Why the Just-Passed Postal Service Reform Act is Such a Big Deal

In a rare moment of bipartisanship, Congress has approved a historic bill to reform the U.S. Postal Service. Why is this legislation such a big deal?

The centerpiece of the Postal Service Reform Act is the repeal of a financial burden that has imposed extraordinary costs on the U.S. Postal Service since 2006. That year Congress passed the Postal Accountability and Enhancement Act (PAEA), which required USPS to set aside an average of $5.6 billion every year for 10 years to pre-fund its post-retirement health care costs decades into the future. This financial burden applies to no other federal agency or private corporation.

USPS made required annual contributions to this fund for the first four years, but then stopped because the high cost threatened their ability to fulfill their universal service obligation. Aside from special Covid relief support, the Postal Service has financed its operations entirely through revenue from products and services, without taxpayer subsidies.

Expenses related to retiree health benefit prefunding accounted for 84 percent of USPS reported losses from 2007 to 2020 (see table below). These artificially large deficits have been used to justify harmful cuts to services and jobs and calls for postal privatization, which would be devastating for the entire country and particularly for rural communities.

Note: RHB = retiree health benefits. Source: Institute for Policy Studies analysis of USPS 10-K Reports.

The prefunding mandate also drained resources for needed capital investment, including expanded investment in more efficient delivery vehicles, package sorting machines, facilities, and IT infrastructure. This underinvestment has undercut the agency’s long-term financial health and limited its ability to expand in ways that meet Americans’ evolving needs.

By repealing the prefunding mandate, the Postal Service Reform Act will put the agency on a sounder financial footing without jeopardizing postal workers’ retirement security. As of 2020, the Postal Service had $42.1 billion in its retiree health benefits fund and more than $275 billion in pension funds. No other employer — governmental or private sector — has retirement assets that come close to these amounts.

How the prefunding mandate has undercut USPS jobs and services and sparked calls for privatization 

Even before the prefunding mandate, the Postal Service faced extraordinary financial pressures because it is a quasi-independent entity that is required to be financially self-sustaining — unlike other federal agencies. As Max Sawicky, a Senior Research Fellow with the Center for Economic and Policy Research, has noted, “We do not see the Pentagon holding bake sales to finance its purchases of tanks and munitions.”

By requiring USPS to “run like a business” while imposing a prefunding mandate no private business would accept, Congress caused serious damage in multiple ways. The mandate spurred USPS officials to aggressively slash labor costs, drastically reducing a workforce that has long been a reliable source of decent, middle class jobs, particularly for Black families. Between 2006 and September 2021, the number of full-time career postal employees dropped from 696,138 to 516,500. Lower-paid, non-career employees with higher turnover rates made up 21 percent of the workforce at the end of fiscal 2021. Last year, Black workers made up 29.3 percent of postal employees.

The prefunding mandate also prevented capital investments that would’ve put the agency on a stronger financial footing, such as expanded investments in package sorting technology and a more efficient delivery fleet. Vehicle maintenance costs came to a staggering $1.7 billion in 2019 alone. Underinvestment in cutting-edge technologies and personnel are among the challenges USPS faces in handling surges in delivery demand, as occurred during the 2020 holiday season.

The manufactured financial crisis also emboldened the forces who have long called for selling off the public Postal Service to for-profit corporations. In June 2018, the Trump White House recommended postal privatization in a report on overall government restructuring. In December of that year, a task force appointed by Trump issued a more detailed report calling for sweeping changes.

Among the Trump task force recommendations: contracting out key parts of the Postal Service, reducing delivery days, closing many rural post offices, eliminating collective bargaining rights for postal employees, and drastically increasing prices on package service and the mail. The Trump task force declared that such cuts were necessary because USPS was on an “unsustainable financial path.” But they failed to call for the repeal of a primary cause of the financial problem: the retiree health care prefunding mandate. 

With the lifting of the prefunding mandate, the debate over the future of our public Postal Service should focus on ensuring high delivery standards and the expansion of services that can generate new revenue and meet Americans’ 21st Century needs.

Sarah Anderson directs the Global Economy Project at the Institute for Policy Studies. Scott Klinger is an IPS Associate Fellow and a Senior Equitable Development Specialist with Jobs With Justice. Brian Wakamo is an IPS researcher.