The Imploding US Postal Service bailout 

When politicians overwhelmingly pass a massive federal bailout, taxpayers expect it will work. But Washington, D.C. is now so broken that even this can no longer be assumed.

Exhibit A is the Postal Service Reform Act (PSRA), one of the few bipartisan measures enacted by Congress in 2022 and signed by President Biden on April 6, 2022.

PSRA is big on financial help but falls woefully short on reform. Its central feature is a $107 billion in taxpayer assistance to the U.S. Postal Service (USPS). The law accomplishes this by forgiving defaults on retiree health care payments and transferring some obligations to the already heavily burdened Medicare system.

Three government reports since April 20, 2023 show that the financial assumptions Congress used to enact PSRA were way off. The new reports also confirm Congress should have been more diligent in demanding answers from USPS, as well as in demanding true reforms.

For starters, USPS now says it will lose $56 billion more than it represented to Congress before the 2022 votes.

In its March 2021 10-year strategic plan, USPS said it would cumulatively break even in the years 2021-30 if PRSA were passed and if it were forgiven an additional $14 billion in pension obligations. On April 27, 2023, in an update on the strategic report, USPS said it now expects to lose $70 billion over that period.

USPS also projected in 2021 that it would break even this year. Now USPS does not expect that until 2030. Furthermore, USPS’s May 9 announcement of second quarter results is likely to show it is on track for up to a $6 billion loss this year.

Second, on April 20, USPS was again part of the U.S. Government Accountability Office’s (GAO’s) biannual High-Risk List of federal agencies “vulnerable to waste, fraud, abuse, and mismanagement or in need of transformation.”

GAO warns: “USPS still cannot fully fund its current level of services and financial obligations.” It also said, “The fund supporting postal retiree health benefits is estimated to be depleted in the early 2030s even with the changes under the 2022 Act.”

PSRA also left hundreds of billions of dollars on the table for USPS, as evidenced by an April 26 report from USPS’s Office of Inspector General.

While state government workers and teachers have their pension and retiree health funds invested in a mix of stocks, bonds, and other quality assets, USPS, by law, can invest only in government bonds. USPS had $298 billion in such assets at the end of fiscal year 2022. Its inspector general estimated it could have had up to $1.2 trillion if it had diversified its investments as states do for government workers.

Of note is the troubled Postal Service Retiree Health Benefits Fund, one of USPS’s three main investment areas and the focus of the 2022 bailout. According to USPS’s inspector general, it would have “$74 billion, or 2.1 times the current value” if it had taken this diversified investment approach beginning in 2007, when the fund was launched. 

GAO also noted that at the end of fiscal year 2022, USPS’s “long-term unfunded liabilities and debt totaled about $144 billion or about 184 percent of USPS’s fiscal year 2022 revenue.”

USPS is, by law, supposed to be self-supporting and there is no reason that the consumers of postal services, today often big businesses, should not be able to pay for them, if costs are kept in line and properly allocated. PSRA, though, ignores costs and keeps antiquated cost allocation systems in place.

The rush to enact the legislation prevented serious consideration of investing retirement funds in stocks and bonds.

Furthermore, the Postal Service’s regulators need far greater resources and statutory authority. The Postal Regulatory Commission has a staff of about 70 and an annual budget of near $21 million, a pittance compared with the USPS’s 700,000 employees and more than $70 billion in revenues.

It is time for Congress to go back to the drawing board on postal reform. And it should be done before USPS runs out of cash in three years or so.

Paul Steidler is a senior fellow with the Lexington Institute, a public policy think tank based in Arlington, Va.