As everyone has heard several times already, the United States Postal Service is in dire financial straits, and is contemplating relatively drastic measures, including cutting delivery to five — possibly four — days a week, and by closing several thousand branches and processing facilities.

The usual suspects have been trotted out for use as scapegoats: archaic work rules, postal-union featherbedding, and general government incompetence. No doubt these contribute in some way to the Postal Service's plight, but none of them are all that important in the grand scheme of things. To understand why, you must first understand the distinct status of the Postal Service.

In 1970, postal workers went on strike. (No, it wasn't a scheme by the American Postal Workers Union, which did not exist in 1970.) President Nixon wound up having the National Guard and the Armed Forces deliver the mail; it took about two weeks of negotiations to bring the strike to a close, and one of the most immediate consequences was the Postal Reorganization Act, which replaced the Post Office Department, a Cabinet-level agency, with the quasi-independent Postal Service. No longer part of the Executive Branch, the Postal Service is expected to run off its own revenues, and its revenue and expenses are considered "off-budget."

None of this would create a problem by itself, until you consider the other major "off-budget" government entity: Social Security, which is set up with a Trust Fund to pay current and future beneficiaries. There's just one minor detail: there's no actual money in the Trust Fund. The Office of Management and Budget explained this phenomenon in an analysis of the 2000 Federal budget:

These [Trust Fund] balances are available to finance future benefit payments and other Trust Fund expenditures — but only in a bookkeeping sense... They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large Trust Fund balances, therefore, does not, by itself, have any impact on the Government's ability to pay benefits.

The existence of large Trust Fund balances, however, did, all by itself, motivate Washington to start spending those balances, leaving behind "claims on the Treasury," IOUs which no one was in a hurry to redeem. Now who else has "off-budget" revenues that could be raided?

Right. In 2006, something called the Postal Accountability and Enhancement Act, in addition to some relatively minor housekeeping and jurisdictional details, mandated that the Postal Service do something about the next 75 years' worth of health-care benefits to its employees — over the next ten years. Instead of financing its ongoing operations, the Postal Service was required to set aside billions and billions of dollars for employees not yet hired, employees not yet born even. There was, of course, an Official Explanation for this:

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[al] 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.

And at the time, nobody thought it was a big deal, because the Postal Service was running a surplus, as Social Security had been running a surplus. Then the economy started to tank, surplus became deficit, and screams became louder.

Congress could, if they so desired, fix this egregious book-cooking maneuver easily enough. However, this would require them to admit that they'd screwed up royally in 2006, and no politician ever admits to error. (Ask Mitt Romney what he thinks of government-mandated health care.) And besides, there are all those billions being vacuumed out of the Postal Service, which they aren't about to give up unless they're assured of yet another source they can tap. (In my first decree as King, I will forbid the use of the term "revenue-neutral," and will mandate the rack for violators.)

This is not to say that the Postal Service would be out of the woods entirely were PAEA's health-care provision repealed. Volume continues to decline, and costs continue to rise. Nor can we necessarily follow the lead of Canada Post, a similar quasi-governmental operation: while Canada Post isn't horribly deficit-ridden at the moment, the organization has a long history of labor strife, most recently a strike-plus-lockout that lasted most of June 2011, perhaps to get the attention of newly-appointed Canada Post president Deepak Chopra. (No, not that Deepak Chopra.) Still, they survive, despite a mandate to deliver mail across a wider area than any other place on earth, occasional problems with rural delivery notwithstanding. And I have a feeling that the USPS, too, will muddle through somehow.

The Vent

  8 January 2012

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 Copyright © 2012 by Charles G. Hill