Wednesday’s announcement that the United States Postal Service would halt Saturday delivery to help fix its financial mess sounded like a good move for the deficit-laden agency. After all, Postmaster General Patrick Donahoe says it will save the post office $2 billion a year.
But put in the context of $20 billion projected annual deficits, that $2 billion savings starts to look a lot less substantial.
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A number of factors are behind the post office’s deficit problems: More of us use e-mail and text messaging to stay in touch, driving down mail volume; private competition from carriers like UPS and FedEx has chipped away at the Post Office’s package delivery service business; and USPS processing and distribution facilities have long been considered bloated and inefficient compared to private shippers. But the biggest obstacle to postal reform, by far, is the problem of funding Congressionally mandated pre-retiree health benefits.
Since 2006, the Post Office has been legally required to pre-fund health benefits for future retirees at a cost of around $5.5 billion a year. For the first time last year, it defaulted on its annual payment.
When Congress imposed those mandates in 2006, the Post Office was doing just fine. Digital communication had yet to take such a huge bite out of the amount of mail the USPS processed and delivered. First-class mail volume was about 97 billion pieces in 2006. So there wasn’t much of a backlash when Congress decided that the Post Office was healthy enough to lock in health benefits for future retirees — for the next 75 years, mind you, something no other public or private agency does.
Two years later, the U.S. was hit by the Great Recession at around the same time that mobile communication and things like online bill payments were growing at explosive rates. The Post Office began reporting massive deficits from which it has yet to recover. Last year it delivered only 68 billion pieces of mail.
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So far the Post Office has placed about $44 billion in that pre-retiree account. Without the mandate, the Post Office’s financials — while still not completely healthy — would be much more stable.
In a sense, the problems facing the Post Office are a microcosm of what’s happening with retiree benefits in the U.S. more generally. As a nation, we’ve promised benefits to retirees that either we can’t afford or aren’t willing to fully fund.
On Wednesday, Donahoe did mention the billions that the postal service is required to set aside each year, saying that the proposal to drop Saturday delivery is only part of a long-term plan to get the agency back in the black. While Donahoe believes he can change postal delivery schedules without Congressional approval, restructuring the pre-retiree health fund is a different matter altogether.
If the proposal moves forward and Congress allows the post office to go to 5-day rather than 6-day delivery, expect Saturday delivery to stop in August — and you can largely thank that Congressional mandate for your empty mailbox.
Correction: A previous version of this story reported that the post office had placed about $21 billion in the pre-retiree health fund. According to the U.S.P.S. Office of the Inspector General, about $44 billion is currently in the account.