Congress ties Postal Service into knots

Original Reporting | ByKevin C. Brown | Government services, Role of government

Nov. 1, 2012 — What does a business that has perennially been short of funds do in the happy circumstance where it begins to have surpluses available? Well, it might pay off some of its debt and put some money away for a rainy day. But then, particularly if was operating within a competitive landscape, it would take the opportunity to make heavy capital investments to upgrade its plant and otherwise modernize its operations; to look to improve its competitive position; and to examine potential new lines of business, particularly those that could leverage its existing investments.

 In November 2002, the Office of Personnel Management came to a surprising conclusion — the Postal Service was actually overfunding its obligations to the Civil Service Retirement System — possibly by as much $100 billion. 

Operating more like a business is precisely what the U.S. Postal Service has been directed to do ever since it was turned from a cabinet-level department to an independent federal agency in 1971. As the President’s Commission on the United States Postal Service commented in 2003, “The Postal Service should be maintained as a public entity, but refocused and reorganized to enhance its efficiency and adaptability in the face of an uncertain, and ultimately more competitive, future.”

In looking at the decisions the Postal Service has been forced to make since the early 2000s, however, it is almost as though the Bush Administration and successive Congresses had decided that the task was to make the Postal Service a failed business and a failed public service. The alternative hypothesis? That no one at the wheel knew what he or she was doing.

Although even a Postal Service not straightjacketed by counterproductive mandates would not have been immune from the economy-wide recession and from some of the consequences of declining first class mail volume, the singularly compressed retiree health benefit pre-funding requirement imposed on the Postal Service — as well as rules prohibiting the Postal Service from expanding into new businesses — figure heavily in the Postal Service’s recent woes: massive deficits, default on two occasions in the payment of its excessive pre-funding obligations, and, in terms of service (the only kind of dividend that this kind of business can pay to the public, its “shareholders”), the prospect of sharply constricted service.

It didn’t have to happen this way.

 

What to do with the pension savings?

In the spring of 2001, the General Accounting Office (GAO) released a report placing the Postal Service on its “high risk list” of federal agencies, in part because of the prospects of long-term decline in first class mail volume resulting from the growth of the internet. Also concerned with the size of the Postal Service’s retiree pension liability, the GAO asked the Office of Personnel Management (OPM) to calculate whether the Postal Service had been underfunding its obligations. In November 2002, the OPM came to a surprising conclusion — the Postal Service was actually overfunding its obligations to the Civil Service Retirement System — possibly by as much $100 billion. The “high risk” Postal Service had received some very good news.

Dean Baker, an economist and the co-director of the Center for Economic and Policy Research, a liberal think tank, said that when a business finds itself with the opportunity that such a surplus presents, it has two basic options. If you run a company, Baker explained, you could “either reinvest in your same area [of business] to give yourself a competitive edge — you have a better product or can do it more cheaply — or, alternatively, you figure out what are the related areas [and invest in those sectors].” Often, Baker said, new possibilities for investment are found in deploying emerging technologies in ways that broaden and improve the services beyond the existing profile of a business.

In response to the pension overfunding, Congress passed legislation in 2003 reducing the amount of money that would be required from the Postal Service for its annual contribution to the federal Civil Service Retirement System (though an independent entity, Postal Service workers who began working prior to 1984, like other federal workers whose service began prior to that time, remained enrolled in CSRS). The 2003 Act did not, however, reduce Postal Service payments to the newer “Federal Employees’ Retirement System” (the system that covers those who began government work — including Postal Service work — in 1984 or later). 

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