Congress ties Postal Service into knots

Original Reporting | By Kevin C. Brown |

Funding on such a long-term schedule was also the preference of others involved in the postal reform bill. Roger Kodat, at the time a deputy assistant secretary of the Treasury Department, recently wrote in a blog post on the website of the Postal Service Office of the Inspector General, “As a finance guy, I preferred a 30-year straight-line amortization schedule for [the] Postal [Service] to incrementally prefund this future obligation, in keeping with how a private sector corporation might operate. Smooth and steady contributions help ensure a more secure future for the Postal Service and its employees — a key policy objective.”

“As a finance guy, I preferred a 30-year straight-line amortization schedule for [the] Postal [Service] to incrementally prefund this future obligation, in keeping with how a private sector corporation might operate.”  — Roger Kodat, former Treasury Department official

But the Bush Administration insisted that the PAEA be “budget neutral.” The only way to do that — to avoid what would have been treated as a deficit-increasing loss of revenue as far as the “unified federal budget” was concerned — was to make sure that the combined Postal Service contributions for the existing pension plan and for the PAEA-created retiree health benefit fund were, in the aggregate, not less than the amounts that had been contributed for pension payments alone (budget neutrality in the context of the Postal Service is deeply counterintuitive — see bottom box for an explanation).

Former Rep. Tom Davis (R-Va.), then chair of the Government Reform Committee in the House, which oversees postal matters, said, “It didn’t come from Congress, that was the administration’s price” for a postal reform bill. During the conference discussions on reconciling the House and Senate bills, Davis recalled, the Administration’s representatives said “this is what we want,” and wouldn’t budge. Likewise, Sen. Tom Carper (D-Del.), who was also involved in the negotiations, told Remapping Debate by email, “The 10 year funding schedule included in the final version of the Act was included at the insistence of the Bush administration during the final stages of our negotiations.”

The Bush Administration got its way: the final version of the PAEA directed that the Postal Service make retiree health benefit payments over the 10-year cycle of Congressional budget reporting in amounts ranging from $5.4 billion to $5.8 billion per year — a total of $55.8 billion that represented almost all of the then-anticipated unfunded liability.

According to Dean Baker, it was “way over the top to try and build it up that quickly. I can’t see any logic in why they would feel the need to build it up over such a short time period.” Moreover, he said, “they face[d] serious competition from FedEx and UPS …There was already the beginnings of [first class mail decline]…To give them that sort of hit at a time when they faced a difficult business environment in any case, was, at the very least, reckless, if it wasn’t actually malicious.”

A 2009 House of Representatives committee report conveyed the same essential message: “The payment schedule for the first 10 years was established primarily to make the PAEA budget neutral, responding to the concerns of the Office of Management and Budget at the time the PAEA was passed, rather than corresponding to actuarial requirements or financial conditions at the Postal Service.”

Remapping Debate left telephone and email messages for Michael Bopp, referred to in the Congressional Record as a Bush Administration representative in the negotiations over the shape of the PAEA, but he did not to respond.


Paying the price

The prefunding payments have had a significant impact on the Postal Service’s bottom line since the PAEA was passed. In 2012, according to the Postal Service, it was projected to lose some $14.1 billion, $11.1 billion of which represented two scheduled payments into the retiree health fund (the Postal Service has defaulted on making those payments). Steve Hutkins, an associate professor literature at New York University and curator of the blog, which reports on and advocates for keeping the Postal Service strong, told Remapping Debate, “The core of the crisis is the [prefunding] payments.”

In the face of these losses, the Postal Service has proposed, over the last three years, a variety of cost cutting measures, including shuttering postal processing centers, closing 3,700 post offices (many in rural areas), reducing hours at 13,000 post offices, and moving to a 5-day per week delivery schedule in order to save money. (Competing bills currently before Congress would endorse or reject some or all of these proposals.)

Budget neutrality or budget malevolence?

The best treatment of the shifting budget status of the Postal Service is contained in a 2009 report of the Postal Servic Office of Inspector General, which describes the history of the status as “a matter of both contention and confusion since the 1970 Postal Reorganization Act.”

In short, while the Postal Service, as an independent entity, achieved permanent “off budget” status in 1989, its contributions for its retiree obligations remain “on budget.” Just as salient, its revenue and expenses remained part of the “unified federal budget,” a broader measure that is intended to provide a picture of all government transactions with the public.

As a practical matter, this means that Postal Service contributions towards future pension obligations are considered revenue for the purposes of the unified federal budget. Lower contributions from the Postal Service mean lower revenues, and lower revenues — without offsetting declines in expenditures — mean an increase in the deficit of the unified federal budget.

From this perspective, any alternative use for pension savings — even delaying increases in postal rates for mailers — would be “budget negative.”  The OIG report’s conclusion was unsparing: “[W]hat was good for the Postal Service was deemed bad for the federal budget.” Or as former Rep. Tom Davis explained, the attitude of the Bush Administration and some members of Congress was that they “weren’t going to spend money on the post office even if it made more sense to do it. [The attitude was,] ‘you’ve got to keep it budget neutral.’”

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