Fixing the U.S. Post Office, and Fixing It Good

Headed down Route 2 yesterday and what did I see?  About a hundred men and women in US Postal Service uniforms, demonstrating outside Senator Jack Reed’s office. What’s up?  They are members of the National Association of Letter Carriers, protesting Senate Bill 1789, a plan to “fix” the post office.

As you may have heard, the Post Office is going broke. It is routinely facing multi-billion-dollar shortfalls. What you may not have heard is why it’s going broke. Actually that’s not quite right. If you’ve been paying attention, you’ve undoubtedly heard accounts of how email is breaking the world of paper mail. While there’s a nugget of truth in this, the real facts show that the real story is that it’s mostly bad accounting pulling the Post Office down.

First some facts: the USPS gets no tax money, except a tiny bit used to pay the postage to send audio books to blind people. The rest of its budget is made through sales of postage and other business income. But despite insisting that the Postal Service be run like a business, Congress has put strict limits on what it must and must not do.

Among the limits are a 2006 law that forces the Postal Service to put away far more money to pay for retirements than is necessary. The USPS retirement funds are currently overfunded by about $13 billion. What’s more, the law demands that by 2016 the USPS have enough money socked away to pay retiree health benefits for 75 years. Yes, that’s correct: the Postal Service is going broke today in order to pay medical benefits for retirees who are not yet born. In the last quarter of 2011, the Service spent $3.2 billion more than it took in. This crazy savings plan for retiree health benefits alone cost $3.6 billion. By itself this expense made the difference between profitability and loss.  For the nine months ending last June, the service lost $5.5 billion and $5.9 billion was for retiree health care. (They report everything by quarters.)  Without that expense, the USPS would have made money for the entire year 2011 — the year its cash flow problems became a crisis. For the record, the retiree health care fund now holds $42.5 billion, and is 48% funded at that 75-year horizon. This is approximately enough to pay benefits through 2060, according to my back-of-the-envelope calculations.

Obviously retiree health care is part of the employment contract, and should be counted as an operating expense, but that’s not the same as saying that pre-funding 75 years worth of expenses in 10 years is the right way to go. On the contrary, the USPS experience says it is exactly the wrong way.

The Postal Service is not without business challenges. The shift from regular mail to email has taken a big chunk of postage revenue with it, and it’s not likely to come back. But the moaning you may have read about how the USPS can’t make it in an electronic world is mostly uninformed. The fact is that the business operations are covering the costs by most reasonable measures and a few simple changes, like adding some counter services, or offering email, as lots of other countries do, would provide more revenue.

Unfortunately, instead of questioning the decisions of accountants, the USPS managers are bowing to them, and planning to close post offices in 2012, processing facilities in 2013, and end Saturday delivery in 2014, all in order to fund retiree health care in 2091. All these changes will make service slower and less convenient for all of us. The S1789 bill makes this possible.

There is some good in the bill. It does slightly relieve the pre-funding mandate of the retiree health care. But it doesn’t do enough. It also doesn’t allow USPS to use its pension surplus to pay for the retiree health care shortfall. It doesn’t loosen up the crazy restrictions on USPS businesses, like offering notary services, or contracting for delivery services.

So that’s the story: there is trouble afoot in the world of the Post Office, but it’s not a crisis. What makes it a crisis is the absurd accounting rules, and the restrictions on USPS businesses. Please tell Senator Reed to reject this bill and vote for a bill that actually addresses the real problems in a sensible way.