A 2006 law set the stage to burden the agency with $160 billion in debt
By Jacob Bogage
Published by the Washington Post, April 15, 2020 at 5:00 a.m. CDT
The U.S. Postal Service needs a bailout, or at least some vision for its future after the coronavirus pandemic.
The agency is burdened by hundreds of billions of dollars in debt and falling revenue, and Congress and the White House have signaled an unwillingness to grant more funding without major restructuring, lawmakers say. Conservatives see a chance to remake the Postal Service in the image of a private corporation. Liberals want to modernize what they view as a conduit essential to connecting and unifying the nation.
Stuck in the middle are the Postal Service’s 630,000 workers, who were assured prepaid health and retirement benefits by the 2006 Postal Accountability and Enhancement Act, known in postal circles as “PAEA” (pronounced like the Spanish rice dish). The law envisioned the Postal Service as a self-sustaining agency whose revenue could cover the expenses associated with an aging workforce involved in a physical occupation: delivering packages and parcels to every address in the country.
Not even two decades later, it can’t. The Postal Service has racked up $160.9 billion in debt from what’s owed prepaying retiree benefits. On top of that, it has many years’ worth of operating deficits, as its top revenue generators no longer covered the costs of delivering the mail.
Instead, Apple’s revolutionary iPhone was released a year after then-President George W. Bush signed the bill into law. Mobile phones hastened consumer behavior changes that were already driving away the kinds of business the Postal Service had relied upon for decades. People could send texts or emails from handheld devices rather than through written correspondence. Bill payment moved online. For a generation of Americans, the Postal Service was nearly obsolete.
Then came the Great Recession, which ravaged the Postal Service by slicing the volume of first-class mail it handled — the items on which it makes the highest margin — by 13 billion items over two years. After the recession, much of that demand never returned.
By 2009, the Government Accountability Office, Congress’s nonpartisan watchdog agency, determined that the Postal Service’s business model was no longer sustainable. The debt it carried jumped from $7 billion in 2008 to $10 billion in 2009.
At the end of 2019, the GAO calculated that the Postal Service had $160.9 billion in debt, $119.3 billion of which came from retiree benefits.
The mandate to prepay employees’ retirement and health-care benefits is an obligation held by few other government agencies, let alone private companies. The Postal Service missed its first payment on those expenses, worth $5.5 billion, in 2011. By 2012, it exceeded its borrowing limit. And then the debt kept piling up.
“That prepayment responsibility that they’ve been unable to meet has exacerbated over the years,” said Cary Brick, a past member of the Citizen Stamp Advisory Committee, and former chief of staff for Rep. John M. McHugh (R-N.Y.), a co-sponsor of the 2006 law. “It was bad, and it got more bad and it got worse. But now it’s desperate.”
How desperate? Without a $10 billion loan included in the Cares Act, the Postal Service would have had to miss a payroll or disrupt service in September. The loan, which has yet to be approved by the Treasury Department, gives the Postal Service enough cash to fund operations and make payroll until March or April 2021. But it is more debt the agency has to carry.
“For now, the pandemic is an immediate threat to the survival of the people’s post office,” said Fredric Rolando, president of the National Association of Letter Carriers, the labor union that represents 280,000 active and retired postal workers.
But back in 2006, PAEA seemed like a responsible decision to the officials in charge of analyzing the Postal Service budget, GAO officials said. From 2004 through 2006, the Postal Service made $6 billion in profits, according to financials filed with Congress. It paid out retiree and worker benefits on a “pay as you go” structure, meaning the agency only paid out retiree benefits when people actually retired, just like most other government agencies. The money to pay those claims came out of the Treasury Department.
Congress and the White House still wanted some reform at the time. First-class mail volume was healthy but steadily decreasing after an all-time high in 2001 — 103.7 billion items — and profits had started to fall, as well.
“Congress had realized for some time that the post office was dealing with an outdated business model,” said Tom Davis, the rector of George Mason University and a former GOP congressman from Virginia who introduced the bill. “And it still is. That hasn’t changed.”
Parts of that 2006 law included provisions to allow the Postal Service to raise rates on certain products and gave more power to the Postal Regulatory Commission, the board of governors that oversees the Postal Service, to review the agency’s use of resources. It even granted the commission subpoena power.
It eliminated the Postal Service’s existing retirement escrow fund, and the agency’s requirement to pay out the military pensions of veterans who worked there, which saved $61 billion over 10 years. The legislation passed with broad bipartisan support.
But the 2006 law also shifted the burden of paying for worker and retiree benefits entirely to the Postal Service. That came at the insistence of the Bush administration, Davis said. The White House no longer wanted the Treasury Department on the hook for those expenses if the Postal Service was making billions of dollars in profits.
“Predating PAEA there was increased desire on the part of the [Bush] administration to push the Postal Service toward increased efficiency and competitiveness,” said Lori Rectanus, director of physical infrastructure at the GAO. “In general, PAEA really sought to make the Postal Service a high-performing, self-sufficient, efficiency-based business.”
Of course, the relatively stable financial footing that enabled that perspective didn’t last. First-class mail volume between 2010 and 2019 plummeted and the Postal Service ran up larger and larger operating deficits. Package volume doubled in that time frame — one of the agency’s lone bright spots — but the Postal Service doesn’t make enough money on package delivery for that to make much of a dent in the deficit. Postal leaders have pitched other products to generate revenue, including banking services and prepaid debit cards, but none of those ideas ever made it to the market.
“They ought to take it up with the administration and the Congress, if they need to have it changed,” said former congressman Henry A. Waxman (Calif.), one of the law’s Democratic co-sponsors. “It’s a charge we’re not going to avoid and we’re not going to leave these workers in the lurch.”
Now postal leaders forecast another drop in mail and revenue because of the pandemic. Volume in the first week of March declined 30 percent, postal agency officials told lawmakers last week. At the end of June, the agency projects volume to be down 50 percent, and it could lose $23 billion over the next 18 months.
It gives the Postal Service two crises to contend with: running out of cash to finance operations and paying down debt while running a perpetual deficit. Both of those, experts said, point to a need for a bailout and some restructuring.