How Congress is killing the Post Office

By Felix Salmon
July 20, 2012
September: the long-term secular decline of postal mail, on the one hand, combined with all manner of Congressionally-mandated restrictions which make a bad situation much, much worse.

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The Post Office’s problems are the same today as they were back in September: the long-term secular decline of postal mail, on the one hand, combined with all manner of Congressionally-mandated restrictions which make a bad situation much, much worse. And now the inevitable has happened: we’re going to have a $5.5 billion default.

A default of that magnitude sounds scarier than it actually is. Congress requires the Post Office to make inordinately huge pension-plan payments, for reasons which nobody can really understand. But in the final analysis, USPS pensions are a government obligation, and it doesn’t make a huge amount of difference whether they come out of a well-funded pension plan, a badly-funded pension plan, or just out of US government revenues.

What does make a lot of difference is the degree to which the Post Office is hamstrung by Congress. There’s still room for the Postal Service to reorient itself and become a successful 21st-century utility — but there’s no way that’s going to happen if it’s constantly on the back foot and if Congress prevents it from entering new businesses, possibly including banking.

To put it another way: the Post Office is broken, in large part thanks to unhelpful meddling by Congress. And it won’t get fixed unless and until Congress gets out of the way and stops forcing it into the corporate equivalent of ketosis, essentially consuming its own flesh in order to survive.

The talking point from the mailing industry here is that multi-billion-dollar defaults “could make consumers lose confidence in the Postal Service”, and thereby make matters even worse. It’s a bit like the argument we saw in Detroit in 2009, when lots of people said that if the big auto makers went bankrupt, no one would buy their cars any more. That argument wasn’t convincing at the time, and it turned out not to be true. Similarly, I’m not worried about that bickering in Washington will directly affect the confidence that Americans have in their postal service.

On the other hand, it’s pretty much certain that bickering in Washington will unnecessarily make the situation at the Post Office much worse than it needs to be. And as such, it’s a prime example of US political dysfunction. As Zero Hedge says, if the muppets in Washington can’t get this right, what are the chances that they’re going to be able to do the right thing when the fiscal cliff arrives at year-end?

The best hope for America is that politicians are more likely to create fights and dysfunction for things which don’t rise to the level of outright crisis, but that they somehow manage to come together to find solutions when the alternative is catastrophic. That’s often a good bet — but not always. And so while I’m reasonably confident that we’ll get through the fiscal cliff somehow, I’m not at all certain of it. Meanwhile, I am reasonably certain that Congress will starve the USPS of the funding and freedom it needs to succeed over the long term. Which of course will cost taxpayers enormously for as long as postal workers are collecting pension checks.

Comments
24 comments so far

“it doesn’t make a huge amount of difference whether they come out of a well-funded pension plan, a badly-funded pension plan, or just out of US government revenues.”

Your joking, right? It makes a big difference to taxpayers.

Posted by MorgantownJoe | Report as abusive

As for why the inordinately accelerated pension payments, for significant segments of congress it has to do with destroying the carriers’ union and other USPS unions. Long-term goal for many of them. So the USPS financial crisis is largely manufactured, using declining mail volumes as leverage. Their ultimate goal is a non-union PO system that does only the bare minimum as an avenue of communication and commerce but somehow miraculously contributes something to the unified budget.

A problem they run into is that UPS and Fedex have been increasingly relying on USPS for actual home delivery from local terminals. IIRC, pressure from them is what staved off the latest round of crisis. By comparison, the pleas of constituents who rely on local post offices are as nothing.

Posted by Altoid | Report as abusive

MorgantownJoe – I know what you mean. That line struck me as odd on the first reading. But think of it this way. The Post Office is a government agency, so from an accounting standpoint it’s a single identify. If the Post Office funds it’s pensions well, then it has less money in raw earning but fewer unfunded commitments. If it does it badly, it as more earnings but more commitments. And of course with no pension at all retires would be paid out of the general budget.

But in every case, the money the post office brings into the government is the same and the amount of the pension commitment is the same. It’s just different columns in a spreadsheet.

Posted by strawman | Report as abusive

I wouldn’t disagree with anything you’ve said, except to note that in this particular case the Congressional bickering is pretty nonpartisan. But it is all a part of the American ethos – we want fast physical delivery six days a week, at just about any location, but we don’t want to pay any more for it.

In an era of growing mail, the Post Office was able to subsidize small and largely rural services by virtual of the revenue from large volume. Today, as volume declines, those money-losing services should be abandoned, or the price of delivery (the stamp) should be increased to reflect those costs. Sadly, Congress will approve neither.

Certainly the Post Office is a bureaucracy, and it has its share of inefficiencies. But it also works for what we need today. We should be having the debate of whether to let the Post Office in its current form increase prices to cover its costs, or replace it in its entirety with a more forward-looking service (the definition of which I leave as an exercise to the reader).

Posted by Curmudgeon | Report as abusive

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Posted by heardthisbefore | Report as abusive

Public sector union members have constantly begged Congressmen for years to intercede on a variety of perceived wrongs on everything from FMLA to actually having to come to work every day. Now that something unpleasant is occurring due to some of the same folks it is deemed “meddling”?

Posted by Robocop5626 | Report as abusive

“Congress requires the Post Office to make inordinately huge pension-plan payments.”

Here’s my opinion/explanation why this was done and why congress won’t consider reversing it.

In 2006, when congress passed this foolish law, the USPS was doing well, financially, and congress was desperate to find ways to lower “the deficit.” Since the USPS receives $0 tax dollars, they couldn’t lower the amount to reduce the deficit. So The Postal Accountability and Enhancement Act of 2006 was their back door way of getting money from the USPS. Then they subtracted the annual $5.5 billion from the deficit. So now if congress considers reversing the annual obligation, they will essentially be raising the deficit. They are between the proverbial rock and a hard place.

Just my 2¢

Posted by mrzip | Report as abusive

Decent pensions should new right of every American worker,

Posted by carterj98 | Report as abusive

Congress has been robbing the postal service for years.People paid into their pension funds, and these funds are being used for daily operating expenses. “Prefunding” is a scam. Recently,they suggested making federal employees pay 5% more into their pension funds to offset the loss in revenue connected to the lower student loan interest rates.Talk about blatant thievery. These politicians feign outrage at the dismantling of the postal service, but behind closed doors, they have to be in the the scam. Millions of jobs on the line. . . . the postal service is screwed.

Posted by Justcarryingon | Report as abusive

You should know that the pre funding is for health benefits for future retirees. The postal service is required to pay for health benefits for the next 75 yrs and do so within 10.
No other agency has to do so. It has already paid 42 billion dollars into this account. This is NOT being paid into pension funds.

Posted by Kevinb3977 | Report as abusive

Thank you Kevin. I was starting to wonder if anyone would correct that. Thanks Felix Salmon for the article. You might note that health benefit prefunding has made up 85% of losses since 2007. You might also note that two external, private sector accounting firms have verified that USPS has a $55-$75 billion dollar SURPLUS in its pension funds. If Congress authorized a transfer from the pension surplus to the future retiree health benefit fund, and allow the postal service to offer a variety of services, they would be well on their way back to fiscal health.

Posted by beast8300 | Report as abusive

I believe that in some countries, the post office offers simple banking services? Could be great for those who are presently unbanked.

Posted by TFF | Report as abusive

Congress should lead follow or get out of the way.

Mr Issa is trying to put together a huge plan to shrink the postal service . His motive, to streamline the postal service and sell it to the highest bidder.When that happens, the powers that be will eliminate the prefunding, the fat cats will sweep the table like a Las Vegas dealer. There will be 200,000 more middle class American jobs lost and who knows how many broken homes and foreclosures.

Power to the people.

Posted by Hypenspin | Report as abusive

After the expansion of the private carriers, the Post Office is no longer the vital means of communication for all that it once was. However, it has turned into a safety net – it’s how you send mail and packages if you can’t afford FedEx or UPS. Unfortunately, the Post Office’s current gov’t/private hybrid setup doesn’t adapt well to being a safety net. The private aspect of it requires a profit.

Rather than privatizing it further, the government should take over the Post Office in its entirety and run it like other safety nets.

Posted by GilpinSteve | Report as abusive

To GilpinSteve’s point, part of the continued usefulness of the Post Office is the universality of service–everyone has access to it, and can send and receive mail. A first class letter is still pretty cheap relative to other surface transport options. You can still use it even if you can’t afford Fedex or the internet. It would be an interesting Constitutional argument if the Postal Clause could be read as an obligation to provide some level of universal service. Full privatization would almost certainly lead to service cuts and price raises. Would the government have to guarantee access?

Posted by Moopheus | Report as abusive

As they do to the country, so do they to the US Postal Service. There is no accountability in our government “leadership.’ I think that they should have an established amount of time to do something about the problems that they are faced with. Like a number system, first in first out. They should’t be able to make laws on items that were introduced well after other things.

Like the contracts they make for construction projects, perhaps the Congress should be fined for the amount of time they go over ‘the limit’ on important political issues. Either that, or just vote these people who are do-nothings out and get some people in there who can make some decisions, difficult or not.

Posted by SkyeShepard | Report as abusive

As they do to the country, so do they to the US Postal Service. There is no accountability in our government “leadership.’ I think that they should have an established amount of time to do something about the problems that they are faced with. Like a number system, first in first out. They should’t be able to make laws on items that were introduced well after other things.

Like the contracts they make for construction projects, perhaps the Congress should be fined for the amount of time they go over ‘the limit’ on important political issues. Either that, or just vote these people who are do-nothings out and get some people in there who can make some decisions, difficult or not.

Posted by SkyeShepard | Report as abusive

HR2309 proposed by Representative Darrell Issa may be heard in the House this November
Issa claims he is striving to save the USPS yet he is ignoring expenses that can be deleted without disrupting the service.
#1. The Postal Accountable and Enhancement Act needs to be rescinded. In 2006 the PAEA signed by Bush, mandated that the USPS fund 75 years of retiree health benefits in 10.
#2. Overpayments of 50 to 75 Billion the USPS made to the Civil Service RetirementService should be returned.
#3. Overpayments the USPS made to FERS need to be retrieved.
#4.The USPS needs to charge more for delivering UPS parcels to places UPS don’t.
#5. Adjust the ratio of managers to workers.
#6 Quit giving deep discounts to large businesses. Issa’s solution is to cut the workforce by at least 100,000, and make Postal Workers’ wages and benefits depend on a separate board when a contract isn’t agreed upon. This is a case where Issa’s cure would cause the death of the USPS as a public service and have it revived as a business with lower paid workers, higher rates and less service.
S1789, sponsored by Lieberman, passed in the Senate, but not in the House,would cut 100,000 jobs with the USPS when we don’t need to have more unemployed workers. S1789 would decrease compensation for injured workers and end it for those over 65, when we don’t need to take away compensation or lower compensation for injured workers. It would weaken the unions which promote a “living wage” at a time when we don’t need to add more people to the “working poor”, S1789 would close smaller post offices (some have already closed), and slow mail delivery by closing 200+ distribution centers.
In 2006 Congress voted to have the USPS fund 75 years of retiree health benefits in 10 amounting to 5.5 Billion a year.
Saddled with funding 5.5 Billion a year that had nothing to do with mail delivery, the USPS could no longer have it’s revenue =costs as it had done until 2006.
If this bill is passed or HR2309 the USPS will end up virtually privatized with lower wages and benefits for its ’workers, a scaled down and overworked workforce, more mail services contracted out, less services for the public including curbside service in place of home delivery.
This is how the Post Office could end up privatized if HR2309 were passed.
Management is replaced if they cannot successfully restructure Postal Service finances when the Postal Service fails to pay its bills for more than 30 days, a receivership-style authority takes over for USPS management with an explicit mandate to cut costs while maintaining universal service.

Posted by Anonymous | Report as abusive

The reason “nobody can understand?” Privatizing the Post Office and looting it, of course. Is this really so hard to see?

Posted by lambertstrether | Report as abusive

Anonymous mostly nailed the details.
A few others have danced around the analysis.

This is nothing less than an organized attempt to destroy a very successful public institution because it’s existence stands refutes the world-view of the fringe-right free-marketers. I’d call it a conspiracy if it wasn’t so obvious to anyone who cares to look at what they’re doing. They’re not hiding any of these actions with more than a poorly executed wink and a nod.

Comments on various comments so far..
- USPS is profitable RIGHT NOW. Their deficits are artificially encumbered. If they had a realistic requirement for pre-funding, even one that was way more optimistic than any other private sector organization mandates, they would be posting $2B/year profits. Given their pricing=funding model, we’d see postal fee’s decrease if the burden of PAEA were removed.
- USPS now competes favorably on price with UPS, FedEX, etc. Removing the yoke congress intentionally placed around their neck would further hurt private carriers. A more profitable USPS is one that requires less customer funding.
Business over Country.

There are two ideological battles going on here by my reckoning.

1. Like Medicare, removing the burden of profit taking from USPS means operating costs are lower. You can complain about USPS bureaucracy but it’s organic bureaucracy. It’s not the sort of intentional bureaucracy that grows in private firms as management looks for new ways to remove profit. UAL has over 70 VPs in one department when they entered Bankruptcy, and they added more when Management saw a window of opportunity to loot the company closing. [I have many many family members who worked there]
The USPS is unfortunate proof that Government organizations can actually work, and work better than the free market. It’s another stake in the heart the conservative reality and for that it must be destroyed.

2. Without expanding, this is also a strike at another conservative boogieman.. organized labor.

There is one inevitable outcome of we don’t stop this.
Congress will eventually find a way to sell off USPS, at least up until the medical and retirement funds can be co-opted by private firms. Then they’ll be looted, like they’ve been at other companies over and over and over without any repercussions.

We’re watching a slow-motion multi-billion dollar bank robbery and it’s happening right in front of us.

Posted by ffakr | Report as abusive

I still think that either UPS or FEDEX needs to take over the postal service. It would take a huge burden off of the US government and, ultimately, the US taxpayer. UPS already operates “UPS Stores”, where they rent out post office-style mail boxes and sell postal supplies. FEDEX operates basically the same thing, but they’re called FEDEX/Kinkos. A lot of money could be saved if the post office were taken over by one of these two businesses.

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