The United States Postal Service (USPS) will run out of cash in five years. Postmaster General Megan Brennan shared this news in testimony before the House Oversight and Government Reform Committee earlier this month. The immediate consequence of USPS becoming insolvent would be that the world’s largest postal system — which still moves 150 billion mail pieces per year, or 412 million pieces per day — would be dead in the water. This is something that has never occurred in the Postal Service’s long and storied history.
If you think these primary effects would be devastating, the secondary effects would be catastrophic. More than half a million postal workers would be without wages. Magazine companies, which send millions of glossies per month, would be stuck trying to find local deliverers. Retailers — particularly those that sell via catalogs — would see their main advertising medium vanish. The paper and printing companies they work with would see their revenues plunge. Prescription-drug deliveries would be disrupted, as sellers scrambled to find alternate means for delivery. Jury summons, voting materials (including ballots for overseas troops), and international mail and shipments would stop flowing.
During the hearing, Representative Mark Meadows demanded USPS produce a turn-around plan by July that would save the Postal Service. To date, the agency’s plan has consisted of trying to trim costs, mostly by reducing the hours worked by employees, and reaping more revenue by delivering more parcels. As Postmaster General Brennan noted in her testimony, these efforts have not solved the problem.
USPS is in dire financial straits because its revenues are insufficient to support its operational costs and long-term liabilities. Mail volume is down 31 percent since 2007, and the agency’s revenues ($72 billion per year) are the same as they were a decade ago. The agency has around $120 billion in unfunded debt and obligations, most of which flow from compensation and benefits owed to its huge cohort of employees and retirees.
This slow moving financial catastrophe comes as no surprise to close watchers of the Postal Service. Indeed, back in 2007, then-Postmaster General John Potter told Congress that the agency’s “business model remains broken.” “With the diversion of messages and transactions to the Internet from the mail,” he warned, “we can no longer depend on printed volume growing at a rate sufficient to produce the revenue needed to cover the costs of an ever-expanding delivery network.”
Yet doing something about the problem has proven exceptionally difficult. Certainly, Congress has tried to solve it — many times, in fact. But postal policymaking is tricky because postal politics is complex. Consumers enjoy not having to support the agency via tax dollars, and those in rural areas are not thrilled at the prospect of reducing the number of days the mail carrier delivers. Unionized postal employees would rather not have their compensation cut or more of their work outsourced to the private sector. Both for-profit mailers and charities, the latter of which often rely on the mail to raise funds, do not want to be stuck with huge postal price increases. Neither do e-commerce shippers who like USPS’s low parcel rates and account for $19 billion of the agency’s annual revenue.
Finding a sweet spot between these diverse demands is not easy. The challenge is made all the more difficult by the voices who continue to deny the fact of the Postal Service’s financial crisis. Remarkably, one will still hear the claim that the agency would be fine if Congress did not have to prefund its retiree health benefits — never mind that USPS is not making the legally required prefunded payments and that these health care benefits must be paid eventually, lest retired postal workers be stiffed.
Postmaster General Brennan’s testimony makes clear what has been obvious for years: The Postal Service is facing an existential crisis. Nobody wants to see the Postal Service shut down. Avoiding this disaster demands that USPS, Congress and all stakeholders transcend old biases and entirely rethink what a sustainable 21st-century postal service should be. The sooner they do this, the better.
Kevin Kosar (@KevinKosar) is vice president of policy at R Street Institute.