The next big taxpayer bailout: The U.S. Postal Service

A recent Wall Street Journal story (“Postal Cuts are a Dead Letter in Congress,” March 1, 2012) says it all. The Postal Service is working hard to cut costs in light of collapsing mail volume, but members of Congress have pledged to “’draw on a number of tactical tolls’ to delay or dissuade the postal service, including public protests, withholding support for major postal-related legislation, and adding language to committee reports instructing the agency to study the matter further.”

As a result, a massive taxpayer bailout of the Postal Service is coming, but this time Congress can’t blame Wall Street. This bailout will be 100 percent Made in Washington.

The internet is, of course, biting hard into mail volume. The Postal Service’s most profitable class—first-class mail—is down over 25 percent since its peak in 2001, and the Service just incurred quarterly losses of over $3 billion. The Postal Service itself says it will lose over $18 billion annually by 2015 unless something changes.

The full reality is much worse. Unless Congress frees up the Postal Service—and fast—Postal Service paychecks will soon start bouncing like Super Balls. Postmaster General Patrick Donahoe announced that the Service will run out of cash by October. If gas prices continue to rise, it will be a lot sooner. Congress won’t risk delivery of Social Security checks right before an election, so it will crack open the old taxpayer checkbook. Taxpayers will be faced with a bill on the order of the $50 billion GM bailout, this time of a government-owned firm.

None of this was preordained. Postal services around the world have seen this coming for decades, and have adjusted by corporatization and privatization, and by giving postal managers the freedom to adjust to the new communications marketplace. They have allowed managers to make basic business decisions, such as how to run their delivery network.

The United States is unique in its antediluvian postal policy. Congress tells the postal managers to “run the USPS in a businesslike fashion,” and then blocks every decision they make. Congress won’t even let the Service cut Saturday delivery in the face of collapsing revenue, must less manage its sorting network.

Just as hope often triumphs over experience, Postal management keeps trying. It announced new plans to close or consolidate 223 mail processing plants that support some 35,000 jobs, and is seeking an increase in first-class postage to 50 cents in a bid to raise more revenue. But visionaries in the Senate, such as Bernie Sanders (I-Vermont), have called it a dead letter. Maurice Hinchey (D-New York) in the House said, “I’m going to do everything I can to block their efforts.” Such members of Congress are displaying anti-leadership by wringing every ounce out the Service they can and dumping as much of the cost as they can on taxpayers.

Rick Geddes is an associate professor at Cornell University and a visiting scholar at the American Enterprise Institute. Geddes authored the AEI working paper “Return to Sender: Reforms for the Failing Postal Service.”

17 thoughts on “The next big taxpayer bailout: The U.S. Postal Service

  1. It would be nice if you truly knew what you were talking about. Congress created this mess in 2006, without those inflated and criminal payments the USPS would be in the black. You are so far off the mark, you have definitely drunk the poison kool-aid. Before you write, get the facts. That does seem to be a problem with the media in the country.

  2. All BUT 200 million of the 3.1 BILLION loss in the most recent quarter was due to the draconian congressional requirement that the USPS pre-pay 75 years worth of retiree health care costs in 10 years. So only 200 million was an operational loss. In the last 4 years the Post Office has paid 22 BILLION

  3. Omission of Facts equals Lying.

    USPS is the best postal system in the world. Manufactured crisis is what is happening. This article is 22% accurate at best.

    Try googling PAEA, prefunding crisis, operationally profitable USPS.

    The real reason Rick Geddess and his types want the USPS is for all of it’s cash. Privatize equals Profitize. CSRS pension overfunded. FERS pension overfunded. Fund for retiree health benefits overfunded. Valuable prime commercial real estate holdings. Lucrative delivery network in populated areas. Etc……

  4. Buyout? You mindless people get the real facts before you pass judgement. Since you want to call it a buyout, then give me the money. 99 weeks, thats right 99 weeks of unemployment, what the hell you folks want to rely on lies not to mention tring to get rid of the cheapest way to communicate with one another. Be careful what you wish for karma is a bitch.

  5. The number one culprit is the Congress, and the Postal Reforms related to funding the benefits funds, but there is gross mismanagement and that needs to be addressed, a college degree is not necessary, training is needed for managers on how to motivate people, now it is by threats and intimidation, and the unions need to address their issues with management, it is a two sided coin, not just the Congress, loos at the recent MSPB, Merit System protection Board, ruling on ill or injured employees, the USPS can no longer capriciously tell employees who are ill or injured, there is no work for you in a blanket policy, the USPS culture is outdated, it needs an overhaul to succeed.

  6. The headline of this story is not only misleading, it is an untruth. The USPS does NOT receive any tax dollars for the operation of delivering the mail of the United States.

    The plan put forth by the Post Master General IS moving forward. This plan includes closing and consolidating mail processing facilities, which will result in vast numbers of employees being relocated (in some cases hundreds of miles away), resigning, retiring and, perhaps, being laid-off. The Mid-West, Southwest and the West will be the most affected by this plan by losing two – three facilities per state.

    In addition to this, the PMG’s plan includes a reduction of delivery standards for first class mail. In other words, a first class letter that is usually delivered within one to three days would now take up to a week or more to deliver IN THE SAME STATE.

    The author of this article purports to be a “scholar” and an Associate Professor. I think it would behoove Mr. Geddes to do a bit of research before publishing his thesis.

    • Kathleen,

      If you actually read the Wall Street Journal article Geddes links to, you’ll see this line:

      “The Postal Service is supposed to operate without taxpayer dollars. But in recent years the agency has been bleeding cash, forcing it to borrow billions from the Treasury. The Postal Service expects to hit its $15 billion borrowing cap later this year.”

      So it would appear that the USPS is already using almost $15 billion of taxpayer money.

      • Dear Henrick,
        Yes, the USPS has “borrowing cap” of $15 Billion, which is secured by the Treasury. However this is really just a shell game perpetrated by the Feds.

        Since 2006, the USPS is forced by law to pre-fund not only current employees’ retirement and health funds, but also, “future employees” benefits. So, the USPS is paying billions to the Treasury for employees they haven’t even hired yet. No other employer in these United States is forced to adhere to such a law. (Please look at the graph above which illustrates when the USPS started “bleeding cash”.)

        So, in light of these circumstances, this is what happens: The USPS pays whatever profit it has to the Treasury plus the additional payment for pre-funding. Within the past few years, the USPS has had to borrow money to pay the pre-funding, essentially borrowing the money from itself, as the pension funds are over-funded. Hence the idea that the USPS paychecks “will soon start bouncing like Super Balls” and therefore be broke.

        I am not denying waste and mismanagment by the USPS. In the twenty-five years I have been an employee, I have seen many decisions where I could only shake my head. I think employees of many different companies could say the same thing. The difference here is that this particular financial situation is not of the USPS’s making. The misleading and simplistic headline of this article leads to partisan bickering instead of finding a way to fix the USPS and allowing this country to enjoy a universal and low-cost Postal Service.

        • What I find really interesting here is that I think you and Geddes are actually agreeing. Geddes is arguing that the USPS would be better off if Congress got out of its way and let it operate more as a normal business, and on its own terms. I think (I don’t know for certain, just making this judgment based on the content of the post) that he would agree with you that the financial situation is not of USPS’s making. He even says that “this bailout will be 100 percent Made in Washington”–AKA it is Congress’ fault, not the USPS. He criticizes Congress several times in the post, and although he doesn’t directly talk about the retirement and health funds prepayments issue that you bring up, that would fit with his message that Congress is the reason the USPS is failing.

          The headline which you seem to find so outrageous is just a statement of fact. For a variety of reasons (decline in mail volume and Congress’s obstructionism are two cited by Geddes), the USPS is running out of money. Congress won’t let the USPS fail, for a variety of reasons, so there are only two options. 1) Get Congress out of the way and allow the USPS to make reforms in the manner that it chooses (this appears to be Geddes’ preferred option). 2) Congress will have to “bail out” the USPS by providing it with taxpayer money. Knowing Congress, option 2 seems more likely to happen: hence, the headline.

          Does that seem reasonable to you? I think both you and Geddes want the same thing: a way to fix USPS and maintain the country’s universal low-cost Postal Service. Geddes is simply saying that unless something changes, and soon, the USPS will run out of money and Congress will be forced to provide it with taxpayer dollars.

        • First, the “pre-payment” isn’t related to the pension fund. It’s related to the separate health care benefit fund.

          Second, the “pre-payment” isn’t so much a pre-payment as it is a “catch-up” that’s intended to reduce their unfunded health care benefit obligations since, previously, they were running on a pay-as-you-go basis (and taxpayers bear the risk for any shortfalls). Even after the initial years of “pre-payments” toward the reduction, their unfunded obligations at the end of 2010 were ~$50 billion. After all of the “pre-payments” ending in 2016, they will only have paid ~$16 billion toward reducing that and still will have a ~$33 billion shortfall versus obligations.

          With regard to paying benefits to employees that they haven’t hired yet, that’s a bit misleading. It relates to the way that the actuarial treatment is done over a 75 year period in order to encompass funding requirements for future benefit obligations for current retirees, existing employees who may work for another 25 years and then collect benefits for 25 years beyond that, as well as anticipated new employees coming in over that time period. They are not making payments to cover all of that period (the sum in that case would be more like $100s of billions) nor are they “pre-paying” benefits for those individuals. They are only funding some percentage of their estimated future obligations in line with generally accepted practices for such future benefit-type funds. In fact, most companies, or more correctly their benefit plans, are required to maintain similar funding levels to ensure that the plan is adequately funded to meet expected future obligations.

          If anyone really wants to understand the issue then they should look at the GAO and CRS reports which deal with the math and cut through the political BS on both sides and deal with the facts of the matter and better explain why there are disagreements over various points.

  7. and just today they put up help wanted posters for the 3 processing centers that are scheduled to close they couldnt get tractor trailer drivers for $16hr so now they went to $22.75

  8. Bravo to all of you for calling out Geddes on the inappropriate use of “bailout” (for the reasons cited above). FACT: USPS is tasked with maintaining universal delivery, an inherently inefficient enterprise but one that is central to its mission and that many people still value. FACT: USPS is a service, not a business (there is a difference). FACT: USPS moves 40 PERCENT OF THE WORLD’S MAIL and maintains a 40 PERCENT NEXT-DAY DELIVERY STANDARD while charging 45 CENTS for a first-class letter. This isn’t a record of failure; it is a singular achievement. But that is so much less titillating than crying gloom and doom and taxpayer ripoff and just generally adding to the hostile, slash and burn attitude that colors most of the public discourse today. Sad.

  9. Actually, the 200 million in the last quarter was an operational “profit”, not a loss. The pre-funding requirement kicked us into the negative. A pre-funded requirement that has over $42 billion in it already. A fund the OPM says could pay for itself without any additional funding just with the interest from the current balance. Congress created this mess and some people wish to profit from the demise of the Postal Service.
    The AEI apparently gets their research material from Darryl Issa.

  10. Anyone who believes this should just go back to watching fox news! George Bush caused this by requiring the postal service to prefund all retiree health benifits to the tune of 5.5 billion per year! They are paying for employees not even employed yet. Without this mandate the service would be alot closer to being in the black.

  11. It is interesting to me that since the publication of this article two days ago and ten responses rebutting the assertions of the author’s thesis, Mr. Geddes has not bothered to respond. It would appear that the purpose of this article was to incite the public with half-truths and outright lies. If the American Enterprise Institute is truly “committed to giving” … “thoughtful and timely analysis on economic, foreign and social policy and politics”, then perhaps the editors of the blog would be interested in focusing on an informed and truthful debate on this subject. Apparently, this is not the case.

  12. AEI should use a fact checker before publishing articles. Actually the Postal Service, more acurately the postal ratepayer, has been bailing out the taxpayer. The Postal Service is required to pre-fund future retirees health benefits by $5 billion a year. So this gives Congress an extra $5 billion to spend every year. Next the Postal Service has been overpaying into its retirement accounts by an estimated $60 to $70 billion. Congress is reluctant to allow this money to be returned to the Postal Service – they would need to cut their spending by this amount.

    If all this money was returned to the Postal Service, the Postal Service would be operating at a profit. There would be no need to have cuts in service. But since Congress has no backbone, they would rather point fingers and do nothing; I do not expect things to change anytime soon.

  13. The USPS is an inefficient and wasteful box of garbage. For example, let’s take a look at mail forwarding and sort facilities. In my area, Cape Cod, a package sent from California goes all of the way to the old address, then gets marked as “forwarded” (address status is never checked until it reaches the old address even though the package information is entered into the USPS system on day one). So in my case I moved ten miles down the road and a package comes all the way to my old address then gets sent 250 miles up to another sorting facility in New Hampshire, and then gets re-routed to my new address. WASTE OF GAS, TIME, BRAIN CELLS, KEY STROKES = MONEY

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