Why Bailing Out the Postal Service Isn’t a Good Idea

Rachel del Guidice /

The U.S. Postal Service is feeling the economic fallout of the coronavirus pandemic. It recently asked for $75 billion in taxpayer funding. President Donald Trump said that any bailout must be conditioned on reform.

Romina Boccia, a fiscal and economic expert at The Heritage Foundation who focuses on government spending and the national debt, joins The Daily Signal Podcast to discuss why a bailout of the USPS isn’t the way to go, what reforms the USPS should adopt, House Democrats’ request for $25 billion for the USPS in their fourth coronavirus package, and more.

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Rachel del Guidice: I’m joined today on The Daily Signal Podcast by Romina Boccia, she’s the leading fiscal and economic expert at The Heritage Foundation, and she focuses on government spending and the national debt. Romina, it’s great to have you on The Daily Signal Podcast.

Romina Boccia: Thanks so much for having me, Rachel.

Del Guidice: Well, thank you for being with us, we appreciate [it]. So, you just published a paper for heritage.org, “Congress Should Free the Postal Service, Not Bail It Out.” Why shouldn’t Congress bail out the Post Office, just to start off?

Boccia: There’s a couple of reasons, but first of all, let’s think about what the Postal Service does. It delivers our mail, it delivers packages, it also handles many administrative tasks. You might go to the post office to request a passport if you’re looking to travel abroad, which, sadly, not many of us will be able to do because of the coronavirus, but in the past that was something people did there.

The Postal Service is intended to be a self-funded entity. It is supposed to run like a business, but Congress has tied it down with regulations and laws that have made it impossible for the Postal Service to run as a competitive and profitable business, especially in the 21st century, where so much of our communication occurs digitally.

So to the extent that the Postal Service is not able to be profitable because it is being restricted by congressional laws and by regulation, if Congress simply freed the Postal Service, they wouldn’t need to bail them out. Because they have a good business model, they just need to make certain adjustments so that their business model can work and be sustainable.

Right now they’re losing tens of billions of dollars, and they’ve had 13 years of consecutive losses to the tune of $80 billion. It’s time to set the Postal Service free so they can operate sustainably and profitably without a taxpayer bailout.

Del Guidice: Speaking of this situation of potential post office bailout, Politico is reporting that House Democrats’ $3 trillion coronavirus relief package, which is the fourth relief package for the coronavirus pandemic, it includes $25 billion for the Postal Service. What are your initial thoughts on this development?

Boccia: That’s completely unnecessary. The Postal Service, first of all, doesn’t need a bailout right now. They’re not actually running out of money. They have told lawmakers that they were, but last week we saw the financial reports from the Postal Service and it showed that they have enough cash flow to keep them going until at least May of 2021.

They also received a $10 billion loan from the Treasury as part of the CARES Act that they haven’t tapped yet.

And if you look at the Democrats’ bill, they actually, in addition to the $25 billion bailout, would also allow the Postal Service to use that $10 billion loan that they’ve already received to pay down existing debts instead of using it for current operational expenses.

So this is clearly a handout for the postal workers unions and not so much about making the Postal Service actually operate sustainably.

With the American consumer in mind, we shouldn’t bail out the Postal Service, that should be a nonstarter.

President [Donald] Trump has rightfully said that he would not sign anything that provides aid to the Postal Service without reforms. And that’s really critical. There’s so many ways that the Postal Service could be operating better. And the bailout is just going to lead to more bailouts if we don’t make those reforms.

Del Guidice: So, if Congress does not free the United States Postal Service from the government, what secondary reform should happen?

Boccia: Ideally, in the long run, the best solution is for Congress to set the Postal Service free so they can operate like any other business.

But short of that, if Congress is not willing to give up control over the Postal Service for political reasons, they should at least clarify what the universal service obligation actually entails, instead of using it as a way to block otherwise sensible and good reforms that would allow the Postal Service to reduce costs and operate more sustainably.

A lot of that comes down to allowing the Postal Service to streamline some of its services. Because of the decline in letter mail delivery, a majority of Postal Service letters delivered these days are actually junk mail, they’re advertisement.

And it doesn’t make sense to require the Postal Service to deliver to just about every address in the entire country, including in rural areas, at least six days per week. In many other countries, it is common to deliver the mail three times a week.

The Postal Service has even just asked to be allowed to only deliver the mail five days a week. That should be a reasonable proposal that could save them roughly a billion and a half [dollars] annually.

But in addition to reforms that have to do with delivery, how they deliver mail and packages, how often they do it, there’s also lots of reforms that could be made to their facilities.

There are a large number of post offices that see very little foot traffic, where it doesn’t make sense to keep them open. They should be closed, especially if there are other options and post offices nearby.

Also, the post office could innovate and put its services within existing structures like in a mall, or they could offer services inside of a grocery store.

It’s not necessary for them to maintain all the separate infrastructure, having their own buildings, to the extent that they have buildings in very nice areas like in urban areas. They should leverage those assets more fully by, for example, allowing the building of commercial and residential spaces, say, above a ground-level post office, so that that real estate can be put to fuller use.

But all of these reforms are really tinkering around the edges because the big elephant in the room is that the Postal Services’ compensation costs, especially retirement and retiree health benefits, are making up a disproportionate share of the post office’s costs.

Their compensation costs alone are about 90% of their revenues this year. That is huge.

It has to do with postal workers benefiting from similar retirement systems as other federal workers, but they also are allowed to collectively bargain, which means they’re represented by unions and compensation costs are heavily inflated.

Especially when it comes to benefits, the Postal Service is facing more than $130 billion in unfunded obligations, and they’ve failed to make pension contributions for several years now, which could potentially leave taxpayers and other federal workers holding the bag, paying for those benefits that have been promised to postal workers, but for which the Postal Service hasn’t made provision to pay for.

Del Guidice: Well, Romina, that was actually one of my next questions. In your report, you talk about how compensation costs for 2019 was about $97,000 per postal worker, and private-sector compensation in 2019 was around $69,000.

How would you suggest reforming these salaries and pensions, as you mentioned? Just diving into this a little bit more, how would you suggest reforms so that compensation is more worthwhile?

Boccia: First of all, if the Postal Service were operating like an actual business, they would have control over their compensation costs and they could decide what they could afford, and compensation costs should reflect the Postal Service’s ability to pay for those costs. There’s no such relationship today.

Congress actually needs to make changes in law to change postal workers’ compensation. Because, again, they’ve retained control over most of the Postal Service’s operations.

So, short off Congress, again, setting the Postal Service free, which would be ideal so they could determine their own compensation costs and benefits to attract a qualified workforce, Congress should consider making reforms to the Postal Service that align its compensation with that of the private sector, and also reflect some of the positive, good changes that have already been made in other aspects of the federal employee retirement system.

That comes down to shifting more of the pension benefits from defined benefit pensions toward defined contribution benefits, like a 401k or the Thrift Savings Plan that federal workers enjoy. That means that those benefits are directly funded because they’re based on contributions.

For the retiree health benefit, this is one that the Postal Service has to pre-fund, and they’ve fallen far short, but they are only allowed to pre-fund it by buying treasury bonds.

Those bring really, really small returns, which means that the Postal Service has to set more money aside to be able to pay for those benefits than they would need to if they were able to invest the money into, say, an index fund that would bring about greater returns that align more with a mixed stock market and bond portfolio.

So they should be allowed to invest those retiree contributions in a more diversified mix of assets so they can bring about greater returns.

But we really also need to ask more broadly, if it makes sense to have a retiree health benefit, and if the Postal Service can afford to continue to provide it.

We should also think about asking those postal workers that want to receive this benefit to pay some of their own premiums and make contributions toward that fund. Because as it’s currently structured, it is not affordable.

And lastly, looking at paid time off and how that’s handled, the Postal Service workers enjoy a much more generous paid time off than most Americans and other federal workers.

Again, here, we should be bringing benefits in line with the private sector and also potentially shifting to a more flexible paid time off system that’s not separating out sick leave from family leave from vacation time, but just flexible paid time off that will be attractive to postal workers so they can recruit and also retain a qualified workforce for their operations.

Del Guidice: Romina, … are there any other ideas that you’d like to highlight when it comes to these reforms that can be made to just really improve operations?

Boccia: Yes. I think one of the greatest opportunities is to expose the Postal Service to competition, not just in package delivery, but also in letter mail delivery.

The United States Postal Service benefits from a monopoly, both in the letter delivery space but also over the use and access to Americans mailboxes. And that has prevented innovation.

If you think about how many of us receive packages that UPS, say, or other delivery services like FedEx have to drop them at the front door, why don’t we have larger mailboxes, if you will, package boxes that can hold those things? And to some degree it’s because of the monopoly that USPS retains over our mailboxes through competition.

If Congress gave USPS the operational flexibility to manage itself, profitably and sustainably, I think competition has great potential to provide a quality service that is affordable, but that’s also sustainable, and that doesn’t have to rely on taxpayers in order to survive.

That’s where the Postal Service is right now. They’re being tied down by congressional regulations, they’ve been politicized, they suffer from excessive compensation costs and unaffordable benefits, and only Congress can set them free, or short of that, give them the flexibility so they can manage their own operations in line with their revenues and continue to provide a valuable service to Americans all across this country without having to ask for bailouts repeatedly.

Del Guidice: Toward the end of your report, and I think you might’ve hit on a few of them already, but you outlined about five different points on what Congress can do to save the USPS. So if there’s one or two points from that that you haven’t highlighted that you would like to, what [is] one of those?

Boccia: I think, most importantly, we should reconsider the universal service obligation which Congress has used as a reason to block otherwise sensible operational reforms, like reducing the number of post offices, reducing the number of delivery days, and also pursuing other innovations like delivering mail and packages to a collection site rather than to every household. But the big savings will truly come from compensation and benefit reforms.

I think it’s good to see that there are some bipartisan proposals, including allowing USPS to invest some of the pre-funding that’s required for the retiree health program in index funds so they can repay returns.

We should build off of those bipartisan reforms to ultimately move closer to privatization where USPS can operate itself sustainably and profitably, which shouldn’t be scary at all because many other countries have already privatized their postal services.

Germany and the U.K. come to mind, for example, and those privatizations have been a real boon to consumers and to those operations, if people are receiving their mail and packages, there’s been innovation in this space.

I think there’s great potential for the Postal Service if Congress will just set it free.

Del Guidice: Romina, big picture, what might happen if the United States Postal Service isn’t reformed?

Boccia: The danger is that because they cannot afford their benefit plans, taxpayers and other federal workers may have to pay those costs because the benefits continue to accrue for postal workers even if the Postal Service is not making the required payments, this is according to law.

So that puts taxpayers and other federal workers in those retirement systems at risk of having to bail out postal workers’ benefits.

But in a more immediate term, if the Postal Service actually runs out of money, there is a risk that they might go bankrupt, and then they wouldn’t be able to continue operations.

It’s unlikely that Congress and the administration would simply allow the Postal Service to go bankrupt. But I think the longer we wait to make reforms, the more likely it is that the Postal Service will require a large bailout in order to avoid bankruptcy.

So it would be much better to make reforms now, move in a direction where the Postal Service can better manage itself, make these operational reforms, reform the compensation systems so that the service can be long-lasting and sustainable and operate profitably.

One of the recommendations that President Trump has made, he believes that the Postal Service isn’t charging enough for its package services, say, for example, when it delivers packages for Amazon. The president has called on the Postal Service to increase its rates, he said, by four or five times.

There might be a real issue here. So one of the things that Congress could do now is to audit the postal shipping rates to clarify whether the package costs that USPS is charging actually reflects those operational costs.

Because the issue is, if you have a monopoly service—which they have when it comes to letter delivery—and then you also have to compete in the packaging market, if USPS [is] using its monopoly over letter delivery to cross-subsidize its operational costs when it comes to packages, if that’s the case, that would be very problematic because they’re required by law to operate competitively with FedEx and UPS and the other providers in the packaging space.

So that’s something where the administration has pointed out a potential problem that could lead to broader reforms, not just when it comes to how much USPS charges for its services, but importantly, we need to reduce its costs, especially compensation and benefits.

Del Guidice: Well, if you would at all like to read more, you can find Romina’s report, “Congress Should Free the Postal Service, Not Bail It Out,” on heritage.org. Romina, thank you so much for joining us today on The Daily Signal Podcast.

Boccia: Thanks for having me.