GAO says USPS proposal would amount to a bailout

Alexis Levinson Political Reporter
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As the United State Postal Service faces dire financial straits, a report to be released Thursday by the Government Accountability Office asserts that the solution suggested by USPS would not solve the Postal Service’s financial problems, and would instead result in what would essentially be a taxpayer bailout.

USPS contends that the $8.5 billion it lost last year, and the $10 billion it is projected to lose this year, is because it has paid too much money to the federal government to fund retiree health benefits, and it would like to be given access to that overpaid sum in order to help alleviate some of the financial pressure.

But in a document obtained by The Daily Caller to be released later on Thursday, the GAO says that based on its analysis, there is no such overpayment. Moreover, it concludes, to pay out the requested money would only stave off disaster, not solve USPS’ underlying financial problems, and instead, it would simply increase the federal government’s liability, which would have to be funded through tax revenue and borrowing, in other words, by taxpayers.

The specific subject of the dispute is who is responsible for paying the health benefits for retirees who worked at both the USPS as it exists today, and at the Post Office Department, which existed until 1971 as an agency of the federal government.

Currently, USPS and the government divide the cost of that pension. However, USPS is responsible for a larger cost because benefits are based on the highest salaried accrued over three consecutive years, and since salaries were raised when the Postal Service became independent, USPS has to pay more.

Reports by the USPS Office of the Inspector General and the Postal Regulatory Commission both concluded that the a sum between $50 billion and $75 billion be transferred from the federal government to the Postal Service to compensate for an overpayment.

The Office of Personnel Management, on the other hand, recommended that the system stay as is. That agency, which would be responsible for doling out these funds, noted that congressional action would be required to allow any transfer of funds, and concluded that it would be taxpayers who would ultimately bear the burden of the transfer.

The GAO report concurs with the one issued by OPM.

“Application of the approaches proposed by the USPS OIG and PRC reports would result in a significant transfer of pension costs from USPS to the federal government, and thereby to taxpayers,” says the report.

The report disputes the existence of any overpayment, and says that transferring the funds would mean USPS got paid twice for the increased pension rates. The report says those costs had “already been reflected in postal rates for most of the past four decades, so … any transfer of USPS pension obligations to the federal government would mean that USPS would receive payment for these costs twice, once by ratepayers and once by taxpayers.”

The report concludes that not only would transferring the money not provide a viable long-term solution for USPS’s financial woes, but it would also have detrimental effects, including an effective bailout.

“The key impact,” the report asserts “would be to increase the federal government’s unfunded liability for non-postal CSRS by approximately $55 billion to $85 billion.”

That liability, in turn, would then have to be “paid by the federal government through tax revenue or borrowing.” In other words, if money were transferred, those funds “would then need to be repaid by the federal government and taxpayers.”

Furthermore, GAO expresses concerns that if the government were on the line for more of the funding, that would “create pressure” to decrease similar benefits for all government employees, including postal workers.

Currently, if the funds were transferred, USPS could not legally use them for anything other than funding employees’ health benefits, so legislation would be required to change that.

As for pulling USPS back from the edge of financial default, the transfer of funds “would provide some temporary relief,” but “would not be sufficient to repay all of USPS’s debt and address current and future operating deficits related to USPS’s inability to cut costs quickly enough to match declining mail volume and revenue.”

The root of USPS’s problems, the GAO says, is “customers’ changing mail use combined with the fixed nature and inflexibility associated with USPS’s costs” — in particular, the declining volume of first class mail. This change in business, in turn, “exposes weaknesses in USPS’s business model, which has relied on volume growth to help cover costs.”

Instead of getting a single infusion of cash from the federal government, the report says, “USPS needs to modernize and restructure,” becoming more efficient.

The report provides some support for a bill introduced by Representative Darrell Issa, who chairs the oversight committee, which has jurisdiction over the Postal Service, and Rep. Dennis Ross. Senator John McCain introduced a corresponding bill in the Senate.

The bill outlines a plan to reform the Postal Service and increase its ability to better function in the new climate. Issa has repeatedly warned of a possible taxpayer bailout if some reforms are not imposed, and has said that a transfer of funds would be unacceptable.

“There is not now nor has there ever been an overpayment,” said Issa, when asked to comment on the results of the GAO report. “It has simply been a disingenuous claim used to justify legislative proposals that would use billions of taxpayer dollars to cover-up declining Postal Service revenues. Straightening out the facts about this argument the Postal Service has pushed, as its financial situation has deteriorated, should help Congress focus its energy on real solutions to cut costs and reform the Postal Service.”

In a statement about the report, the Postal Service said that it was “disappointed” that the GAO had come to this conclusion, which it said “ignores actuarial principles that would govern in the private sector, as well as fundamental principles of fairness.”

USPS said the “GAO’s discussion of ‘fairness'” was “flawed and incomplete” because it is based on the assumption that the 1974 which set up this system of payments should be the guiding factor.

“[T]he Report offers no room for compromise, relying almost entirely as it does on the mistaken assumption that the 1974 law represented Congress’ final determination of the fairness of the allocation of pension costs between the Postal Service and the U.S. Treasury. In fact, Congress’ direction, as expressed in the 2003 and 2006 laws, indicates otherwise,” said USPS in its statement.

The Postal Service did concur that the transfer of funds would not, on its own, solve the Postal Service’s financial troubles, and outlined several reforms that it felt would do that.

One such solution, which USPS has said is a major source of financial losses is the requirement to prefund future retiree health benefits. The GAO report does not address this factor.

The National Association of Letter Carriers, one of the unions of postal workers, was adamant that the GAO report was just absurd.

“The GAO is simply wrong in denying the overpayment, and in doing so it differs with the USPS, the Office of Inspector General (of the Postal Service,), the Postal Regulatory Commission, two independent actuaries, and legislators from both parties and both chambers of Congress who’ve addressed the issue in current legislation,” said the statement.

“It’s absurd to claim that the money owed the Postal Service would not solve its financial problems by asserting that they result from changes in consumer mail use and a business model weakness — given that over the past four fiscal years, despite the recession, mail delivery netted a $611 million operational profit. And saying that transferring the money would result in an increased liability is like a restaurant telling a consumer who was overcharged that refunding the overcharge would require taking the money from someone’s account. An overpayment needs to be refunded, period.

“Moreover, it’s ironic that the GAO is focused on soaking the USPS when the non-postal federal government, which includes the Congress and the GAO, has funded only 40 percent of its CSRS pensions compared to more than 95 percent for the USPS.”

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