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.

President Obama and 6 Day Delivery

Both the National Association of Letter Carriers (NALC) and American Postal Workers Union (APWU) report on their respective websites that President Obama supports 6-day Delivery.   Both postal unions use the following line from the 2011 budget that President Obama presented to Congress to support their argument that President Obama supports 6-day delivery.   "That 6-day delivery and rural delivery of mail shall continue at not less than the 1983 level."

If this line implies that President Obama supports 6-day delivery, then it is a peculiar way to say it given that it is written in a form that follows the legislative language written by Congress.  The language is similar in structure to language in the budget that describes provisions relating to child support enforcement, and closure of small rural post offices.  The identical language is in the budgets of President Bush. 

More likely, this language is nothing more than a statement of the law relating to uses of the Postal Service Fund and Congressional appropriations to that fund.   So in fact, rather than a statement in support of 6-day delivery by President Obama, this line is nothing more than a restatement of the law as passed by Congress

So if President Obama has not staked a position in regards to 6-day delivery, what does the budget say about its position in regards to Postal Policy.    The only indication comes from the language in the budget that was not part of 2010 budget submitted by President Bush.

The Postal Service faces a serious financial crisis due to unprecedented reductions in mail volume. These reductions, in turn, reflect greater reliance on the Internet (a.k.a., "electronic diversion") and the effects of the business cycle, including cost-cutting by businesses and consumers during the recession. The Administration will work with the Postal Service, its employee unions, the Congress, and other stakeholders to make sure the Postal Service has the tools and authorities it needs to remain viable as a pillar of the American economy and a vital public resource through the current crisis and over the long haul.

This statement does nothing more than state that the Obama administration plans to work with all postal stakeholders to ensure that it remains viable over the long haul.   This statement provides no indications if President Obama's positions on postal policy are similar to those of any stakeholder.  At best all stakeholders, including the APWU, or the NALC, can expect that they will have a seat at the table as more serious discussions about the future of the Postal Service begin this Spring.

The Postal Service, President Obama, and the Budget

In the next sixty days, President Obama will have two opportunities to lay out administration policy regarding the Postal Service.  These opportunities are the State of the Union address and the President's budget for FY2011.

Up to now, President Obama has mentioned the Postal Service only to illustrate the fact that private firms can compete with a public health care plan last summer.   His comments suggested that the financial problems of the Postal Service were serious enough to generate the attention of the White House.

Unless there is some economic miracle, the Postal Service will have a negative impact on the Federal budget and budget deficit for at least the next three years.   The financial challenges of the Postal Service was not recognized in last year's budget and the adjustment to the retiree health care payments were made in such a way that budget scoring was not required prior to passage.  This year, the need for adjustments to the retiree health plan payments before the end of at least the next two fiscal years is known prior to the writing of the budget.  Therefore, the budget should recognize this fact.

The Postal Service's need for an adjustment to its retiree health payments forces the Obama administration to find cost reductions in other programs in order to meet budgetary goals, and in particular begin the wind down of the stimulus related spending.  This shift in priorities from spending to stimulate the economy to reducing the deficit will likely be the theme of the President's budget and a major theme of the State of the Union Address.


The Postal Service's negative budgetary impact should force the Obama administration to enter the debate about the future of the Postal Service in the budget documents submitted to Congress, and possibly as a mention in the State of the Union address  In particular, the President's budget should recognize that the Postal Service is in serious trouble and lay out both how far the administration is willing to go to help the Postal Service deal with its immediate financial troubles and how the administration wants to approach the process of finding a new business model and regulatory framework for the Postal Service to ensure that the Postal Service becomes truly self sufficient.   Now is the time for stakeholders who would like to see Presidential leadership in setting a future for the Postal Service, postal customers, and postal employees to ensure that this happens.

Postal Service Bankruptcy

The headline says it all, "The U.S. Postal Service: Our Next Bankruptcy?" While the stark headline is startling, the potential impact is even more so. The article by Delia Lloyd was published on the website Politics Daily, a new politics website that now attracts 3.6 million unique users every month. It is not clear whether the article and the millions that will read it will sufficiently raise awareness of the Postal Service's difficulties to move postal policy higher on the agenda of Congress and the White House.

The problem right now for the Postal Service is that its troubles have been moved into the high pitched debate over health care reform. By mentioning the troubles of the Postal Service at two health care forums, President Obama made an easy but ill-informed comparison of the Postal Service with its largest private sector rivals FedEx and United Parcel Service.

While it is true that FedEx and United Parcel Service are weathering the economic storm, a more realistic comparison would be with the printing, mail preparation, and advertising industries that generate mail that represent over 80% of the Postal Service's revenue. The more realistic comparison would also include foreign postal operators whose business mix more closely matches the Postal Service's revenue sources.

An examination of the mailing industry worldwide clearly shows that the industry is suffering and that entities that plan to survive and continue to serve their customers and meet universal service obligations are making significant changes quickly. Both large and small printers have declared bankruptcy and some have liquidated. Advertising agencies are hurting so badly that some have begun to offer services at no cost just to keep talented employees on staff until the economy turns around. Throughout the industry, production facilities are shutting down and businesses are shrinking to levels that management believes will allow the enterprise to survive.

Overseas, postal operators have reacted aggressively to deal with the changing mail market and economic conditions. Postal operators in Great Britain and the Netherlands are taking a hard-line in their labor negotiations with their ability to settle with their unions depending upon how well labor understands that bailout of the postal operator to save jobs is unlikely. Deutsche Post is closing its remaining stand-alone post offices and replacing them with contract offices run by either its former subsidiary Poste Bank or other contractors. Operators in numerous countries are redoubling their efforts to streamline processing networks and optimize their delivery operations. Privatization proposals are popping up in Japan, Denmark, Sweden, and Latvia as the capital needs of dealing with the changing marketplace and modernizing operations become greater than what governments are willing to provide or what the operators can raise through postage rates without affecting demand so much to threaten the continuation of universal service.

But realizing that the entire American mail industry is in trouble, does not excuse Congress for creating a postal policy that has resulted in the Postal Service being the only western postal operator that is in such a precarious financial position and without the means to weather the economic downturn. In many ways, the modification of Postal Policy is reminiscent of Congress's initial foray into reforming railroad policy with the passage of the Regional Rail Reorganization Act of 1973. That act opened up some flexibility in pricing and service just as the Postal Accountability and Enhancement Act did but did not fully recognize the extent of change required to ensure that railroads could survive the technological and competitive changes that they faced. It took additional trauma in the railroad industry and two more legislative efforts before the modern framework for the railroad industry developed within which railroads are profitable, growing and able to provide substantial number of highly paid jobs.

By raising the concept of bankruptcy, Delia Lloyd illustrates how Congress has to rethink postal policy. In a bankruptcy reorganization, the objective is to create a new company that will be a viable enterprise with the prospect of paying back its creditors and new investors who provide the debtor-in-possession financing that funds the restructuring necessary to fund the restructuring and operating losses during the transition. In bankruptcy, creditors have it in their interest that all contracts entered into prior to bankruptcy are subject to renegotiation. Renegotiation of labor contracts is often critical because creditors are unlikely to fund the transition unless they believe that labor agreements reflect the new business reality. This is exactly what happened in the GM and Chrysler bankruptcies and the Federal Government's loans were dependent upon new agreements with suppliers, dealers, and organized labor. Creditors have significant leverage over bankrupt companies and their employees as they can raise the threat of liquidation if the company's management cannot develop a viable path through reorganization.

As the Postal Service's largest creditor, Congress is on the hook for scores of billions of dollars for retirement health benefits, workers compensation payments, and postal debt. Its financial interest is similar to the interest that creditors have in companies undergoing bankruptcy reorganization.

The one challenge to the bankruptcy model is the Postal Service's universal service obligation, as that for all intents and purposes takes the liquidation threat off the table. The Federal government has a constitutional responsibility to ensure the continuation of mail service, let alone the responsibility to ensure that mailer needs are met. Fortunately, there are models that deal with the challenges of reorganizing a financially bankrupt company whose business is such that liquidation is not an option. These models are the models that have been used to restructure railroads, shareholder-owned public utilities, and government-owned public utilities.

As the postal policy debate moves forward, the term "bankruptcy" will likely remain a favorite of editorial pages, columnists, headline writers, and politicians. While a real Postal Service "bankruptcy" is unlikely to move beyond the rhetoric of postal policy, the use of term will likely force postal stakeholders to make changes in all of their business and contractual relationships with the Postal Service as a condition for giving the Postal Service the time flexibility, and the resources needed to ensure that Congress's financial interests are secured.