The U.S. Postal Service vs. Greece

Postmaster General Michael Donahoe has occasionally remarked that the U.S. Postal Service will end up in a Greek-like crisis if Congress doesn't allow it to reduce costs and operate with more flexibility. Michael Schuyler, now with the Tax Foundation, examines the analogy between Greece and the USPS in a paper that was released on Monday.

The “good” news for the USPS is that its fiscal situation isn't as bad as what the Greeks are dealing with---at least not yet. Whereas previous Greek governments intentionally understated deficits and debt until it caught up to the country in 2009, the USPS hasn't tried to hide the fact that its prospects are bleak. In addition, the USPS has been able to shed excess workers (through attrition) over the past several years, while recent attempts by the Greek government to cut its bloated workforce have been met with rioting.

The problem is that powerful interests maintain convenient opinions on some of biggest issues facing the USPS. Mike singles out for particular scrutiny the postal employee unions for continuing to pretend that the USPS would be alright if it didn't have to make annual payments to “prefund” retiree health care benefits. Both of us have been critical of this claim, but I think Mike’s latest reality check is worth sharing in its entirety:

If Congress did not require the Service to put aside money to pay the costly health benefits it promises its workers after they retire, the deficits it reported in the last several years would have been substantially reduced and so would its reported deficits in the near future. Some stakeholders claim from this that the Service's problems are artificial, the fault of a funding requirement Congress imposed in 2006 as part of the Postal Accountability and Enhancement Act (PAEA, P.L. 109-435). They assert that the Service is, in reality, in fairly good shape. For example, Fredric Rolando, president of the National Association of Letter Carriers, declared, “The Postal Service has performed well in operational terms, nearly breaking even despite the worst recession in 80 years.” It should be noted, however, that even if the RHBF is entirely ignored, the Service would have lost $4.8 billion in 2012, $5.1 billion in 2011, $3.0 billion in 2010, and $2.4 billion in 2009. Losses of $4.8 billion, $5.1 billion, $3.0 billion, and $2.4 billion caused by problems other than the RHBF do not equal performing well. No wonder Postmaster General Donahoe characterized as “irresponsible” the argument that the Service would be fine except for retiree health benefit contributions and said, “The idea that if we just eliminate the prefunding…we'll be OK—wrong!”

Mr. Rolando and others also argue that because the RHBF “already has $45 billion [of assets], enough to pay for decades of future retiree health care,” Congress should not require the Service to make further contributions. The flaw in that argument is that although its projected assets in the fund were $45.7 billion at the end of 2012, its projected liabilities were $93.6 billion, leaving an unfunded liability of $47.8 billion. If Congress let it cease contributing to the retiree health fund without also enacting reforms to dramatically reduce projected liabilities, it would virtually guarantee a huge taxpayer bailout of the Service down the road. The call for a prolonged contribution holiday is reminiscent of the approach that has landed the Greeks in so much trouble.

Never mind the fact that we’re talking about a benefit that a small and shrinking number of private sector workers are offered.

There’s one more point that Mike makes that I found interesting. He notes that defenders of the status quo often accuse USPS management and certain members of Congress of pushing for reforms that will ultimately lead to postal privatization. But Mike argues that reforms that would help fix the USPS’s financial imbalances would make privatization less likely:

[O]ne of the major postal reforms bills in Congress, the Postal Reform Act of 2011 (H.R. 2309), is often accused of paving the way for privatization. In fact, it would do the opposite. The House bill takes a tough-love approach and contains several controversial provisions. These include the creation of a Commission on Postal Reorganization Act, modeled on the successful military Base Realignment and Closure (BRAC) Commissions, as well as the creation of a Financial Responsibility and Management Assistance Authority, modeled on the effective District of Columbia Financial Control Board. No position is taken here on whether those provisions ought to be part of postal reform, but it should be noted that BRAC Commissions have saved the military billions of dollars and the DC Financial Control Board helped revitalize the District of Columbia. Those earlier, bipartisan efforts were not intended to privatize the Defense Department or the District; the goal was to help government run better.

Hmmm… I don’t want government to “run better.” And I think the U.S. Postal Service should be privatized regardless of how it’s run or the state of its finances. So if Mike's right, perhaps free-market fans should be hoping that the USPS goes the way of Greece. After all, because Greece’s finances are such a mess, privatization of Hellenic Post is now on the table.

The danger, of course, is that Congress would just bail it out with taxpayer money.