Committee for a Responsible Federal Budget

CBO Releases Score of Postal Reform Act

Jun 25, 2014 | Other Spending

CBO published its score of the Postal Reform Act of 2013 (H.R. 2748), a bill introduced by House Oversight Committee Chairman Darrell Issa (R-CA), on Monday. The bill would deliver net unified budget savings of $17 billion over the 2015-24 period, reflecting a $23.6 billion reduction in off-budget spending and a $6.6 billion increase in on-budget spending.

The bulk of the savings would come from two changes in mail delivery. The first would authorize the Postal Service to eliminate Saturday mail delivery, which CBO expects it would do, saving $11 billion over ten years. The second would require the USPS to increase the use of curbside and centralized delivery, rather than delivering directly to people's doors. This change would save $8 billion. In addition, the bill would save smaller amounts from eliminating annual appropriations to reimburse USPS for free and reduced-rate mail ($800 million) and from increasing rates on bypass mail delivered to Alaska ($170 million).

The bill would also achieve savings by limiting contributions for employee health and life insurance to 70 and 33 percent of premiums, respectively, down from 78.5 and 100 percent.

Other changes relate to employee retirement and health benefit financing. The bill would eliminate the requirement that the Postal Service make $6.7 billion of payments in 2015 and 2016 to the Federal Employee Health Benefits Program to pay for employee premiums. Instead, the on-budget Postal Service Retiree Health Benefit Fund (PSRHBF) -- which pre-funds retiree health benefits -- would make the payments, which USPS has been unable to make in recent years. In those two years, this change would increase on-budget deficits by $6.7 billion but save the USPS only $3.3 billion since CBO assumes that the savings would allow the USPS to be more lenient in other cost-cutting initiatives. In later years, those effects are partially clawed back as CBO expects the USPS to make up for the PSRBHF contributions by making higher payments into the fund.

In addition, the bill would use Postal Service-specific rather than government wide economic and demographic data to determine the required payments USPS must make to fund pension benefits. This would reduce the required USPS contributions by $3.2 billion, but it would also lower receipts in the on-budget Civil Service Retirement and Disability Fund (CSRDF) by the same amount. Again, CBO expects USPS net savings to be only half of the $3.2 billion as it eases up on other cost-cutting measures, meaning the provision would increase unified budget deficits.

Changes in Direct Spending by Provision of the Postal Reform Act
Provision  On-Budget 2015-2024 Off-Budget 2015-2024 Unified 2015-2024
Reduction in Frequency of Mail Delivery to Five Days Per Week $0 -$11 billion -$11 billion
Increase Curbside and Centralized Delivery $0 -$8.1 billion -$8.1 billion
Limit Postal Contributions for Life and Health Insurance $0 -$1.9 billion -$1.9 billion
Use of Postal Specific Data for Retirement Benefits $3.2 billion -$1.6 billion $1.6 billion
Alaska Mail Delivery $0 -$0.2 billion -$0.2 billion
Changes in USPS Payments for Retiree Health Benefits $3.5 billion -$1.7 billion $1.7 billion
Elimination of Annual Appropriations $0 -$0.8 billion -$0.8 billion
Total  $6.6 billion -$23.6 billion -$17.0 billion

Source: CBO

The Postal Reform Act represents a responsible approach to fixing the Postal Service's finances. Congress should not hesitate to act, especially given the trouble the USPS is having in meeting its contribution obligations for future health benefits.