Other Peoples' Money - Part I

The following is the first in a two-part commentary, excerpted from the Dec. 9 edition of Mailers Hub News

The old joke is that a guy’s favorite beer is OP beer – other peoples’. A less funny corollary is that a politician’s favorite funding source is OP money. More correctly, in this case, the “other people” is not the general public (taxpayers) but a subset who, though still taxpayers, are also associated with a particular agency, purpose, or use.

Setting this in the context of mail and the nation’s postal services will explain the reference to OP money:

The way it was

Until 1970, providing postal services was viewed as a function of the federal government. The Post Office Department was part of the president’s cabinet and postal finances were part of the federal budget approved by Congress. The postal system was used by and operated for everyone, so everyone who used it helped pay for it through postage. (Remember, this was in the pre-internet and email era when mail usage relatively was much higher. FY 1969 mail volume was projected to be 85.2 billion pieces, up 3.1% from FY 1968.)

 

In the budget hearings for fiscal 1969, postage revenue was estimated to be $5.85 billion ($43.35 billion in 2019 dollars) following rate increases of 9.17% and 17.84% in FYs 1968 and 1969, respectively; total POD revenue was budgeted to be $6.55 billion ($48.54 billion). However, operating expenses were projected to be $7.26 billion ($53.80 billion), resulting in a net loss of $712 million ($5.28 billion), most of which was “attributable to public services.” Because the POD was part of the government, however, and because its budget was part of the overall federal budget, the losses were made up from general (taxpayer) revenues.

Changes step 1

In 1970, the Postal Reorganization Act POD set up the Postal Service as a separate agency within the executive branch, with an ambiguous mission (a public service operated in a businesslike manner) and an even more ambiguous status in the federal budget. As the USPS Office of Inspector General observed in an August 2009 audit report (Federal Budget Treatment of the Postal Service, Report ESS-WP-09-001):

“... In the 1970s and 1980s, the Postal Service was sometimes included and sometimes excluded from the president’s budget by administrative decision often hinging on whether it was running a surplus or a deficit. When it was on budget, the Postal Service was commonly caught up in deficit reduction squabbles and took on obligations belonging to the Treasury.

“In the Omnibus Budget Reconciliation Act of 1989, the Postal Service won a hard-fought legislative battle, at some cost, to put its funding permanently off-budget. Congress agreed that mail delivery was a self-financing business whose operations should not be scaled up or down depending on national budget considerations...

“Despite its off-budget status, however, the Postal Service is still caught up in budget scoring decisions that erode its finances and obstruct its legislative program in Congress. ...”

Over the decades, Congress found other ways to treat the USPS less than honorably regarding financial commitments and payments. For example, the 1970 PRA authorized a Congressional appropriation to the Postal Service to cover the revenues that were given up, or “forgone,” by charging lower rates to nonprofits, local newspapers, etc., or no postage at all for mail for the blind and overseas voters. However, when the size of these payments grew to $970 million in 1985, Congress began to renege on its commitment – not making payments while still blocking the USPS from charging higher rates to compensate. The resulting shortfall was paid by OP money – the postage of commercial mailers – because politicians didn’t want to risk irritating nonprofits and influential newspaper publishers.

 

In 1993, Congress outdid itself by the Revenue Foregone Act. Though it authorized both a gradual increase in preferred rates and established annual appropriations for free mail for the blind, overseas voters, and a small number of consular officials, it also spread payment of what it already owed over 42 years, at $29 million per year, interest-free.

But, true to form, Congress eventually reneged even on that, deferring payments until the year after they were due, and discounting the other amounts due to cover revenue foregone – if not skipping the payments entirely.

Changes step 2

In 2002, the Office of Personnel Management found that the USPS was on pace to overfund its Civil Service retirement fund obligations by $71 billion, later revised to $103 billion. However, in reviewing legislative remedies to this situation, the Congressional Budget Office concluded that ending the over-payments would be bad for the federal budget. As the OIG’s report explained:

“… CBO said that if the savings (or more accurately, reduction of overpayments) were used to delay future rate increases, this would reduce overall government receipts in the future from what they would otherwise be; the unified federal budget would be affected since mailers would be paying less and the flow of funds from the Postal Service to the CSRDF in the Treasury would be reduced. The on-budget CSRDF fund would lose the overpayments, but the off-budget Postal Service Fund would not keep the full amount since the Postal Service would delay future rate increases.

“In other words, what was good for the Postal Service was deemed bad for the federal budget. CBO paid scant attention to the Postal Service’s off-budget status, including no mention of it in the document summary and later dismissing it as irrelevant to budgetary concerns. …

In subsequent legislation to end the over-payments, the USPS was required to use some of the resulting funds to pay off debt and forego rate increases. Thereafter, in an unabashed legal theft, the USPS was required to contribute the amount no longer owed to the CSRDF into an escrow account – which it could not access and the purpose of which was to be determined later by Congress. And, along the line, responsibility for that portion of postal retirees’ pensions earned by prior military service was shifted from the federal treasury to the Postal Service.

In effect, just to preserve anticipated Treasury income, the USPS was obligated to pay essentially the same amount as it had been, only now for newly invented reasons.

To be continued...


Check back tomorrow for Part II of Leo's Commentary.

Or, Mailers Hub subscribers can read the article in full, plus other interesting tidbits, in the latest issue of Mailers Hub News.

 

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