U.S. Postal Service Default

No, the U.S. Postal Service won’t close on August 1st because it can’t afford to make a required $5.5 billion payment into a federal fund for postal retiree health benefits. Yes, the entire situation with the USPS is a mess. But when you have politicians ultimately trying to run a commercial operation, constant clean ups in aisle four are to be expected.

Here’s the situation:

1. The USPS is bleeding billions of dollars in red ink and has just about maxed out its line of credit with the U.S. Treasury.

2. In April, the Senate passed a bill that would buy the USPS time by effectively kicking the can down the road.

3. A more aggressive bill in the House sponsored by Rep. Darryl Issa (R-CA) is unpopular with the postal unions, Democrats, and apparently enough Republicans that the votes are reportedly not there to get it passed. And if the votes are there, the House Republican leadership doesn’t appear to be interested in bringing it to the floor.

4. Even if the House passed a bill, it wouldn’t be easy for House and Senate conferees to hammer out a compromise given the differences between the two bills. Because there isn’t much space left on the legislative calendar, and it’s an election year, it’s hard to imagine that there would be enough time to get something done to avert a default.

5. It is possible that language will be added to appropriations legislation that postpones the payment. For example, every year Congress includes language requiring the USPS to deliver mail six days a week.

Again, no, the USPS won’t shut its doors in the event that it defaults on the payment. Beyond that, I’m admittedly not sure what – if anything – would happen. I operate on the assumption that the federal government can do whatever it wants. That means Congress, USPS management, and postal stakeholders will probably just continue to haggle over what to do.

The postal unions will continue to concentrate their fire on the mandatory postal retiree health benefit payments, which they argue Congress should simply make disappear. As I recently explained, however, “eliminating the payments won’t put the USPS in the black, and it would merely set the stage for a major taxpayer bailout down the road.”  In fact, I believe policymakers should be asking themselves why postal employees should continue to receive a benefit that a small – and declining – share of private sector workers enjoy.

From a Cato essay on privatizing the USPS:

Opponents of pre-funding USPS retiree health benefits argue that private companies and the rest of the federal government are not legally required to do so. That is largely irrelevant. Retiree health care coverage is an increasingly rare perk in the private sector, and the federal government’s financial management is nothing to emulate. In 2008, only 17 percent of private sector workers were employed at a business that offered health benefits to Medicare-eligible retirees, down from 28 percent in 1997.

Note: For those interested in postal policy, Michael Schuyler has a new – and very interesting – paper out on the USPS and stamp prices. Of course, I want the USPS to be privatized and the market to set postage prices. However, if given the choice between a taxpayer bailout and a postage hike, I say hike away.