A little known act of Congress in 2006 set the stage for the present debacle, but there is a serpentine history of political manipulation of the US Postal Service (USPS) since it formed its current identity in 1971. This is the first of two posts on the events and attitudes that have shaped the current state of affairs. The second post covers what has transpired from 2010 to this week.
Always a huge enterprise, today the USPS has a bit more than half million employees and nearly another half million retirees. It also has the largest labor unions in the USA. It’s no surprise that labor related costs are over 75% of today’s USPS budget.
Back in the beginning in the early 1970s, big costs for pensions worried Congress so that in 1974, a stepped up schedule of pension payments began.
In the early 1990s, there were more concerns about pension costs and an additional $693 million a year was required from 1993 through 1998.
S. 380 (2003 – Public Law 108-28)
A 2002 Government Accounting Office (GAO) study showed that the USPS would be over-funding its pension obligations by $78 billion.
A football kicked back and forth has been the requirement that the USPS pension contributions also cover $27 billion in military service benefits. The old Civil Service Retirement System (CSRS) gave pension experience credits for years of military service. It seems odd since military service is hardly an aspect of the USPS, but others have argued that other agencies of government have shouldered the burden for their employees. The exceptional public-private nature of the USPS has sustained the issue with GAO not sure how to handle it.
The passage of S. 380 (Public Law 108-28) in 2003 made this $27 billion a USPS bill as part of a quid pro quo that gave the USPS a break in funding its pension obligations, the one on track to being over-funded by $78 billion. Debt reduction was mandated with the excess funds while any other surplus was to be held in escrow with no indication of how the funds would be used specifically.
HR 6407 (2006 – Public Law 109-435)
As the whole matter came up again, the White House Office of Personnel Management in 2005 insisted that the USPS pay the $27 billion cost of military experience credits, not the US Treasury, claiming it would amount to a taxpayer subsidy:
Since the Postal Service uses and receives the benefits of this human capital tool in the form of recruitment and retention of its own employees, it should pay for its full cost. There is no basis for the taxpayers to subsidize any element of the Postal Service’s compensation package.
The Heritage Foundation agreed. The National Tax Union called for full privatization of the USPS, quoting then-Rep. Tom Davis (R-VA) using the oft repeated phrase that the USPS is in a “death spiral.” That claim was made six years ago
It was Davis who sponsored HR 6407 (2006) (Public Law 109-435) which alleviated the USPS responsibility for military experience credits, and freed the escrow funds, but it imposed a new requirement for the funding of future retiree health benefits. It required the USPS to pay roughly $5.5 billion into a fund each year from 2007 through 2016, over $45 billion. The effect was to pre-pay retiree health benefits for 75 years in the future, but with payments completed in a 10 year time span.
At the time, the Congressional Budget Office (CBO) estimated that the savings from the escrow payments and the military experience credits would largely offset the new retiree health pre-payment cost. It hasn’t worked out that way.
Although the USPS had its biggest volume year in 2006, technology and recession hammered its revenue in the following years.
After generating modest profits from FY2004 through FY2006, the USPS lost $5.3 billion in FY2007, $2.8 billion in FY2008, and $3.8 billion in FY2009. Were it not for congressional action to reduce a statutorily required retiree health benefits payment, the USPS would have lost $7.8 billion in FY2009. The USPS’s financial losses resulted from declining operating revenues and significantly increased operating costs, the latter of which was largely the effect of the PAEA’s [HR 6407 (2006 – Public Law 109-435)] requirement that the USPS prefund its future retirees’ health benefits.
Click here to read the next post and learn more about what has happened most recently.