Committee for a Responsible Federal Budget

Is it Time to Enact Postal Reform?

Mar 15, 2017 | Other Spending

A bipartisan proposal aimed at putting the postal service on better financial ground has been gaining traction in recent weeks. The United States Postal Service (USPS) has faced net losses for the past ten consecutive years, and it recently posted a loss of $5.6 billion for Fiscal Year (FY) 2016. Because of these losses and other structural factors, the postal service currently faces over $120 billion in unfunded liabilities.

Last month, House Oversight and Government Reform Committee Chairman Jason Chaffetz (R-UT), Ranking Member Elijah Cummings (D-MD), and a bipartisan group of committee members proposed the Postal Service Reform Act (H.R., 756) to address the postal service's financial problems, and they will be considering this bill later this week. Over the next decade, this proposal will save the USPS $5 billion relative to current law. Their legislation will also represent a $1.7 billion cost to the rest of government, resulting in a net budget savings of around $3.3 billion. Most importantly, this legislation would also stabilize the USPS's finances, thus reducing the likelihood of a major general fund bailout or obligation defaults going forward.

The USPS has been losing revenue as a result of the proliferation of electronic communication. The Postal Service Reform Act would rectify this issue by increasing stamp prices by one cent, centralizing delivery locations, and enacting other changes to how future product pricing is determined. In 2016, the Congressional Budget Office (CBO) estimated that these changes could save about $10 billion over a decade.

The rising costs of providing health and retirement benefits for current and former postal workers also contribute to the USPS's financial problems. Under current law, the USPS is required to pre-fund retirement obligations. The Postal Service Reform Act reduces the needed amount of pre-funding by creating a postal-specific health benefits system that is separate from the federal employee health benefits system and by gradually transitioning retirees into Medicare. The bill would also fix the pension funding issue by basing the pre-funding requirements on the demographics of postal workers rather than the government-wide population.

Provision USPS On-Budget Unified Budget
Increase stamp prices by 1 cent -$8.4 billion $0 -$8.4 billion
Centralize delivery locations -$2.0 billion $0 -$2.0 billion
Postal Service Operations Subtotal -$10.4  billion $0 -$10.4 billion
Establish separate health benefits program for postal workers $6.2  billion -$6.2 billion $0
Reduce USPS premium contributions for current postal employees -$0.8 billion $0 -$0.8 billion
Reduce premium contributions for annuitants and pre-funding obligations $0 -$2.3 billion -$2.3 billion
Health Benefits Subtotal $5.4 billion -$8.5 billion -$3.1 billion
Move eligible postal retirees to Medicare $0.2 billion $9.8 billion $10 billion
Use postal specific data to calculate USPS contributions to retirement accounts -$0.4 billion $0.4 billion $0
Make other capital improvements $0.2 billion $0 $0.2 billion
Retirement Benefits Subtotal $0 $10.2 billion $10.2 billion
Total Direct Budgetary Impact -$5 billion $1.7 billion -$3.3 billion

Sources: Congressional Budget Office and CRFB calculations.
Notes: Numbers may not add to totals due to rounding.

The Postal Service Reform Act is the latest of several proposals to improve the USPS’s financing. Past proposals from former President Barack Obama, Representative Darrell Issa (R-CA), and Senator Tom Carper (D-DE) aim at shoring up the postal service's finances while offering several additional changes. All three of these proposals would end or reduce Saturday delivery, which could save around $10 billion over a decade.

Other options discussed in these proposals include further increasing stamp prices, introducing additional price changes for certain packages or distances of delivery, closing certain USPS facilities, allowing advertising on postal vehicles, expanding the types of products post offices can sell, reducing direct-to-door delivery for businesses and homes in close proximity to each other, and changing various USPS contributions to health and retirement plans. Many of these proposals and others are discussed in the Voice of the People postal reform exercise, which allows users to design their own plans.

The problems facing the USPS should be addressed quickly in order to keep the postal service afloat and ensure that it does not contribute to the nation's unsustainable fiscal situation.

The Postal Service Reform Act is a promising starting point for real reform, and we hope it provides the momentum needed to strengthen the USPS now and for the future.