Could the Budget Kill Efforts to Save the Postal Service?

In the next few days, President Obama will deliver the State of the Union Address and reveal the 2011 budget.   White House spokesman have already announced that the budget will include a freeze in discretionary spending in fiscal years 2011 through 2014.    The spending freeze creates an additional barrier on top of the normal budget scoring process to efforts to find a solution to the Postal Service's financial problems.   

The budget scoring process put the retiree health care payment schedule in place in order for the Postal Accountability and Enhancement Act (PAEA) to pass.   The budget scoring process derailed the normal legislative process as a method to deal with the Postal Service's financial problems last year.   The relief that was granted was included in last-minute legislation that did not require budget scoring.

The relief that Congress granted last year did not solve the long term problems of the Postal Service.   Congress will soon see a report from the Government Accountability Office (GAO) on potential business models and regulatory frameworks that could offer long term solutions.   It is unclear whether the GAO's mandate will cover key financial questions regarding the Postal Service's true liabilities for CSRS pensions, retiree health care benefits, and workers compensation payments which affect the viability of all business modes that the GAO is likely to consider.


The Problem with the retiree health care liability was studied by both the USPS - Office of Inspector General (USPS-OIG), and the Postal Regulatory Commission (PRC) and both studies recommended lower payment schedules than the current schedule.   Choosing either the USPS-OIG or the PRC schedules would reduce the Postal Service's payment to Office of Personnel Management (OPM) and in the budget scoring process would require cost savings in non-postal programs or other payments from the Postal Service for the change to be budget neutral.

A new report from the USPS-OIG, The Postal Service's Share of CSRS Pension Responsibility, creates even more budgetary problems if the results are accepted.   This report indicates that the Postal Service has overpaid its liability by $58.7 billion more than previously estimated.   If this overpayment is transferred to cover the Postal Service's retiree health care liability, the Postal Service's obligation for retiree health care costs would be even smaller.   Again, the primary obstacle to accepting the USPS-OIG analysis is the Congressional budget scoring process.

Fixing retiree and other liabilities was critical in postal reform efforts outside the United States.   In these countries, legislatures realized that a viable national postal operator and universal service required that the postal operator not be burdened with retiree obligations at levels that would force layoffs or price increases. 

The Postal Service and nearly all stakeholders realize that the first step to solving the Postal Service's problems will involve recognizing that 1) retiree payments reflect actual obligations and 2) the payment schedule for this actual obligation should follow private sector standards for funding retiree obligations.  The National Association of Letter Carrier's Fact Sheet presents the arguments that stakeholders will make before Congress over the coming month. 

Given budget scoring, these arguments will fall on deaf ears unless stakeholders can find ways to replace the "funds" that fixing the pension and retiree health care obligations creates.   Failure in the effort to find a fix will force the Postal Service to raise rates substantially, make cuts in service beyond eliminating Saturday, and reduce the workforce faster than it has proposed to date.   

Is there a solution?  Is there a solution using a governmental business model?   My paper, Examination of Postal Business Models, tried to answer these questions in assessing potential business models and concluded that there is a solution and governmental business models did not offer one.   It is time for others looking at Postal business models, and in particular those stakeholders that want to retain a governmental model to explain how their model can solve the problem of Postal liabilities and get the changes that they envision passed by Congress.