Capitol Hill makes crystal clear what has been obvious for years, which is that the Postal Service is facing an existential crisis. Nobody wants to see the Postal Service shut down. Avoiding this major disaster demands that Congress, the agency, and all stakeholders transcend old biases and rethink what a sustainable 21st century Postal Service should be. The sooner they can do this the better for everyone.
Kevin Kosar serves as the vice president of policy at the R Street Institute.