Other Peoples' Money - Part II

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

Changes step 3

The glaring inequity of the contrived escrow fund – and the ongoing burden it represented to postal finances – was a concern to the small number of people on both sides of the Rotunda who were developing “postal reform” legislation. However, when the product of their work was presented in mid-2006, the CBO again cited its impact on the federal budget, prompting both the White House and some in Congress to demand that the law be budget neutral.

 

Consequently, when the final version of the Postal Accountability and Enhancement Act was enacted in 2006, it contained the ambitious requirement that the Postal Service pay $55.8 billion into a new fund to cover future retiree health costs. Not surprisingly, as the OIG noted,

The annual payments were not based on any actuarial determination of the Postal Service’s future obligations for health benefits of its retirees. Rather, the numbers were produced by CBO as the amounts necessary to offset the loss of the escrow payments required by [the 2003 law ending the overpayments to CSRS]. The escrow was, in turn, merely the amount that the Postal Service had been overpaying into the CSRDF before [the 2003 law]. The CBO cost estimate for the final [postal reform] bill (HR 6407) noted both on-budget effects that increased the unified budget deficit and off-budget effects that decreased it, but they largely canceled each other out. The effects on the unified federal budget were clearly what mattered.

Where we are now

Of course, a lot has happened since 2006 – the recession, the accelerated migration of hard-copy messages to electronic media, and the attendant loss of postage revenue. Though none might have been foreseeable in 2006, they nonetheless have overwhelmed any ability the Postal Service might have had back then to meet the ten-year schedule of payments. As a result, according to the agency’s Form 10-K for fiscal 2019, the unpaid amounts represent $47.2 billion of debt on the USPS balance sheet.

Ironically, the federal treasury hasn’t, and likely never will receive, the continued inflow of cash that budget hawks insisted on ensuring via the prefunding scheme.

Meanwhile, though the Postal Service and its business environment are radically different than they were a half-century ago, Congress’ projection of what the public needs from the agency, and what the USPS should do, remains the same. The Universal Service Obligation, generally interpreted as providing delivery service and operating post offices, remains essentially as it’s always been. Annual appropriation bills, which include the pittance that Congress promised to pay decades ago, still include the requirement for six-day delivery and the ban on closing unprofitable post offices.

What’s also the same is the funding mechanism established for the USPS fifty years ago: postage revenue. However, over the intervening period, the public’s use of the mail – and its payment of postage – has waned significantly, but its expectations for the services that postage is supposed to underwrite continues. Most of the support for the postal infrastructure and its operations now comes from commercial mail users, and increasingly those are advertisers, demonstrating the reliance of Congress, and in some ways the public, on OP money – the postage paid by commercial mailers.

OP money

The typical household today receives less mail, sends less mail, and uses the local post office less than ten, and certainly less than fifty years ago, meaning it contributes less to postal revenues, both in absolute and inflation-adjusted dollars. Nonetheless, the mail carrier still stops at its mailbox six days a week, depositing less mail representing less postage. The local post office is still there, too, but it’s likely not as busy as it was ten or fifty years ago, and may be among the majority of retail outlets that don’t cover their costs.

Simply put, the average American citizen is costing the Postal Service more than he or she is contributing – and, given the continuing migration to electronic media, that imbalance is likely only to get worse. However, by maintaining an arguably outdated assessment of the populace’s needs, opinions, and behaviors about postal services, Congress continues to insist that the Postal Service maintain an inefficient infrastructure and an outdated business model – to be paid for with OP money.

Meanwhile, the public grouses about advertising mail, and checks the box on bank and credit statements opting for paperless billing, but still wants familiar postal services – paid for by OP money, i.e., the postage spent by the very commercial mailers whose mailed messages they don’t want.

 

Congress, pandering to the postal unions and vocal rural constituents, refuses to allow reductions in delivery or retail services, all the while letting OP money pay the bills. Politicians are perfectly happy to let the USPS – actually, its commercial ratepaying customers – pay for the services it requires the agency to provide but for which it won’t pay. Why use tax dollars to support a mandated public service when there’s OP money? Unfunded mandates have been politicians’ go-to for decades when there are voters to please but no money to pay the bill. Why should the public pay for the public service that the USPS represents if there are other people onto whom the cost can be foisted?

Of course, the flaw in the whole mechanism is that it assumes the OP money will continue indefinitely, which it won’t. Regardless of the cap on rate increases, commercial ratepayers will continue to drift to other forms of communication in response to higher postage costs, and the resulting downward trend in USPS revenue will not be reversed by simply raising the rates for advertising mail higher, as some luminaries in Congress and the postal unions would do. In turn, at some point, reality will have its way. The Postal Service’s economics will become so out of kilter that even Congress will no longer be able to ignore the problem. There simply won’t be enough OP money to pay the bills – primarily employee wages and benefits – and politicians, budget hawks or not, will have to face the fact that the public – through tax dollars – will have to start paying for the USPS if it’s to deliver to 155 million addresses six days a week and operate 34,000 postal outlets – no matter how little mail the public sends or receives.

The resulting hard decisions will be traumatic for politicians averse to risk or constituent disfavor. But maybe after the vote, they can call their favorite lobbyist to see if there’s a chance to meet – for drinks and dinner, paid by OP money.


 

Part I of Leo's Commentary can be found here.

 

Or, Mailers Hub subscribers can read the article in full, plus other interesting commentary and information on the state of the USPS, in the latest issue of Mailers Hub News.

 

 

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