Draft bill coming soon to address ‘serious but solvable’ USPS financial woes

Rep. Jason Chaffetz (R-Utah), says a bill is being drafted to address Postal Service reforms. The reforms include addressing the mandate to pre-fund health reti...

A draft bill to reform the U.S. Postal Service and strengthen the “backbone” of the mailing industry is expected to be introduced in the House.

Rep. Jason Chaffetz (R-Utah), chairman of the Oversight and Government Reform Committee, said he anticipates the introduction of the legislation, which will address what should be done to keep the agency “effective and efficient,” and reverse the fiscally unsustainable path it is currently on.

“We are actively trying to address the pre-funding issue,” Chaffetz said during a May 11 committee hearing on postal reform. “We are obviously — as we’ve heard from across the whole spectrum of the board — trying to deal with the Medicare portion of that.”

Chaffetz also asked Postal Service stakeholders for their thoughts on combining the Postal Regulatory Commission (PRC) and the USPS Board of Governors.

Postal Regulatory Commission acting Chairman Robert Taub said the commission is currently set up as a regulator, so lawmakers should keep in mind the role of “regulator versus operator” if the two are combined.

“I think there’s got to be a better, smarter way to do that,” Chaffetz said of the board. “It’s rare to none it’s a fully occupied position and they don’t seem to be doing much. So maybe it’s time to restructure.”

Solvable challenges

Chaffetz said he is optimistic about the pending draft legislation. He told reporters the issue of postal reform has “solid bipartisan support.”

“I would be more optimistic than not,” Chaffetz said. “We’re pretty united on this. There are a lot of members that still have some questions to be ferreted out, but that’s what we do.”

Sen. Tom Carper (D-Del.) said in a statement that he hoped the dialogue from the House committee hearing “bears fruit and helps Congress come together to enact much-needed postal reform legislation.”

Carper introduced a bill in September that would create a new health benefits program specifically for postal employees and annuitants and require those eligible to enroll in Medicare.

Health insurance has been the albatross around the neck of the Postal Service since 2006, when Congress required USPS to pre-fund health retiree benefits for postal workers.

To date, the USPS has paid about $18 billion into the fund, according to the Government Accountability Office, but it’s missed about $28 billion in payments.

“The pre-funding requirement may have made sense back in ’06, but it no longer makes sense to have the Postal Service comply with a requirement that would force it into insolvency,” said Rep. Lacy Clay (D-Mo.).

Though the service increased its “controllable” income in the second quarter to $576 million, compared to $313 million last year, because of the pre-funded obligations, the agency actually recorded a $2 billion net loss in the second financial quarter.

Postmaster General Megan Brennan said during her testimony that mail volume has declined by roughly 27 percent between fiscal 2007 and 2015, thanks in large part to the internet and mobile communication. First-class mail, the agency’s most profitable product, has declined by 35 percent.

Package volume would need to increase by 249 percent, Brennan said, to make up for the loss in revenue from First-class mail.

“Without legislative and regulatory reform, our net losses will continue to grow, regardless of our ongoing efforts to grow revenue and improve operational efficiencies,” Brennan said. “If allowed to continue, this will have a devastating effect on the future of the organization and the customers we serve.”

Brennan’s  four-point plan — which she mapped out earlier in the week during a second quarter report — would save the agency $32 billion through fiscal 2020.

She told committee members that the cornerstone of her reform proposal is to require full Medicare integration for retirees over age 65. Full integration would save the Postal Service more than $17 billion in the next five years.

Along with full Medicare integration, the plan includes:

  • Bringing back the exigent postal rate increase that the PRC did away with on April 10.
  • Calculating retirement benefit liability using postal-specific salary growth.
  • Allowing USPS more product flexibility.

Brennan told committee members that the suggestion of reducing delivery to a five-day service did not have congressional consensus.

Finding the sweet spot

In the past decade the USPS has saved about $15 billion annually through streamlined operations, increasing workforce flexibility and establishing “a more affordable wage system,” Brennan said.

Committee ranking member Elijah Cummings (D-Md.) asked GAO’s Director of Physical Infrastructure Issues Lori Rectanus whether she agreed that the Postal Service needed to “develop innovative products and services” to be financially viable.

“The challenge you run into is trying to find that sweet spot between areas in which the Postal Service will be profitable since they can’t afford to lose money, but you don’t want them to be able to compete unfairly because of their unique status — or conversely lose money because of their unique status,” Rectanus said.

“So you end up in a ‘no’ spot,” Cummings said. “On the one hand we want them to be able to bring in more money, but then we tie their hands and shackle their feet and say we don’t want you to do this, we don’t want you to do that.”

Jessica Lowrance, executive vice president for the Association for Postal Commerce, also defended the Post Service’s cost-cutting initiatives, but stopped short of saying there was nothing more the Postal Service could do to improve its situation.

“I’m not really at liberty to say layoffs should happen or that anything should happen to the common employee of the Postal Service,” Lowrance said. “I think there are great lengths of additional price signals and cost-efficiencies that they could gain through working with the industry.”

Rep. Jody Hice (R-Ga.) asked Brennan whether the Postal Service had too many employees given the decline in business, and drew comparisons between the USPS’s financial struggles and industry.

“What would a private company do,” Hice asked. “If a private company is losing money month after month, year after year, quarter after quarter, what would they do?”

Frederic Rolando, president of the National Association of Letter Carriers, testified that if the USPS was a private business, it wouldn’t have $50 billion tied up in a fund for 75 years into the future.

“It would certainly affect the standards, it would affect service, it would affect rates, it would affect vehicles, it would affect infrastructure, it would affect all kinds of things,” Rolando said. “I think the takeaway from all of this is we’re not allowed in that way to act like a private company.”

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