Misguided Postal Reform Would Bilk Taxpayers for Billions of DollarsRoss Marchand on September 11, 2018
This article originally appeared in the Daily Caller on May 3, 2018
Through years of mismanagement and misguided priorities, the U.S. Postal Service (USPS) has dug itself into a deep financial hole. After posting yet another loss of $540 million for the first quarter of the year and enduring net losses for 11 straight years, USPS officials and lawmakers alike are eager to stem the bleeding. On March 22, Sens. Jerry Moran (R-Kan.), Tom Carper (D-Del.), Heidi Heitkamp (D-N.D.), and Claire McCaskill (D-Mo.) introduced a postal reform bill that would make a number of significant changes to USPS operations and liabilities. While some reforms are promising, the heft of the legislation would open the door to further taxpayer subsidization of USPS mismanagement. Cancelling outstanding debt payments and transferring health-related retirement liabilities to Medicare would only set the stage for further taxpayer abuse.
In the 2018 Postal Service Reform Act, USPS retirees would foot the bill for a (declining) percentage of Medicare premiums over four years and be exempt thereafter. This change would shift the health-related retirement costs to Medicare, a system already plagued by shaky finances. Total Medicare spending is already projected to increase by nearly $600 billion over the next ten years, with expenditures rising faster than GDP over both the short-and-long-term. Strapping USPS liabilities on top of an already-beleaguered program is unfair to taxpayers.
On top of the retirement liability shift to Medicare, the bill absolves USPS from outstanding liabilities to the Treasury Department. While existing payments into the Postal Service Retiree Health Benefits Fund (housed in the Treasury) would be converted to a forty-year payment schedule, payments could easily be skipped based on financial stability and universal service benchmarks assessed by the Postal Regulatory Commission. And, since the USPS has license under the bill to restore price increases above inflation, “financial stability” would increase on paper. And, measures of financial stability are based on skewed cost estimates of the package delivery business, allowing the Postal Service to underestimate expenses for its fastest-growing revenue item.
But financial conditions at the USPS are anything but steady. After maxing out its $15 billion credit card from the federal government, washing away debt sets a disturbing precedent for an agency that claims to not rely on taxpayer funds. The USPS claims that this debt is primarily the result of prefunding obligations imposed as the result of the Postal Accountability and Enhancement Act of 2006. Contrary to the agency’s claims, however, private companies also face a squeeze if employees’ future expenses are not set aside. Empirical evidence supports the idea that businesses pay the price for funding gaps in retirement. Since the USPS does not have investors to answer to and cannot go out of business, the agency is exempt from these sorts of marketplace pressures.
The USPS’s large retirement liabilities have swelled since 2010 due to changing interest rate assumptions, cost of living adjustments, and lower-than-planned investment returns. The proposed legislation would use postal-specific demographic assumptions to estimate these expenses instead of the federal workforce-wide assumptions currently used. But according to an Office of Inspector General audit report, liabilities far exceed assets even if Postal-specific assumptions are used. For fiscal year 2015 (latest year studied), combined retirement fund assets totaled $338.4 billion, only 84.3 percent of the $401.6 billion in unfunded liabilities.
Instead of putting taxpayers deeper into debt, Congress should pursue long-overdue service and procurement reforms. Nixing Saturday delivery would bring in $3 billion a year, which would go a long way toward paying off the Postal Service’s $15 billion Treasury bill. The USPS could save additional billions by updating their cost calculations for package deliveries, which are dramatically underpriced.
These moderate savings could go a much longer way if the dollars were funneled to a “buyout” fund, in which the USPS offered current employees the opportunity to forgo their future benefits in exchange for an immediate lump-sum of money. These payouts, which would be assessed at a fraction of the cost of individuals’ benefit totals and put the USPS on a firmer fiscal footing. The Department of Defense (DoD) pursued a similar strategy, in order to engineer a twenty-five percent reduction in active duty strength.
In exchange for choosing to forgo future earnings and benefits, enlistees across the board were offered a range of financial incentives, including immediate annuities and lump-sum payments. American University Professor Saul Pleeter and Clemson Professor John Warner found that, despite high levels of variation by age, take-up was high across rank and experience levels. Around twenty percent of officers took the DoD up on these offers, while three-quarters of E-7s (fifteen years of service) participated.
Though it’s difficult to estimate how the DoD’s savings would translate into USPS savings, that experience warrants careful consideration by lawmakers. When it comes to the USPS’s gargantuan financial challenges, there are no easy solutions. But a liability gap exceeding 15 percent requires action and shifting the debt to taxpayers is not acceptable.
By shifting service, revising cost estimates, and pursing pension buybacks, Congress can assure taxpayers that the USPS gets on the right track.