Tuesday, October 12, 2021

Republicans Setup USPS for Financial Failure

The USPS has been struggling financially fin the 21st century, in part because email has reduced letter mail volume and revenue, but also because of an extraordinary requirement the Republican controlled Congress and President George W. Bush imposed on it in 2006. Unlike any other government agency or private company, the USPS is required to prepay health benefits for retirees 75 years into the future. This means that the Postal Service must have funds in reserve to pay for future workers who have not been born yet. This requirement has been an albatross around the neck of the USPS ever since it was implemented, costing billions of dollars every year and making up nearly all of its operating losses, which totaled $8.8 billion in fiscal year 2019.

As explained in The Week: The Postal Accountability and Enhancement Act (PAEA) of 2006, passed by a Republican-led Congress and signed into law by President George W. Bush, gave the Postal Service new accounting and funding rules for its retiree pension and health benefits.

Up until 2006, the USPS funded those obligations on a pay-as-you-go-basis, pulling out of its pension fund and adding to it as retirees' costs came in. But the PAEA required the Postal Service to calculate all of its likely pension costs over the next 75 years, and then sock away enough money between 2007 and 2016 to cover most of them. This is one of those ideas that sounds responsible on the surface but is actually pretty nuts.

Consider your average 30-year mortgage. What if you had to set aside a few hundred thousand dollars right now, enough to pay the whole thing, even if you were still going to make payments over 30 years? No one would ever take out a mortgage. That's the whole point: the costs only come in over time, and the income you use to pay them comes in over time as well. It works exactly the same for retiree pensions and benefit funds. Which is why, as economist Dean Baker pointed out to Congress, pretty much no one else does what the PAEA demanded of the Postal Service.

Meeting Congress' arbitrary mandate required putting away an extra $5.6 billion per year. "It is equivalent to imposing a tax of 8 percent on the Postal Service's revenue," Baker said. "There are few businesses that would be able to survive if they were suddenly required to pay an 8 percent tax from which their competitors were exempted."

Eventually, the burden became too great, and the USPS began defaulting on the PAEA payments in 2012. But the damage was done. The Postal Service lost $62.4 billion between 2007 and 2016, and its own Inspector General attributed $54.8 billion of that to prefunding retiree benefits. Without the PAEA, the Postal Service wouldn't be doing stellar. (Though you could plausibly blame many of its remaining struggles on the Great Recession.) But it probably would've spent at least part of the last decade making comfortable profits.

"The Postal Service's $15 billion debt is a direct result of the mandate," the Inspector General wrote in 2015. "This requirement has deprived the Postal Service of the opportunity to invest in capital projects and research and development."

In fact, it gets worse. The PAEA also required the Postal Service to invest its retiree funds exclusively in government bonds. Once again, this is a rather unusual practice. While it mitigates risk, it's also a great way to earn really low returns. Then the USPS has to set aside even more money to achieve the same benefit level. Baker calculated that just getting rid of this requirement could make the Postal Service profitable again.

Now, in a sane world, the USPS would be treated as a universal public good: Everyone would understand that it provides the bedrock delivery service to poorer and farflung areas that private carriers won't bother with because doing so isn't profitable. Instead, the Postal Service is expected to compete with the private market, and fund all of its costs out of its own revenue, without subsidies from the rest of government.

That's bad enough. But it's downright perverse to add extra handicaps that a private competitor like FedEx would never impose on itself.

Maybe that was just dumb politics. But it looks an awful lot like deliberate sabotage of a perfectly good public institution. It turns out Trump's task force will include Treasury Secretary Steven Mnuchin and White House budget director Mick Mulvaney. The latter in particular is a conservative small-government ideologue. It doesn't seem too crazy to think they'll recommend privatizing the USPS and selling it off for parts. And that they'll justify this recommendation by claiming the Postal Service just can't seem to compete.

It’s strange to even mention “losses” when we’re talking about the government. Other federal agencies are not expected to fund their own operations. Nobody asks why the Department of Agriculture didn’t turn a profit last year. The fact that the USPS can come close to profitability while charging only 55 cents to mail a letter across the country is nothing short of astounding. Mail volume has declined in recent years, but the USPS still delivered 142 billion pieces of mail in 2019, around 460 pieces for every one of the over 300 million residential and business addresses it serves.

Libertarians say “FedEx and UPS make profits, so why can’t the Postal Service?” but they fail to explain that those companies make profits by charging you not 55 cents, but around $25 to send a letter coast-to-coast. And unlike the USPS, FedEx and UPS do not have a universal service requirement to deliver to all addresses throughout the country; if it isn’t profitable, the private shippers won’t deliver there. So what does FedEx do if you ask them to send a package to a remote address in the Upper Peninsula of Michigan? They take your money, bring the package to the post office, have the USPS deliver it at a much lower rate, and pocket the difference.

The USPS may lose money delivering that package, just as they do operating thousands of post offices in rural areas. They do it because they have a mandate to serve every American, no matter who they are or where they live.

Then came the coronavirus in 2020. While USPS package delivery was more vital than ever, there has been a precipitous drop in mail volume (in particular junk mail and advertising, which have been largely suspended while companies conserve cash), further cutting into postal revenues.

So when the time came to put together a $2.2 trillion rescue package for the American economy, Democrats attempted to add $25 billion to shore up the USPS—less than the $29 billion in grants the airlines ended up getting. Then President Trump stepped in.

“We told them very clearly President Trump was not going to sign the bill if [money for the Postal Service] was in it,” an administration official told The Washington Post. Negotiators eventually decided to allow the USPS to borrow $10 billion from the Treasury Department, but it would have to be paid back. “A committee aide said [Treasury Secretary Steven] Mnuchin told lawmakers during negotiations: ‘You can have a loan, or you can have nothing at all.’”

Some Republicans have been supportive of the USPS in the past, as well they should: In rural America, where the GOP has some of its strongest support, the USPS provides services that no private company would at such a low cost. And when you talk to actual people, you find that the Postal Service is absolutely beloved; according to the Pew Research Center, 90 percent of Americans have a favorable view of the USPS, more than for any other federal agency.

But the Trump administration pushed for privatization of the Postal Service through Trump's appointees to the USPS Board of Governors. Why did Trump have it in for the USPS? As far as we can tell, his determination to undermine it is driven mostly by animus for Amazon CEO Jeff Bezos, who as the world’s richest man inspires Trump to manic heights of jealousy and insecurity. From early in his term, Trump has complained that the Postal Service doesn’t charge Amazon enough money for shipping packages (in fact, package delivery is one area where the USPS makes a profit). The pandemic offered the president his first opportunity to truly threaten the agency he calls Amazon’s “delivery boy.” Destroying the USPS would only bolster private companies that ship packages—such as Amazon—but that presumably hasn’t entered into Trump’s thinking.

There may be other reasons Trump despises the Postal Service. For years it has been a vehicle for African Americans to get a toehold in the middle class with good pay and benefits (not to mention union representation), and that may not sit well with Trump. Plus, with expectations of an enormous increase in demand for mail ballots, the Postal Service will be absolutely vital if we’re to have anything resembling a fair election in November. That’s the last thing Trump wants, and it might be playing into his calculations.

Whatever the full explanation, in this instance, the good of the entire country—liberal and conservative, blue states and red, urban and rural, all of us who get mail, in short all of us—must be sacrificed to whatever mixture of infantile jealousy and cynicism is swimming around in Donald Trump’s head.

Relieved of its preposterous retiree prepayment requirement the Postal Service its 31,000 retail locations can, with a Postmaster and Board of Governors dedicated to the Postal Service’s 250 year long mission, continue to serve Americans’ needs, particularly those across rural America.

Source: The Prospect.

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