Fixing the United States Postal Service: How Congress Must Act to Bring Financial Stability to the Agency and Comprehensive Mail Service to the American People

Congresswoman Alma S. Adams, Ph.D. and Gordon E. Holzberg

I. INTRODUCTION

The United States Postal Service (“USPS”) — first established as the United States Post Office with the Post Office Act of 1792 — has long served the American people. As of 2020, the Postal Service employs over 600,000 people,¹ operates over 31,000 retail locations,² and handles 48% of the world’s daily mail flow.³

With the help of Congress, the Postal Service has evolved over the generations to adapt to the pressures at hand. In the late 1960s, those pressures—which included declining revenue, increasing operating expenses, and employee dissatisfaction⁴—facilitated the evolution of the U.S. Post Office Department into the U.S. Postal Service, the agency that currently provides mail service in the United States.⁵ In the early 2000s, the pressures centered on declining mail volume.⁶ Now, USPS faces yet another crisis, in addition to the declining volume of letters and flat mail⁷: the massive sums owed by the Postal Service to its retirees.⁸ Fortunately, however, Congress has both the power and the prerogative to identify and enact solutions to these problems.

The first section of this essay will explore the reformation of the Post Office into the Postal Service. The next will examine legislation passed in 2006 that impacted the Postal Service’s current dismal financial status. The final section will lay out a comprehensive vision of the postal reforms needed to ensure the long-term health of this vital institution.

II. THE POSTAL REORGANIZATION ACT OF 1970

The reorganization of the Post Office into the Postal Service has its genesis in the post-World War II economic boom.⁹ Mail volume more than doubled from 27.7 billion pieces per year in 1940 to 84.8 billion pieces by 1970.¹⁰ Though revenue rose as a result of the growing mail volume, it did not rise fast enough to meet growing outlays.¹¹ At that time, Congress directly oversaw the Post Office Department through the Post Office and Civil Service Committees of the House and Senate; they repeatedly refused to raise postage rates to generate needed revenue.¹² As a result of Congress’s failure to pursue unpopular but necessary rate increases, beginning in 1946 until its reorganization in 1970, the Post Office reported an annual deficit that exceeded $1 billion in total.¹³

Under the strain of flagging revenue, burgeoning mail volume, and aging infrastructure,¹⁴ the national mail system began to exhibit signs of stress. Following a “political catastrophe” at the 1966 Chicago Post Office, which experienced a backlog of 10 million pieces of mail,¹⁵ and subsequent hearings by the powerful House Appropriations Committee, President Lyndon B. Johnson created the President’s Commission on Postal Organization to investigate and make recommendations concerning the future of the Post Office.¹⁶ The Commission would take its name after its chair—Frederick Kappel, the chairman of AT&T.¹⁷

The Commission’s report, entitled “Towards Postal Excellence: The Report of the President’s Commission on Postal Organization,” was released in June 1968 and made five major recommendations to Congress.¹⁸ Chiefly, the Commission recommended that “a Postal Corporation owned entirely by the Federal Government be chartered by Congress to operate the postal service of the United States on a self-supporting basis.”¹⁹ The seeds of the Postal Service had been planted.

Simultaneously, another crisis reached its boiling point. To properly manage the growing mail volume, the Post Office hired more workers: the number of Post Office employees grew from 408,987 in 1960 to 548,572 in 1970.²⁰ Inflation also rose year-over-year during the 1960s, approaching five percent annually by 1970.²¹ Moreover, although President John F. Kennedy’s Executive Order 10988 had given federal employees the right to collectively bargain,²² the wages of postal workers could only be raised by Congress, and were stagnant as a result.²³ Wages for postal workers were so low, it was not unheard of for postal workers to be eligible for food stamps.²⁴

Spurned by Congress and the Nixon Administration and crushed by inflation, postal workers took action. Without the approval of national union leaders, local union chapters in New York City voted to strike on March 18, 1970.²⁵ The wildcat Postal Strike of 1970—one of the largest strikes in American History—brought New York City to its knees; in an era before the internet or digital communication, almost all business was handled by mail, and major banking and financial institutions ground to a halt.

The crisis, though not entirely of Congress’s making, demanded a legislative solution that had been long delayed. By August 1970, the Senate passed the final version of H.R. 17070, the Postal Reorganization Act.²⁶ The legislation was signed by President Nixon on August 12 of that year, and the U.S. Post Office Department was officially reorganized into the U.S. Postal Service.²⁷ From then on, the Postal Service would fund itself primarily through postage and services rendered.²⁸

Additionally, the postal workers so long overlooked by Congress and Democratic and Republican presidents had proven their point: essential workers deserved competitive pay. Ultimately, the workers secured a six percent raise, with an additional eight percent to come following the reorganization of the Post Office Department.²⁹ They also earned, crucially, the right to collectively bargain for their wages.³⁰

With its newfound independence, the Postal Service had greater flexibility than ever before to control its fate. A new Postal Rate Commission was established to set service rates; unions could collectively bargain on wages for their members; and the pay of USPS employees became competitive.³¹ Independence, though, came with a price, and it would not be long before an evolving economy would require Congress to revisit the federal government’s relationship with the Postal Service.

III. POSTAL ACCOUNTABILITY AND ENHANCEMENT ACT OF 2006

Though USPS had managed itself successfully since its reorganization in 1970, by the early 2000s the subject of postal reform had once again returned to the halls of Congress. First, first-class mail—the mainstay of the Postal Service’s revenue—had peaked in 2001 at 103.3 billion pieces and slowly declined thereafter until the Great Recession facilitated a further precipitous drop.³² Second, the Postal Service had reached its largest-ever size in terms of mail processing facilities, locations, and employees by the turn of the century.³³ The size of the Postal Service was not and is not a bad thing; in fact, it meant more good, stable jobs for Americans in all corners of the country.³⁴ But it also meant that it had a large number of employees to provide for. Third, the Postal Rate Commission, the regulatory body established by the Postal Reorganization Act of 1970, needed significant reform.³⁵ Raising rates on USPS services and goods was a long, time-consuming process that prevented the Postal Service from quickly responding to the changing business environment in which it found itself.³⁶

Congress first tackled these issues by passing the Postal Civil Service Retirement System (“CSRS”) Funding Reform Act of 2003 (“PCSRSFRA”).³⁷ While a complete review of PCSRSFRA is beyond the scope of this piece, it is important to know that the Postal Service had been overpaying its requirements to the CSRS and recouped billions when the legislation required that the federal government transfer those funds back to the Postal Service.³⁸ Additionally, the enactment of the PCSRSFRA reduced the Postal Service’s outlays by $2.5 billion annually by transferring pension liability for Postal Service employees who were veterans to the Department of the Treasury.³⁹ Congress required that those savings be used to pay down debt that USPS had accrued,⁴⁰ but the stage was set: many lawmakers saw a Postal Service suddenly flush with cash and high revenue from record first-class mail volume that was slowing, but thought to likely hold steady.

The culmination of the second major push for reform was H.R. 6407, the Postal Accountability and Enhancement Act (“PAEA”) of 2006, whose sponsors included House Oversight Committee Chairman Rep. Tom Davis (R-Va.) and Ranking Member Rep. Henry Waxman (D-Cal.), passed by both chambers of Congress without opposition, and swiftly signed into law by President George Bush in the lame-duck session of the 109th Congress.⁴¹ ‘Reform,’ in this instance, may be too loose a term: according to the Congressional Research Service, the PAEA made more than 150 alterations to federal law.⁴² Because the PAEA so broadly impacted the Postal Service, this section will focus on the longest-lasting and most significant changes brought about by the PAEA, namely the prefunding mandate and the section 302 network rationalization requirements. While many of the reforms implemented by the PAEA were both positive and needed, it is impossible to separate the useful changes from the draconian requirements of the prefunding mandate. One bad apple spoils the barrel; so must we consider the prefunding mandate when discussing the PAEA.

What is the prefunding mandate? Simply put, it involves stashing currently-available money away to pay for estimated future costs. In this case, Congress mandated that the Postal Service create a pot of money—the Postal Service Retiree Health Benefit Fund (“RHBF”)—by making 10 annual mandatory payments of approximately $5.5 billion into the fund from 2006 to 2016.⁴³ Bolstered by a $20 billion transfer from the surplus in the CSRS fund mentioned above, the approximately $55 billion input by USPS was intended to provide a ‘nest egg’ that, as it accrued interest, would be able to cover the retirement health needs of the Postal Service’s employee pool.⁴⁴

This mandate, however, was an extreme departure from the norm. For years, the Postal Service (and the federal government more broadly) utilized a pay-as-you-go model to fund retirement benefits for employees.⁴⁵ Statutorily mandating those payments stripped the Postal Service of the flexibility that all other private mail businesses had. The deleterious effects of the prefunding mandate were felt immediately. USPS net profits totaled $900 million in 2006 when the PAEA was enacted; losses immediately spiked to $5.1 billion in 2007 and were almost entirely attributable to PAEA prefunding requirements.⁴⁶ For more perspective: USPS revenue in fiscal years 2005, 2006, and 2007 were $69.9 billion, $72.8 billion, and $74.9 billion, respectively.⁴⁷ Operating expenses for those years were $68.2 billion, $71.7 billion, and $80.1 billion, respectively.⁴⁸

The Great Recession struck at the worst possible moment for the Postal Service. As the economy contracted, mail volume plummeted, and USPS revenues followed.⁴⁹ Simultaneously, the statutory requirements of PAEA forced the Postal Service to continue squirreling away billions of dollars.⁵⁰ By 2012, the Postal Service had reached a breaking point: it defaulted on its obligations to prefund the RHBF and other retirement funds.⁵¹ To date, USPS has defaulted on $33.9 billion in required payments to the RHBF and unfunded liabilities for retiree health benefits total $69 billion, according to the Government Accountability Office.⁵² How has the Postal Service been able to accrue such debt without collapsing? The answer is complicated but lies in the 2011 opinion of the Department of Justice’s Office of Legal Counsel, which advised that as long as the Postal Service eventually pays the Office of Personnel Management back for those costs, its retirees can continue to receive their benefits.⁵³ So, while the Postal Service continued to accrue debt on paper, it managed to keep the lights on and the mail flowing.

Over a decade of losses took its toll on the Postal Service, which was forced to respond drastically. In her April 2019 testimony to Congress, then-Postmaster General Megan Brennan summarized the sweeping measures that USPS had been forced to implement as a result of its severe decline in operating funds.⁵⁴ The Postal Service consolidated over half of its mail processing facilities, reduced its workforce by almost 200,000 employees, and reduced capital expenditures by over 44 percent.⁵⁵ (See Fig. 1 below.)

Fig. 1. Cost control measures implemented by USPS since the enactment of the PAEA.
Source: PMG Brennan’s testimony before the House Committee on Oversight and Reform United States House of Representatives⁵⁶

It is evident that the catastrophic impacts of the Great Recession and the prefunding mandate forced a severe downsizing of the Postal Service’s footprint.⁵⁷ However, a partial “right-sizing” was actually required by section 302 of the PAEA.⁵⁸ The Postal Service was to examine its excess facilities, unprofitable locations, and certain ‘redundant’ employees and begin consolidation in an effort to reduce costs.⁵⁹ The Postal Service estimated that this downsizing via the Network Rationalization Initiative (“NRI”) would save $805 million annually.⁶⁰

For obvious reasons, the NRI proved extremely unpopular.⁶¹ Despite efforts to communicate the imminent changes, the general public was caught unaware and frustrated by the closures of facilities and subsequent mail delays.⁶² Postal workers and communities were upset that their local post offices were slated for closure in the wave of consolidation and cost-cutting.⁶³ Congress acted swiftly, scrutinizing the NRI and eventually forcing USPS to abandon Phase II, and the savings from the initiative ultimately proved minimal.⁶⁴ In retrospect, declining revenue necessarily meant that the Postal Service had to reduce its footprint.⁶⁵ However, the Postal Service’s failure to communicate to the general public and Congressional leadership the dire straits in which it found itself complicated its downsizing mission and led to Congressional reactions that tied the Postal Service’s hands further, including mandated six-day delivery and the preservation of other service standard safeguards.⁶⁶

In 2020, it is not hard to see how the tumult that has ensued as a result of new Postmaster General Louis DeJoy’s operational changes at the Postal Service has its roots in the enormity of the PAEA’s failure. There would be no need to forbid overtime or implement other operational changes that reduce outlays if the Postal Service’s finances had not been impacted by the PAEA.⁶⁷ I must acknowledge that, as Postmaster General, Mr. DeJoy inherited an unfavorable situation. However, I remain concerned that he has failed spectacularly at managing USPS, an agency providing a key public service, with the necessary openness and transparency. I will refrain from further discussion regarding the operational changes at the Postal Service out of respect for the ongoing investigation by the House Committee on Oversight and Reform into those changes.

IV. RECOMMENDATIONS FOR CONGRESSIONAL AND LEGISLATIVE ACTION

The state of the U.S. Postal Service is dire, but it doesn’t have to be. Congress must commit to enacting substantive postal reform in the 117th Congress. I propose a legislative package composed of five central points that would significantly ameliorate the short- and long-term difficulties facing the Postal Service and ensure its long-term health.

First, Congress must immediately pass emergency appropriations totaling $25 billion for the U.S. Postal Service for revenue forgone as a result of the COVID-19 pandemic. On April 9, 2020, then-Postmaster General Megan Brennan addressed the House Committee on Oversight and Reform regarding the impact of the COVID-19 pandemic on the Postal Service and conveyed the urgent need for $25 billion in emergency appropriations to offset coronavirus-related losses, a $25 billion grant to fund “shovel-ready” projects to modernize the Postal Service, and access to $25 billion in unrestricted borrowing authority from Treasury.⁶⁸

In May 2020, Rep. Peter DeFazio (D-Ore.) and I led eighty one of our colleagues in requesting $75 billion in aid for USPS be included in the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.⁶⁹ Though the CARES Act provided $10 billion in additional borrowing authority for the Postal Service,⁷⁰ it was unable to access those funds until late July–in part because its borrowing authority with the Federal Financing Bank (“FFB”) had lapsed and the Treasury Department failed to assist in those negotiations.⁷¹

Rep. DeFazio and I remained extremely concerned about the state of the Postal Service’s finances because of those complications. Additionally, in July, we received word from alarmed USPS employees that Postmaster General DeJoy was making substantial changes to the Postal Service’s operations that were creating widespread mail delays. In response to those actions, we led a letter with Rep. Carolyn Maloney (D-N.Y.), Chairwoman of the Committee on Oversight and Reform, Rep. Gerald Connolly (D-Va.), Chairman of the Subcommittee on Government Operations, and 127 of our colleagues in encouraging House Speaker Nancy Pelosi (D-Cal.) to provide $25 billion in emergency appropriations to the Postal Service and undo Postmaster General DeJoy’s operational changes.⁷²

Those efforts culminated in the August 22, 2020 passage of H.R. 8015, the Delivering for America Act.⁷³ Though our legislation is currently sitting on Senate Majority Leader Mitch McConnell’s desk, its enactment is imperative. With $25 billion, the Postal Service could modernize its aging delivery vehicle fleet, perform much-needed maintenance on its facilities, and pay off debt owed to the FFB to stabilize its financial footing.

Second, Congress must enact H.R. 2382, Rep. DeFazio’s USPS Fairness Act.⁷⁴ H.R. 2382 is one of the rare bills that combines efficacy with brevity: in two sentences, it repeals the PAEA’s prefunding mandate in its entirety. This substantive legislation passed the House of Representatives on February 5, 2020 under suspension of the rules, a technique regularly employed by the House to quickly pass bipartisan, common-sense legislation using a two-thirds affirmative vote. H.R. 2382 cleared that high hurdle by a vote of 309-106.⁷⁵

Why, though, should Congress pass legislation that has little meaningful impact on the day-to-day operations of the Postal Service? As discussed in the previous section, the prefunding mandate only required that USPS fund the RHBF until 2017. Repealing the prefunding mandate wipes $33.9 billion in RHBF payments off of the Postal Service’s books while simultaneously reducing annual amortization outlays for the RHBF fund by $1 billion.⁷⁶ Ultimately, these changes help move USPS towards long-term fiscal solvency.

Third, Congress should enact legislation that would require most current and future Postal Service retirees to participate in Medicare Part B. In 2017, then-Chair of the Oversight and Government Reform Committee Jason Chaffetz (R-Utah) and then-Ranking Member, the late Elijah Cummings (D-Md.), included this proposal in their Postal Reform Act, H.R. 756. The nonpartisan Congressional Budget Office estimated that this proposal would reduce USPS direct spending by $470 million annually.⁷⁷

Although this proposal drew some opposition from retired federal employees because of the increased cost to Medicare,⁷⁸ it was supported by both National Association of Letter Carriers and the American Postal Workers Union, two of the largest unions for postal workers.⁷⁹ Enacting this proposal would not only ensure that postal employees maintain their high-quality healthcare, but also serves as a necessary acknowledgment that the federal government cannot completely separate itself from the fate of Postal Service employees.

Fourth, Congress should enact legislation, proposed by Rep. Stephen Lynch (D-Mass.), to reinvest the funds currently attributed to the Postal Service Retiree Health Benefits Fund.⁸⁰ Presently, the funds deposited by the Postal Service into the RHBF are invested in low-interest Treasury bonds. H.R. 2553 would allow between 25 percent and 30 percent of the approximately $48 billion that is currently available through the RHBF to be invested in higher-yield index funds.⁸¹ While reinvesting those funds inherently presents greater risk, the likelihood of fully funding the RHBF increases significantly with the adoption of this method, according to the Postal Service’s Office of Inspector General.⁸² Consider that, by 2018, the Postal Service had earned $15.3 billion in interest from the funds invested in the RHBF.⁸³ A slightly more aggressive investment strategy would yield billions of dollars.

Fifth and finally, Congress must address the Postal Service’s repeated failures to effectively communicate with both the public and Congress itself. As discussed previously, one of the key failures of the NRI was the inability of the Postal Service to adequately convey the potential and realized disruptions in service to Americans and Congress prior to its implementation. In the same way, Postmaster General DeJoy completely failed to notify Congress, USPS leadership, the American people, or his own employees of the nature of his recent operational changes. By failing to convey that information to the public, Mr. DeJoy ensured that his efforts would ultimately do more harm than good to the Postal Service.

In order to more successfully implement operational reforms moving forward, Congress should require quarterly reports beyond standard financial disclosures from the Postal Service Board of Governors and Postmaster General regarding upcoming plans for operational and service changes. The Postmaster General should also be required to meet annually with both the House Oversight Committee and its Subcommittee on Government Operations. These reports and meetings would allow Congress to weigh in on any planned changes and keep constituents informed on the topic.

The proposals identified above are not all-encompassing; I do not pretend to have all of the answers. I have not touched upon proposals to institute exigent prices for the duration of the COVID-19 pandemic, untie price caps from their current CPI tether, or equip post offices with public high-speed Internet or electric vehicle charging stations. Rather, the value of the proposals above lies in their bipartisan support and their ability to provide both immediate and long-term relief to the Postal Service’s most pressing problems.

V. CONCLUSION

While I believe that the adoption of the five measures above would significantly benefit the U.S. Postal Service, the first two are clearly the most necessary. In order to survive the COVID-19 pandemic, Congress must provide $25 billion in emergency appropriations to the Postal Service to help it cope with lost revenue and make the much-needed infrastructure investments that they have had to ignore for too long. Moreover, eliminating the prefunding mandate will enable the Postal Service to move beyond the damaging effects of the past decade and into a more sustainable future.

The Postal Service remains what it has always been to our country: an essential provider of goods and services; a core component of our economy; a pathway for many good, stable jobs; and a point of pride for the American people. Looking towards the 117th Congress, it is essential that Congress urgently advance postal reform legislation. By adopting the provisions outlined above, Congress will deliver for the Postal Service and ensure that they, in turn, can deliver for the American people for generations to come.

Image credit: CNN

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