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.)

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.

Senator Carper's Bill: D.O.A

Senator Tom Carper introduced a new postal bill, the ‘‘Postal Operations Sustainment and Transformation Act of 2010’’ (The POST Act of 2010), to modify the Postal Service's business model on September 23rd.   The bill includes all of the legislative changes that the Postal Service requested as part of its action plan last March.  The strong support that Postmaster General Potter shows for the bill in the press release from Senator Carper's office confirms that this bill can be thought of as the "Postal Service's bill."

Unfortunately for Postmaster General Potter, Senator Carper's bill is effectively dead on arrival.  Why?

• The bill was introduced at the end of the legislative session.    With both the House and Senate going on recess to campaign, the consideration of the bill will not even begin until after the election.    The bill still will require mark-up in the Senate and then mark-up and passage by the House.   The clock will most likely run out before passage in one house of Congress, let alone two.
  
• The expected Republican gains in the Senate and House will make any lame-duck session particularly contentious and further reduce the chance that any major legislation will pass.   If Republicans gain control of one or more houses in Congress, it is in their interest to make the lame duck session as ineffective as possible forcing legislative actions to be put on hold until the next Congress.
  
• It is easier to stop legislation than to pass it.   The Post Act has a number of provisions that immediately generate opposition.
  
• Provisions in the legislation to fix the retiree benefit issues easily can be opposed in a Tweet describing the fix as a bailout of a failed federal agency.   This is exactly what Congressman Darrell Issa said in his op-ed in the Washington Times.  Given opposition to bailouts of private sector firms, Congress is unlikely to pass any legislation labeled as a "bailout" of a government entity in the press, in the blogosphere, on cable TV news or on talk radio.
  
• Provisions to allow the Postal Service to eliminate Saturday delivery will receive opposition from a majority of Congress. 
  
• Provisions to allow the Postal Service greater flexibility to cut rural post offices will face opposition from primarily the Republican and Blue Dog Democratic members of Congress that represent most of rural America.   While these members are opposed to bailouts, they are also opposed to cutting services to their constituents.
  
• Provisions allowing the Postal Service to expand into new services that use its physical, technological and human capital that are in the public interest will receive opposition from companies that fear competition from the Postal Service.
  
• Provisions calling for a change in labor arbitration decision criteria will have opposition from Postal unions and their supporters in Congress.

Finally, if this bill does not pass this Congress, it is even less likely to pass in its current form in the next.   Republicans will control the agenda on modifying the Postal Service's business model in the next Congress.    Representative Issa, who has already called the Carper bill a bailout, appears likely to chair the committee writing Postal reform legislation in the House.   His bill will likely require significant changes in the business model beyond what the Postal Service has proposed before accepting the need to fix the retiree benefits issues, let alone include any of the other proposals that Senator Carper has included in the Post Act.  When that occurs, all that may remain of the Post Act will be the legislation's title.