Banking as a fix to the Postal Service’s financial crisis

Measures to introduce banking at United States Postal Service offices are the latest moves to combat annual budget concerns about the cash-strapped agency. But such moves would certainly face scrutiny by Congress.

Postal-Service-TruckThe Postal Service gets limited direct funding from Congress, and Congress has oversight of the agency through its constitutional powers. The Postal Service was established by the Constitution in 1787. Article 1, Section 8 enumerates the powers of Congress, including the power to establish and maintain post offices, along with roads to support the service.

So while the Postal Service needs Congress to approve many key plans, such as restricted Saturday mail delivery, there hasn’t been a consensus in Congress in recent years to advance reform measures. And with mid-term election afoot, Congress would unlikely approve any efforts to end Saturday deliveries, which are popular with voters.

On Thursday, Representative Cedric Richmond, D-New Orleans, proposed legislation that would allow the Postal Service to offer financial services such as check cashing, savings and checking accounts, and small loans at its locations. The Postal Service claims the move would bring in about $8.9 billion annually in new revenue.

Representative Darrel Issa, R-Calif., who as the chair of the House Oversight and Government Affairs Committee oversees all postal legislation, has rejected the idea.

Proponents of the banking idea argue that the Postal Service could replace vendors that target 68 million Americans who have limited access to financial services.

And the Office of the Inspector General (OIG) of the Postal Service said in its report on banking services that it may be able to institute the financial services without prior congressional approval.

That’s because the Postal Service offered small savings accounts to customers for decades. The practice stopped in the 1960s when Congress shut down the program, but the precedent could be cited.

The Office of the Inspector General acknowledged that a prior congressional act put restrictions on non-postal services, but “given that the Postal Service is already providing money orders and other types of non-bank financial services, it could explore options within its existing authority.”

Congress may not agree with the interpretation, and it overruled an attempt by the Postal Service in 2013 to reinterpret existing laws as a way to cut back on Saturday deliveries.

On a smaller scale, the Postal Service is looking at 3-D printing as a novel way to add more revenue. In a white paper released on July 7, the consulting firm Christensen Associates says offering 3-D printing facilities could add $485 million to the Postal Service budget.

In May, the Postal Service reported losses of $1.9 billion, just for its second quarter. “Despite aggressive cost-cutting actions, however, we will still incur annual inflationary cost increases of approximately $1.2 billion each year, and First-Class Mail volume continues to decline,” said Postmaster General and Chief Executive Officer Patrick Donahoe.

One core problem with the Postal Service’s finances has been an annual pre-payment mandated by Congress toward retirement benefits. The Postal Service has stopped making the payment in recent years and has confirmed it won’t make the annual $5.7 billion payment this fall.

But even with relief from the pre-payments, the Postal Service has argued it needs aggressive business moves to stay ahead of its debts.

“If legislation reduced the required retiree health benefit prefunding payment, it doesn’t provide us with any more cash to pay down our debt or put much needed capital into our business,” said Chief Financial Officer and Executive Vice President Joseph Corbett back in May. “Only comprehensive postal legislation that includes a smarter delivery schedule, greater control over our personnel and benefit costs, and more flexibility in pricing and products will provide the necessary cash flows.”

However, unions that support Postal Service workers dispute the reports that the business isn’t breaking even after defaulting on its pre-funded pension installment.

The National Association of Letter Carriers says that the Postal Service actually made $1 billion for the first half of 2014, once the pre-funded retirement mandate is removed from the books.

“We will be glad to work with lawmakers and the postmaster general to develop a comprehensive plan that strengthens the existing networks while addressing the unfair pre-funding obligation so the Postal Service, which is based in the Constitution, can continue to provide Americans with the world’s most affordable and efficient delivery network without a dime of taxpayer money,” said NALC President Fredric Rolando.

Corbett, the Postal Service CFO, disputed that figure in May.

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