Postal Reform Needed to Avoid a ‘Taxpayer Funded Bailout’

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By on February 13, 2018 in Agency News, Pay & Benefits with 0 Comments

Postal Service Headquarters sign

The White House’s 2019 budget proposal addresses the ailing finances of the Postal Service and says that reforms are needed to allow it to “meet its financial and service obligations with business revenue, as intended, rather than a taxpayer-financed bailout.”

USPS Financial Problems

The Postal Service’s finances are a disaster. It continues to hemorrhage money and routinely reports big losses when the agency announces its financials at the end of each quarter or year. It reported a $540 million net loss in the latest fiscal quarter, and for 2017 it reported a $2.7 billion net loss. It is now going on 11 straight years of financial losses.

Part of the problem is that first class mail is declining in the Internet era. In its latest financial report, the Postal Service noted that mail volumes declined by approximately 2.0 billion pieces which was the continuation of a multi-year trend.

Benefits Costs

Perhaps the biggest contributing factor though is the cost of providing health and retirement benefits to employees. The White House’s 2019 budget proposal notes this, stating, “Since 2012, USPS has prioritized payments to employees and vendors, while defaulting on required payments of more than $5 billion each year to the Office of Personnel Management (OPM) for current and former employee benefits costs.”

It goes on to say that the Postal Service must be “given the ability to address their expenses—including the cost of personnel—and take appropriate actions to balance service levels with revenue. USPS must also have the flexibility to raise the revenue necessary to support their operations.”

As to how exactly it would do this, the budget document is fairly vague. It references two reports in the footnotes, one of which was a Government Accountability Office (GAO) report from February 2017 which addressed the Postal Service’s ailing financial condition.

In that report, GAO said this:

Most USPS employees are covered by collective bargaining agreements with four major labor unions which have established salary increases, cost-of-living adjustments, and the percentage of health insurance premiums paid by employees and USPS. When USPS and its unions are unable to agree, the parties are required to enter into binding arbitration by a third-party panel. There is no statutory requirement for USPS’s financial condition to be considered in arbitration.

Considering USPS’s unsustainable financial condition and the competitive environment, we continue to believe — as we reported in 2010 — that Congress should consider revising the statutory framework for collective bargaining to ensure that USPS’s financial condition be considered in binding arbitration.

In plain English, GAO thinks it would be a good idea to take the Postal Service’s finances into consideration when negotiating employee pay and benefits rather than just giving the union what it wants.

Postal Reforms

GAO said in its report, and the budget proposal echoed, that legislative reforms are needed as well. While it offered no in-depth specifics, the 2019 budget proposal said:

The Budget proposes a combination of operational reforms and retiree health and pension changes to restore solvency to USPS and ensure that it funds existing commitments to current and former employees from business revenues rather than taxpayer funds. Operational reforms include changes to how rates are set, modification of USPS’s delivery schedule, and use of more efficient delivery methods. In addition to Government-wide changes to health and pension programs (see the OPM section of this volume) that will reduce USPS operating costs, the Budget proposes specific Postal reforms to modify USPS’s contributions for life and health insurance for employees to be more consistent with Government-wide standards.

The “Government-wide changes” it referenced were proposed cuts to retirement benefits for federal employees, including elimination of COLAs for FERS employees, elimination of the FERS Special Retirement Supplement, and changing annuity calculations to use a high-5, among other things. The wording suggests that the Trump administration would like to see these types of benefits changes applied to Postal employees as well.

What Reforms Might Occur?

So what might legislative and benefits reform look like for the Postal Service? The best example available currently comes from the changes proposed under the Postal Service Reform Act of 2017 (H.R. 756).

Among other things, the bill would have Medicare eligible Postal Service retirees and family members automatically enrolled in Medicare Part A and B, and the Postal Service would cover a decreasing portion of the Medicare Part B premium for current retirees transitioned into Medicare as a result of the legislation. For details, see Legislation Introduced to Reform Postal Employees’ Benefits.

The Postal Service itself continues to state that it needs action from Congress to help its situation. When it reported its financial results for 2017, Postmaster General Megan J. Brennan said in a statement that she urged passage of this bill to help give the Postal Service a “financially stable future.”

The bottom line is that GAO, the Trump administration, and the Postal Service itself are all saying that something has got to give as the Postal Service is currently on a financially unsustainable course. That might be increased revenue, it may be new legislation, it could be pay/benefits cuts, or, eventually, a taxpayer bailout. GAO did concur with the statement in the budget proposal that taxpayers are eventually going to be on the hook for the Postal Service unless something changes. GAO summed it up as follows:

Large unfunded liabilities for postal retiree health and pension benefits—which were $73.4 billion at the end of fiscal year 2016—may ultimately place taxpayers, USPS employees, retirees and their beneficiaries, and USPS itself at risk.

As GAO has previously reported, funded benefits protect the future viability of an enterprise such as USPS by not saddling it with bills after employees have retired. Further, with USPS retirees participating in the same health and pension benefit programs as other federal retirees, if USPS ultimately does not adequately fund these benefits and if Congress wants these benefits to be maintained at current levels, funding from the U.S. Treasury—and hence the taxpayer—would be needed to maintain the benefit levels. Alternatively, unfunded benefits could lead to pressure for reductions in USPS benefits or pay.

© 2018 Ian Smith. All rights reserved. This article may not be reproduced without express written consent from Ian Smith.

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About the Author

Ian Smith is one of the co-founders of FedSmith.com. He enjoys writing about current topics that affect the federal workforce.

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