Op Ed Published in Investor’s Business Daily
Why must the U.S. Postal Service raise stamp prices once again? Its official explanation is that the increase will cover the $3.1 billion annual cost of an escrow fund that Congress has required it to set up — the result of the Postal Civil Service Retirement System (CSRS) Funding Reform Act, passed in 2003.
That’s the reason Postmaster General John Potter has given for the rate hike, and the one the USPS posted on its Website after filing for a rate increase last month.
The increase is expected to take effect in January, pushing the cost of mailing a single letter to 39 cents. But the Postal Service’s reason couldn’t be further from the truth. Like many USPS claims, it’s a cover-up for shoddy management.
Lawmakers passed the law shortly after USPS discovered it had been paying too much into its CSRS account for 30 years. (The rate-setting formula was off-target.)
It turned out the Postal Service owed only $5 billion to its CSRS fund, not $32 billion as was originally thought. It promptly declared a $27 billion “surplus” and claimed it was now on track to overpay its CSRS obligations by over $70 billion. The 2003 law called for the new “surplus” to be put in a holding fund for safekeeping—or “escrow”—until Congress decided how the money should be spent.
The Treasury Department and White House think the money should be used to pay down USPS’ other massive obligations, like the $75 billion in unfunded benefits owed to future retirees, $64 billion of it health care obligations. If ignored, this liability would grow to $1 trillion by 2045.
In short, the USPS thought it owed money to a pension fund, found out it didn’t and is now being asked by Congress to put the money toward other debt obligations.
Despite these overwhelming debts, the Postal Service wants to use only some of the escrow money to pay its liabilities, while dumping the rest into operational costs, the very ones it has found impossible to rein in.
According to testimony last month by the Government Accountability Office, “key Service costs continue to rise despite continued downsizing and cost-cutting efforts. . . . In fiscal 2004, service compensation and benefit costs increased $1.7 billion, despite a decrease of nearly 22,000 career employees from the prior fiscal year.”
This striking inability to cut costs is where the real problem lies. It’s the main reason USPS productivity has lagged behind that of the private sector for over three decades.
This cost-bloat problem is compounded by the fact that USPS accounting is opaque, making it hard to pinpoint specific areas of inefficiency. The Postal Service allocates only 60% of its costs directly; the other 40% goes into general overhead. Private delivery companies strive for 100% cost attribution.
No matter what USPS spokesmen claim, the dirty little secret is the organization must raise rates because of its failure to cut costs, boost productivity and improve transparency. Until these are addressed, no postal reform will be adequate.
This is an organization, after all, that has received $27 billion in taxpayer-funded appropriations since 1970. Despite that money and other advantages — it’s exempt from most taxes and can borrow from the Treasury at below-market rates—the USPS continues to accumulate billions of dollars in unfunded liabilities, and remains on the GAO’s “high risk list” of federal agencies in danger of becoming unable to “economically, efficiently and effectively perform their missions.”
The overpayment into CSRS presents a crucial opportunity for the Postal Service to pay down its remaining unfunded liabilities aggressively. With first-class mail volumes declining, the Service’s traditional cash cow is drying up. So it will be much more difficult to address these liabilities in the future. And there’s a chance the USPS will ask Congress for a big taxpayer bailout down the road.
With Congress considering landmark reform legislation—the Postal Accountability and Enhancement Act—lawmakers can put USPS on a course toward financial solvency, benefiting taxpayers and postal consumers.
But unless the legislation includes back-to basics business reforms — paying down unfunded liabilities, cutting costs, boosting productivity and cleaning up the books —the demands of USPS management should be taken with a grain of salt.
Ryan is a senior fellow at the Lexington Institute in Arlington, Va.
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