Tom Sgouros: Going Postal
Monday, August 29, 2011
You may have heard that the US Postal Service is due to run out of money sometime in September. I've seen a fair number of articles moaning about how the advent of email and texting makes paper mail obsolete, and the vast number of tiny post offices the USPS supports and its labor costs and so on. Each time I see one, I want to ask the author if he or she imagines that postal workers live on a different planet?
The fact is that the people who run the Postal Service are not only very familiar with email but they also understand arithmetic well enough to figure out how to support their operations. Between 2007 and the current fiscal year, the net revenue for mail operations was $611 million, and they were able to do that without using a dime of tax revenue. That is, despite the recession, despite their labor costs, despite email, and despite all the tiny post offices, USPS makes money. So why are they going broke?
Accountants rule your world
It turns out they're in financial trouble because a 2006 act of Congress requires them to create an endowment for the health care expenses of their retirees. Since 2007, they've put $21 billion into that fund -- more than $5 billion per year -- and that's why they seem to be losing money and that's why stamps cost 44 cents.
It's worse: the specific language of the 2006 act requires them to pre-fund 75 years of such expenses by the year 2016. That is, the Postal Service is going broke now in order to pay the health care expenses of retirees who have not even been born yet. (Actually, it's still worse than that. The Postal Service apparently has a surplus in its pension fund, but is not being permitted to transfer those funds into its retiree-health fund.)
The act of Congress that's forcing this bankruptcy seems crazy and unusual, but it really isn't and something similar is going on in state and local governments across the country. This is the result of changes in accounting rules put out by the Government Accounting Standards Board (GASB), a bunch of unelected accountants in Connecticut who rule your world. In 2004, they decided, fairly arbitrarily, that there is only one right way to pay for health benefits for retirees (also called "Other Post Employment Benefits, or OPEB), and they changed the accounting rules so that any government that doesn't follow their advice appears to be operating with a deficit.
Making no provisions for the transition (except to specify a timetable), GASB insists you're running in the red until you're doing it their way. This OPEB rule change has been responsible for budget cuts in state and local governments across the country. The US Government uses a different set of accounting standards, so is exempt from these rules, but independent federal agencies like the Postal Service are not.
The enemy of the good
This is not to say that pre-funding OPEB expenses isn't a good idea. It is. But as usual, the really important question isn't "What's the best way to do it?" but "What's the practical best thing for us to do if we didn't do it the best way until now?" That is, it's quite clear to me that electric vehicles are cleaner and more efficient than gas, but is that really relevant to me if I can't afford one just now? Beyond my choice of car, there are lots of ways I could improve my life in theory that are impossible in practice. That's the way the world works, and most of us do the best we can with what we've got and don't worry that it's not the best possible. Since I can't really afford an electric car right now, I'll settle for keeping my clunker tuned properly. That's not irresponsible, it's realistic.
But not to GASB. Or any other of the legion of people who seethe with righteous indignation when you suggest that panic about OPEB expenses -- or about paying off our pension debt -- may not be the highest and best way to serve the public good. In their zeal to keep costs low on future generations, they are willfully sacrificing improvements those generations might have enjoyed. I could buy that electric car today, but if I had to sacrifice family vacation for the next few years in order to do it, would that actually improve my life or the lives of my children?
If, in order to lower taxes on our children when they grow up, we sacrifice the music program they might have enjoyed in school right now, is that really a service to those children? If, in order to pay off our pension debt by the year 2029, years before it's necessary, we drive all the good teachers from the profession with real cuts to their pay and benefits, is that really a service to our state? If, in order to keep stamp prices down in the year 2086, we have to close thousands of rural post offices used by millions of people and businesses (including FedEx and UPS, incidentally), is that really a service to our nation? The people who think these are easy choices are not really thinking hard about them.
These kinds of debates are usually conducted in the abstract, but the fate of the Postal Service provides an unusually concrete demonstration. The question before us is whether we bankrupt the service now in order to pay the benefits of retirees who haven't even been born yet. The forces of "fiscal responsibility" insist we should, but are they right?
Tom Sgouros is the editor of the Rhode Island Policy Reporter, at whatcheer.net and the author of "Ten Things You Don't Know About Rhode Island." Contact him at ripr@whatcheer.net.
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Comments:
Lis Velva
8:02am on Monday, August 29, 2011
50% of their work is junk mail.
Donald Lank
12:59pm on Monday, August 29, 2011
I have to admit that I was expecting the usual less than insightful diatribe when I started to read your article. You are to be commended for actually doing your research and actually using logic and critical thinking that is not a priority in this day and age of self interested political screamers. Your short report is on point and makes perfect sense of the manufactured reality that is the Postal Service. I hate to see conspiracy’s lurking in hallways of the future but this organization is being made artificially ripe for some corporate white knight to come along and make it right through privatization. There are some among us who see a profit in every aspect of life and that it can all be made better if there is no government, no taxes and all will be right with the world when the sun comes up tomorrow.
Jonathan Flynn
10:07pm on Monday, August 29, 2011
Tom's pieces are always insightful because they are carefully researched. You're confusing the diatribe sections with the other side. Insults, invective and idiocy. Profit in all aspects of life. When a lion culls an antelope out of a herd, the profit is a little one sided. Just like a hedge fund trader and a factory worker.
Tom O'Connell
9:40am on Wednesday, August 31, 2011
Not sure if Tom is serious on this one. The USPS will lose $9 billion this year alone, and per union rules, must pay their employees even though low volumes, equipment failures, etc which stop any productive work. Not sure if that's the "accountants" fault.
The USPS is the poster-child of the government agency which has exhibited zero innovation, unnecessary largesse to the unions, and the lack of any kind of urgency -- despite much direct competition in the past 20 years. As always, it's easier to spend and waste other peoples's money (i.e. we taxpayers) than your own.
Donald Lank
1:40pm on Wednesday, August 31, 2011
Tom O'Connell
Did you actually read Tom's article and my comment on doing your research prior to making uninformed comments revealing your hubris? The Postal Service's only source of income for over the last thirty years has been from the sale of postage and not taxes. But let me further clarify, they do receive tax payer monies for postage for the blind and sending election ballots over seas to citizens. Damn those greedy blind voters. Here’s a fact. GE CEO Jeffrey Immelt received $15 million in compensation while his company received $3.3 billion with a b from us tax payers in a tax refund. Ah but I don’t hear you railing on and on about this only about those wealthy tax paying Postal Union workers (fact Postal Workers receive on average 20 to 25% less than other government workers in similar positions) with jobs that do pay taxes. Lest we not get lost on that facts lets just put them out on the street to increase the unemployment rate (so the other side can cry that the administration is not doing any thing about the high rate of joblessness) and on unemployment that is funded with future taxes.
Tom O'Connell
2:39pm on Wednesday, August 31, 2011
Donold -- the USPS is losing $8-9 billion this year, so if the article's point is to suggest that the pension issue is causing this, that is not telling the entire story. So, while it claims to be self-funding (no taxpayer funds), they are financing these annual deficits via borrowing from the Treasury -- so you can't say they are self-funding (i.e. a private enterprise would have gone under long ago as a bank would not be lending them these funds). It could be that federalizing the USPS is an option - or some other kind of taxpayer bail-out. But they are clearly losing lots and lots of money.
The USPS has a labor force that far exceeds the necessary capacity, and it is further hamstrung by the labor contract (i.e.no part-time employees) and by Congress' mandates.
Ads for Jeff Immelt, no arguments. Ironic that he is the jobs czar, but is shipping US jobs to China.
Patrick Baker
2:11am on Thursday, September 01, 2011
Tom O'Connell
You're just plain wrong. When Congress is forcing the PO to pay billions to pre-fund the health benefits of future retirees who haven't been born yet it's not really that hard to see that THAT is the biggest problem the PO faces. $21 billion over the last 4 years. Imagine if UPS had to pay that much in?? That's their entire operating income over that time. If they were forced to do this they'd be bankrupt by now.
Also, your comment on the labor force isn't factual. It's a common misconception among the public. If a lie gets repeated often enough it apparently becomes the truth. The PO as a whole has lost too many people. They can't efficiently get the job done with the people they've got now. Letter carriers in most offices that I know of are working 6 day weeks, 9-11 hours a day. Now there are some areas where they have had to excess employees from one area where work has gone away to areas where there aren't enough employees to do the job but these labor contracts you speak of allow for that and have helped facilitate that. In fact, from what I've seen, the labor unions have been more than reasonable in regards to management excessing employees from one area to the other, one craft to another, even when management has violated their labor contracts in the process.
I'm not entirely sure what you mean by "no part-time employees". Have you ever heard of PTF's?? It stands for "Part Time Flexible". The name is sort of self explanatory. They're part time workers who have no set hours or assignments and give management a worker they can work up to 11.5 hours a day. They don't even have to get days off. They can be forced to work split shifts.
Then there are casuals in the clerk craft. They don't have many contractual rights and are part time. The carrier craft have TE's (transitional employees). There are thousands of them. The NALC gave management the right to hire this group of employees in their last contract and there are thousands of them across the country. They don't have assigned hours or assignments. They can be worked on anything and also up to 11.5 hours a day. They have no health insurance either. They get vacation time but most of them are never allowed to use it because they're working over 50 hours a week and management won't let them take off. Not even for a wedding or a funeral and they're treated like dirt. I know of a case in St. Louis where management decided they didn't need a few of the TE's and told them to take their shoes off and hand them over because they were postal property. Can you even imagine being treated like that??
Tom O'Connell
1:01pm on Thursday, September 01, 2011
Petrick -- I never suggested the pension design was fair, and never challenged that it did not contribute to the huge deficits at the USPS.
But, given that the annual pension requirements are $5-6 billion/year, and they are losing $8-9 billion, how can you say that the USPS is not losing money anyway (even if Congress does repeal the pension provision). If somebody can point out they are making money, I am glad to stand corrected.
The fact is the USPS has excess capacity, dwindling volume, and there will be a bailout at some point.