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?

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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.

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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 and the author of "Ten Things You Don't Know About Rhode Island." Contact him at [email protected]

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