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.)

Cash-Starved Postal Service May Buy Time With Obama Quick Fix

By Angela Greiling Keane

The following article provides a clear discussion as to why the provisions in President Obama's budget relating to the Postal Service matter to the business comunity and web-based comerce.   It was published on Bloomberg Government and was only available to subcribers.   It is published here with the gracious permission of the author.

Feb. 22 (Bloomberg) -- The U.S. Postal Service, which predicts it will run out of cash by the end of its fiscal year, may buy time to restructure under a plan laid out in President Barack Obama’s budget last week.

Obama proposed deferring $4 billion of a $5.5 billion congressionally mandated payment required in 2011 to cover health-benefit costs for future postal retirees, and refunding some surplus pension payments made by the service.

It was the first time Obama mentioned the Postal Service in a budget message in his three years of presidential budgeting.  Trade groups representing companies such as EBay Inc. that rely on mail and shipping services urged the administration to address the Postal Service’s uncertain future. 

“It’s beginning to sink in that this is not going to be a problem that’s going to go away in advance of the election” in 2012, said Gene Del Polito, president of the Association for Postal Commerce, an Alexandria, Virginia-based group that represents postal customers. “This is a start of coming to a ealization that it’s an issue that needs to be addressed.”

The Postal Service, which has a congressional mandate to be self-supporting, has said it will reach its $3 billion annual and $15 billion total borrowing limits at the Sept. 30 end of its fiscal year and run out of cash if it has to make the $5.5 billion retiree health care payment. The agency, unlike many businesses, must fund future retirees’ projected health-benefit costs out of current revenues.

An agency executive said he was pleased by the president’s plan. “There is momentum, and we’re certainly encouraged by the whole thing,” Postal Service Chief Financial Officer Joseph Corbett said in an interview.

Widening Losses

Obama weighed in with a fix for this year as the agency considers shuttering more facilities, cutting more employees and reducing the number of days mail is delivered across the U.S.  First-class mail volume continues to decline and overall mail volume fell 20 percent from 2006 to 2010 due to widening
use of e-mail and a weak economy. The agency lost $329 million in the three months ended Dec. 31, 11 percent more than the $297 million lost a year earlier.

Jerry Cerasale, senior vice president of government affairs for the New York-based Direct Marketing Association, called the White House’s budget proposal “a great first step.”

“The president’s budget helps for 2011,” he said in an interview. “But it doesn’t do a lot beyond 2011.”

The U.S. Government Accountability Office this week said it’s keeping the Postal Service on its “high-risk” list of government programs.  The Postal Service “cannot fund its current level of service and operations from its revenues and urgently needs to restructure to reflect changes in mail volume, revenue and use of the mail,” the GAO wrote in its report released Feb. 16.

Broader Fix Sought

The Postal Service would need congressional permission to cut Saturday delivery or to close post offices for financial reasons. Lawmakers have blocked those changes previously after Postal Service executives proposed them. “We hope that with the administration having this in focus and the oversight committees who deal with postal matters also having it in focus and some potential new bills coming into the Congress in the near term we’ll really bring this to a head and make some fundamental changes,” Corbett said.

The Association of Postal Commerce is working with the Direct Marketing Association, which has representatives from EBay and Google Inc. on its board, and other postal customer groups whose members send 85 percent of U.S. bulk mail. They and postal labor groups this year asked Obama to change the payment schedule for retiree health benefits, one of the things the president proposed in the budget.

EBay Reliance

EBay sellers are, collectively, the Postal Service’s single largest package customer, accounting for about a quarter of their package shipments, 13 percent of media mail and 9 percent of Priority and Express mail, EBay spokeswoman Alina Piacentino said. Postal Service revenue related to EBay commerce is about $1.7 billion as of last year, she said, or about 2.5 percent of the service’s fiscal 2010 revenue.
“EBay sellers rely on efficient, affordable shipping services to serve their customers and grow their businesses,” Brian Bieron, senior director of federal affairs for EBay, based in San Jose, California, said in an e-mail. “Federal initiatives that enable the U.S. Postal Service to focus more of its resources on providing affordable shipping services to small business retailers are a win-win for consumers and job creation.”

Jake Parrillo, a spokesman for Mountain View, California-based Google, referred comment to the Direct Marketing Association.

Pension Refunds

“As customers of the Postal Service, we recognize our delivery partner will ultimately have the obligation to pay for the benefits established by law and in collective bargaining,” the mail customer groups, which also included the Alliance of Nonprofit Mailers, Magazine Publishers of America and the
National Newspaper Association, wrote in a Feb. 7 letter to Obama.  (Bloomberg LP, the parent of Bloomberg News, publishes Bloomberg Businessweek and Bloomberg Markets magazines. Bloomberg Businessweek’s president is on the board of the Magazine Publishers Association.)

Cerasale said the Direct Marketing Association will push for more federal relief. Customers would like the U.S. to refund overpayments the Postal Service made to a federal retirement fund used for employees hired before 1987, he said. In his budget, Obama proposed refunding $6.9 billion over 30 years in overpayments to the current federal retiree pension fund.

Until the Postal Service’s future is more certain, business customers may shy away from using it, exacerbating the downward spiral, Del Polito said. “Businesses do not like uncertainty and if you tell them there’s this world of uncertainty about using the Postal Service, people stop using the mail,” he said.

--Editors: Bernard Kohn, Joe Winski

To contact the editor responsible for this story:

Bernard Kohn at +1-202-654-7361 or

bkohn2@bloomberg.net

How Congress Makes the U.S. Less Competitive

The New York Times reports today that that the Patent Office is opening up its first satellite office.  This opening is designed to help to deal with the backlog of 700,000 patents awaiting their first action by an examiner and the 500,000 patents that are in process.

Once patent applications are in the system, they sit — for years. The patent office’s pipeline is so clogged it takes two years for an inventor to get an initial ruling, and an additional year or more before a patent is finally issued.

The delays and inefficiencies are more than a nuisance for inventors. Patentable ideas are the basis for many start-up companies and small businesses. Venture capitalists often require start-ups to have a patent before offering financing. That means that patent delays cost jobs, slow the economy and threaten the ability of American companies to compete with foreign businesses.  

The Patent Office like the Postal Service is self supporting.  Application and maintenance fees generate "$2.1 billion in income" in 2010.   This has made the Patent Office an inviting target for Congress, which "over the last 20 years has diverted a total of $800 million to other uses, rather than letting the office invest the money in its operations." [emphasis added] 

While there are changes in Obama's budget to add resources to the Patent Office, previous Congressional actions suggests that Congress wants the revenue from the Patent Office more than the economic benefits generated by the patents the office issues.

"In two consecutive sessions, Congress has defeated a bill that would allow the patent office to keep all of the fees it collects."

The problems faced by the Patent Office in its dealings with Congress are quite similar to those faced by the Postal Service but on a smaller scale.   The impact on the economy is also similar as Congress's actions regarding the Patent Office and the Postal Service have had the effect of retarding the economic growth by making doing business in the United States more difficult and more expensive than it need be. 

Unfortionately for the Patent Office and the Postal Service fixing the problems do not have solutions that fit easily into political arguments that use words that poll favorably or fit within the 140 characters available in Twitter.   The willingness of members of Congress to adjust their language to fit real solutions to the budgeting and policymaking issues of the Patent Office and the Postal Service will determine if the country reverses the anti-growth policies that now exist.

The "Bailout" Talk Has Begun. Or Has It?

The Daily Caller today has an incendiary headline on President Obama's budget proposal regarding the Postal Service.  "USPS Gets Short-term Relief from Obama’s 2012 budget, But Some Call it a Bailout"  The headline suggests that that there are individuals who are familiar with postal policy who are willing to call what the President proposed a bailout.  However, the quotes of two conservative critics contained in the article suggest that finding anyone to use the word bailout took a great deal of effort.

Tad DeHaven, a budget analyst at the Cato had strong criticism but he did not call it a bailout.

“Surprise, surprise,” he said, “like on entitlements and everything else, they’re proposing to kick the can down the road with regard to the Postal Service’s long-term financial situation.”

DeHaven suggested that the long term solution was to privatize the Postal Service, but that even if that didn’t happen, the solutions being suggested were inadequate.

Members of Congress, he said, were unwilling to take the necessary steps because they get complaints from constituents when local post offices close or when stamp prices go up. Instead, he said, they come up with “gimmicky fixes that are very myopic at a time when they could use this long term vision.”

“But such is the nature of a politician, they operate on election cycles,” he added.

Looking at the budget, he was unimpressed. “It just continues to perpetuate an anachronism, and it demonstrates to me a lack of bold vision.”

Tad Dehaven's statement presents a serious proposal from a libertarian thinker.   The Postal Service should be privatized and the proposal doesn't go far enough to put it on that path.   Whether you agree with his statement or not, it would be hard to suggest that he called the budget a bailout.  In many ways the tone of his criticism is similar to the criticism of Senator Susan Collins, who has already proposed legislation that promotes more changes.

Mike Schuyler, senior economist at the Institute for Research on the Economics of Taxation who has frequently written conservative critiques of the Postal Service, supports the proposal

“I do not regard what’s specifically in the budget as a bailout,” he told The Daily Caller.

“My reaction as an economist is 100 percent funding is a highly prudent thing,” he said, regarding the over funded FERS. But, he continued, “if you’ve got over 100 percent funding, and you need money, taking the money out of an over funded account probably makes sense. So I have no problem with that.”

Moreover, he said, “I do not think that allowing the Postal Service to reschedule its payment for the retiree health benefits fund is a bailout. If the Postal Service was told you never have to pay it: that would be a bailout.” 


Mr. Schuyler only called what was not proposed a bailout. 

The Daily Caller is clearly trying to create new fodder for talk radio and conservative commentators.   It is clear that the most knowledgeable people on the right are not willing to add to this talk.