Oct. 7, 2011 at 7:52 AM ET
You might have heard that the United States Postal Service is in trouble: that it's losing billions, that it will have to end Saturday service and close branches — and most inflammatory, that it might need a government bailout. Perhaps you heard that the Postal Service couldn't pay $5.5 billion bill that came due Sept. 30 and that only an emergency postponement saved it from the government's equivalent of default.
In fact, it's the Postal Service that’s currently bailing out the U.S. government. Politicians have been raiding Postal Service revenues for years, using them to make the federal deficit appear smaller than it really is. The fiscal gyrations are so twisted that the Postal Service is right now forced to pre-pay health care benefits for employees the agency hasn't even hired yet — in fact, for many future employees who haven't even been born yet — all to artificially shrink the federal deficit.
It's these crushing accounting tricks, not the cost of delivering mail, that has pushed this 200-year-old institution to the brink.
Welcome to the wacky world of Washington, D.C., accounting.
There's a long and a short story to the tragic tale of Postal Service financial trouble. I'll start with the short one. Right now, the Postal Service is being forced to pre-pay health benefits for the next 75 years during a 10-year stretch. In the past four years, those prepayments have totaled $21 billion. The agency's deficit during that time is about $20 billion. Remove these crazy pre-payments — a requirement that no other government agency endures and no private industry would even consider — and the Postal Service would be in the black.
Of course, it's not quite that simple. And no one denies that the rise of e-mail has meant the fall of first-class mail, creating a real long-term challenge to USPS relevancy. But the current fiscal "crisis" is entirely manufactured by the Washington way — in fact, the payment missed on Sept. 30 represents this year's tithe to the federal deficit, disguised as health care benefits layaway for a mail carrier the agency might not hire until the year 2060.
The controversy over the future of the post office has been slowly coming to a head, and it reached a fever pitch around the Sept. 30 payment, meant to satisfy this year’s health care pre-payment costs. The agency begged for a delay, which it received — but that led to detractors’ calling for immediate reforms, such as post office closings and the elimination of Saturday delivery. But supporters have rallied to the agency’s side — about 500 rallies were held last week all around the country in support of the agency.
Meanwhile, some advocates are desperately trying to call attention to the USPS’s unique budget situation, which is not quite the crisis it appears.
“It is clear that these prepayments for future retiree health care benefits are — at this point — the primary reason for the U.S. Postal Service's financial crisis,” Ralph Nader wrote in a letter to Congress last week. “In fact, simply looking at the numbers reveals that the Postal Service's ‘financial crisis’ is in fact an entirely manufactured crisis.”
Why would the Postal Service find itself in this crazy arrangement, bleeding red ink today so it can pay for employees’ health benefits 50, 60, or 75 years from now? Believe it or not, there is an explanation, but it's not so simple — delivered with fair warning from Jim Sauber, chief of staff of the National Association of Letter Carriers.
"It takes a long time to explain how crazy and complicated it is," he said.
But a quick tour into this fiscal crisis is incredibly instructive as to the ways of Washington, and failing to understand it might mean someday soon you won’t get mail at your house any longer.
First, it's important to note that the USPS is financially self-sufficient. Since the 1970s, it has been mandated by Congress to operate entirely on its own revenue, with no taxpayer money. It's an enormous agency — with $65 billion in annual revenue, it would be a Fortune 50 company if it were a private entity. As a quasi-government agency, it enjoys privileged fiscal status — its revenue and expenses are "off budget," meaning Congress isn't supposed to be able to toy with them. It shares this privileged state with only one other government entity: the Social Security Trust Fund. But as you know, Congress finds a way to toy with everything.
In 2006, Congress passed the "Postal Accountability and Enhancement Act" to modernize the agency's stamp-price-setting tools and a host of other elements of mail delivery. That law set up this seemingly crazy health care prepayment fund.
To bean counters at the U.S. Treasury Department, however, the fund made perfect sense. It was a crazy arrangement to cover for another crazy arrangement the Postal Service escaped in 2006.
When former members of the U.S. military take a government job, their military service counts as annual credits toward pension eligibility. This holds true when service members take postal jobs — but who pays for the value of those credits? In 2006, the Postal Service was shouldering that cost on its balance sheet, even though there was general agreement that the Treasury Department should be responsible for pension credit earned prior to employment with the Postal Service. The 2006 law shifted the burden from the USPS, but that meant an addition burden on the Treasury — that is, it would have added to the federal deficit. So to balance out that negative on Treasury's balance sheet, the Postal Service was ordered to make health care pre-payments equivalent to the cost of the pension cost shift.
The problem of military pension credits itself was a creation of just such a deficit-hiding accounting trick. In 2002, an audit of the USPS budget found it had overpaid into the federal government's pension plan by roughly $80 billion. Postal Service officials lobbied hard have its pension payments readjusted. They were, in 2003, but in order to make the shift revenue neutral, military pension credit costs were shifted from Treasury to the USPS.
The 2006 law passed by Congress was designed to put an end to this fiscal football.
In the middle part of the last decade, the Postal Service was so awash in operating cash that the 10-year tithe to the federal government seemed a small price to pay for a promise that the crazy cost shifting would be over in a decade. In the meantime, the cash played a small but measurable part in reducing the federal deficit.
"But it became very clear that these payments were unaffordable once the economy tanked," Sauber said. In short order, the health care prepayments became “a million-pound weight” on the Postal Service budget.
Sauber and other Postal Service advocates say the Postal Service would have no trouble balancing its own budget if Congress and the Treasury Department stopped adding billions to its annual expenses through fiscal maneuvering.
Still, powerful forces have gathered in an attempt to use this budget bickering as an excuse to reform the post office dramatically. Rep. Darrell Issa (R-Calif.), the Republicans’ top government cost-cutting advocate in the House and head of the powerful Committee on Oversight, has introduced legislation that would dramatically alter the agency. His Postal Reform Act of 2011 would end Saturday delivery, create a commission to study post office closings and create a Solvency Authority that could break union contracts if the agency fell into the red.
Last month, President Barack Obama proposed that the Post Office end Saturday delivery. His proposal offered some relief from health care prepayments, but it merely by spreading the costs out over a longer period of time. Issa responded by calling Obama's plan a "thinly veiled attempt to offset continued operating losses with a taxpayer-funded bailout."
Others have advocated complete dismantling of the service, turning mail delivery over entirely to private industry. Rarely do those arguing against mention that the Postal Service starts its year in a hole designed to hide a portion of the federal deficit.
A Heritage Foundation report published last month called "You've Got (No) Mail: Is the End Near for the Post Service?" indicated that the agency "barely avoided default" and was down to "a week's worth of cash."
"Congress should act quickly to address this not-so-slow-motion postal train wreck. The goal, however, should not be to ‘save’ USPS or even to save mail delivery," the report said. It mentioned the pension overpayments but made no mention of the health care costs prepayment, and it concluded that the USPS cannot survive unless supported by "tens of billions of dollars in subsidy."
Sauber says it’s hard to counter such arguments with a long discussion of Washington accounting tricks.
"It's so much easier to say, ‘Oh, it’s the Internet.’ That seems obvious, but that's not really what's going on,” he said. “It is frustrating for letter carriers to have to deal with all this misinformation. … It’s easy to demagogue on this, for people who don’t like government workers to say the Postal Service is failing because it’s a government agency. But in this case the easy explanation isn’t the right explanation."
The postal workers' union favors legislation proposed by Reps. Elijah Cummings, D-Md., and Stephen Lynch, D-Mass., that would allow the agency to access overpayments to the federal pension system, and to restructure its health care prepayments, to solve its immediate budget woes.
It's also hitting back at critics with an aggressive TV ad campaign that began running last month.
"Congress created this problem, and Congress can fix it," the ads say.
Sauber doesn't deny that the Postal Service has problems. Revenue shrank from $74 billion to $67 billion from 2008 to 2010. Mail volume plummeted from 202 billion to 170 billion pieces during that same stretch, a 22 percent fall. While the drop parallels the recession, common sense dictates that even a robust economic recovery probably won't lead to an increase in handwritten love letters.
But Sauber says the rise of the Internet has created almost as many opportunities as problems for the Post Office — package delivery from online shopping has soared, for example. Meanwhile, the agency has shrunk full-time employee ranks from 663,000 to 583,000.
The Postal Service hasn’t always done itself any favors — long lines, unhelpful employees and stories of double-dipping by pensioners feed the public’s notion that change is needed.
"We know we have to change. But the right way to do that is to clear up this artificial fiscal crisis now, survive the recession and then see where we are," he said, "not to gut the Postal Service now based on misinformation and budget politics."