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Postal Service in Default: The Beginning of the End?

Posted By Emily Goff On August 1, 2012 @ 2:50 pm In Economics | Comments Disabled

Today the U.S. Postal Service (USPS) will default [1] on $5.5 billion in payments to the Treasury for future retiree health benefits [2].

That is no small sum, to be sure. But much to the dismay of the USPS—and the ire of taxpayers—it marks the first of several anticipated and potentially larger defaults in the months to come.

Next month the USPS will owe the Treasury $5.6 billion, again for future retiree health benefits, that it cannot pay. Soon after, a $1.5 billion payment for workers’ compensation to the Labor Department will come due.

Despite these defaults, the USPS’s day-to-day activities will continue. It will be business as usual for its employees, and customers will still receive mail. But, if present trends continue, it won’t be long before show-stopping defaults occur, which will involve missed payments to suppliers or even missed payroll. Even the USPS recognizes its grim financial situation [3] and projects that without fundamental reform, the enterprise will be unsustainable.

While the focus right now centers on the pre-funded pension benefits, the real reason for the USPS’s dire financial straits is the steady decline in mail volume as customers increasingly use electronic communications. Times and technology have changed; the USPS has not.

Several potential alternatives for the USPS’s future remain to be played out. Strictly in the rhetorical sense, the USPS could fail completely, leading to the shuttering of post office doors everywhere. An alternative is that taxpayers could wind up subsidizing its existence and pre-funded benefit obligations to the tune of $15 billion to $20 billion a year. Today’s default suddenly pales in comparison to those massive sums and, potentially, future bailouts.

Or Congress could allow the USPS to change its business model and innovate, giving it a fighting chance of surviving in an economy and technological environment in which it is woefully behind.

The first scenario is beyond unpalatable to Washington politicians or many USPS customers, while the second would be irresponsible to impose upon taxpayers. The third, however, is the only solution that will give the USPS the opportunity to stay afloat without saddling taxpayers with billions in debt they cannot afford to pay.

But current law shackles the USPS’s ability to change at every turn. Meaningful reform requires Congress to remove the restrictions dictating the USPS’s operations. For example, congressional mandates require mail delivery six days a week and make it exceedingly difficult to close small, unprofitable offices [4]. A bill pending in Congress by Representative Darrell Issa (R–CA) would take the first steps toward such reform.

Right now, the USPS is akin to a car driving toward the edge of a cliff, except the steering wheel is locked and a brick is depressing the accelerator. Technology has changed, but the USPS has not been allowed to adapt its business model and services accordingly. Before a default with tangible consequences occurs, Congress should remove that brick. And, well before Congress becomes desensitized to annual bailouts [5], it should unlock the steering wheel and give the USPS the flexibility it needs to operate in the 21st century.


Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2012/08/01/postal-service-in-default-the-beginning-of-the-end/

URLs in this post:

[1] default: http://money.cnn.com/2012/07/31/news/economy/postal-service-default/

[2] retiree health benefits: http://www.heritage.org/research/reports/2012/06/postal-pension-refund-is-a-disguised-taxpayer-bailout

[3] grim financial situation: http://about.usps.com/news/national-releases/2012/pr12_0217profitability.pdf

[4] small, unprofitable offices: http://www.heritage.org/research/reports/2012/04/post-office-closures-too-small-to-fail

[5] annual bailouts: http://blog.heritage.org../../../../../2011/10/12/the-postal-crisis-easily-explained-how-to-avoid-a-taxpayer-bailout/

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