Dueling Inspector Generals or Revenge of the Creditor

Yesterday the Office of Personnel Management - Office of Inspector General (OPM-OIG) published a  report, entitled "A Study of the Risks and Consequences of the USPS OIG's Proposals to Change USPS's Funding of Retiree Benefits," that is devastating for anyone who had hoped that the Postal Service's financial issues could be resolved through changes to retirement funding issues were dashed. 

The OPM-OIG took different positions on each of the three proposed changes it investigated.  The OPM-IG generally supported a change in law to deal with the FERS Surplus.   It punted on changes on the allocation of CSRS liabilities for POD/USPS employees and reaffirmed testimony OPM made last year that OPM will follow whatever direction Congress gives it on that matter.  It rejected all proposals to fund Postal retiree obligations at less than 100%.

The OPM-OIG report reflects one of the eight challenges facing the Postal Service that this blog noted some 18 months ago, "Minimizing Risks to the U.S. Treasury."   Its conclusions are similar to what the first report of the consultant to the creditor committee would say regarding a firm facing bankruptcy. The report would oppose any change in terms that increase the risk of less than payment in full and any changes in the terms of the obligations.

The OPM-OIG goes even further suggesting that the USPS is not viable.  “Of Greater Concern to us is the fact that during the course of our research, we did not find any viable projections indicating that the USPS could restore its operations to profitability”  Creditors of firms in this position often require placing the debtor into bankruptcy so that the creditor committee can then choose to invest capital into the business to turn it around or liquidate it.

The OPM-OIG does a major service regarding the Postal Service even as it dashes the hopes of many stakeholders by making the following points that should focus the policy debate.

• The Postal Service does not have a plan to become profitable that a creditor would find credible.
• The Postal Service needs operating capital under its current plan and would likely need operating capital under any plan that a creditor would find viable as a path to profitable operations.
• OPM, as a creditor, should not put its solvency or its obligations to other Federal employees at risk as a source of working capital for the Postal Service.
• Changing Postal Service retiree benefit payments would not fix the fundamental problems in the Postal Service's business.
• If the Postal Service stops making its retiree health-care payments, health care benefits for retirees of the Postal Service retirees are at risk.  It is not clear how soon they would be at risk or if just future or current retiree health benefits are at risk. (Italicized addition added at 9:30 am.) For more information see "Could Postal Employees Lose Retiree Health Benefits?"
• If the Postal Service needs Federal assistance, then that assistance should be examined and debated independently and not within the context of funding retirement obligations.  (In other words, the fix cannot come out of our budget.)