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Don’t “Save” the Postal Service by Destroying It

Posted by Karen Traeger on Feb 13 2012
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By:  Bob Lucore

This recent earnings release from the United States Postal Service (USPS) announced a large loss for the first quarter of its fiscal year. It could, just as accurately, have said that the Postal Service made a net operating profit of $200 million delivering the mail for this year’s first quarter.

The difference between the announced loss and the operating profit is almost entirely due to an external condition imposed by a severe congressional mandate, that requires that the post office pre-fund 75 years’ worth of future retiree health benefits within the next few years. This pre-funding requirement added $3.1 billion in red ink to the USPS’s first quarter not loss figure.

Pre-funding retiree health sounds like a very laudable goal. However, the amount that the Postal Service has been required to set aside for this purpose far exceeds that which is necessary, and is unmatched by any private corporation or agency of the federal government. It is being required to fund a 75-year liability within a ten-year framework.

The Postal Service’s watchdog, the Inspector General (IG), recently found that the USPS pre-funding level is unprecedentedly high. The IG reported that typical agencies of the federal government do not pre-fund healthcare costs at all. The military is only funded at the 35 percent level. Of the largest corporations few even offer retiree health, but of those who do only 38 percent pre-fund the expense at all—and the median funding level for those companies is far below that of the Postal Service. Most organizations pay for retiree health out of their current revenues each year, rather than accumulate a fund ahead of time.

The Postal Service has been required by Congress to pay $5.5 billion annually, into what the IG calls a “war chest” that now holds over $326 billion. Even if no further funding was provided, and the fund simply collected a modest rate of interest, the account would be 100 percent funded in twenty-one years. In addition, the USPS has overpaid the federal retirement system by $13 billion.

The USPS does face competitive and technological challenges. Electronic delivery has challenged traditional mail. Federal Express and UPS have taken over some of the most profitable segments of the shipping market. However, the Postal Service has also been hampered by draconian Congressional mandates that its competitors do not face.

The unprecedented pre-funding requirements are the work of Congressional Republicans. They were imposed in 2006, while the Republicans controlled both Congress and the White House. Now Darrell Issa (R-CA) has launched an effort that pretends to “save” the post office by destroying it. Rather than giving the Postal Service flexibility to reorganize and meet their competition on a level playing field, Issa would further weaken the USPS by cutting services and imposing a downward spiral on the Service’s ability to deliver.

A glimmer of hope is being offered by Senators Patrick Leahy (D-VT), Bernie Saunders (D-VT) and Mary Landrieu (D-LA). They hope to rally support for a series of amendments to the flawed proposals in the “21st Century Postal Service Act.” Postal unions have also made valuable suggestions for reform. Such efforts may yet give the USPS the flexibility it needs to adjust for a competitive future, rather go into a downward spiral.
 


Bob Lucore, a long-time ADA board member, is the former Director of Research and Policy for the United American Nurses and has worked for the Teamsters and the Department of Economic Research at the AFL-CIO. . He taught economics for several years at Centre College and Colorado State University and is currently a graduate student in the School of Library and Information Science at San José State University.

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