The Crazy Political Backstory to the Financial ‘Crisis’ at the Postal Service

You may have seen headlines about the U.S. Postal Service supposedly being in dire financial straits. What you might not know is that Congress manufactured this crisis. The story of how this came about is wildly complex. In the meantime, the phony crisis is being used to justify calls for deep cuts and even the privatization of this public service — moves that could be very lucrative for wealthy corporations and devastating for postal workers and customers across the country.

In 2006, Congress passed the Postal Accountability and Enhancement Act (PAEA), which required the USPS to set aside reserves sufficient to cover the cost of its employee post-retirement health benefits more than 50 years into the future. This is an onerous legal mandate that no other federal agency or private corporation faces. It essentially means that the Post Office has to set aside funds for future employees, some of whom who have not yet been born. It’s akin to a credit card issuer requiring an applicant to mail a $1 million check to cover expected charges over the applicant’s entire lifetime.

The USPS has been and is a financially self-sufficient agency that provides good paying, unionized jobs to hundreds of thousands of workers. This requirement is now being used as a bludgeon to advocate for privatization. The Trump administration recommended selling off the whole service to private corporations in an Office of Management and Budget report and partial privatization in a related task force report released last year.

Here’s the crazy political backstory to this absurd pre-funding mandate: For several years, postal actuaries made mistakes that led to overpayments by the Post Office into federal pension funds. When the federal Office of Personnel Management discovered these billions of dollars in overpayments in 2002, they adjusted and reduced the Postal Service’s federal Civil Service Retirement System payments, initially saving USPS about $3 billion a year. But they did not deal with the accumulated overpayments from years past.

Rather than simply crediting back those overpayments to the USPS pension account, a move that would have increased the federal budget deficit for the year, Congress engaged in several rounds of budget chicanery aimed not at making USPS more financially sustainable, but rather to avoid an embarrassing hole in the federal budget.

Upon OMB’s recommendation, Congress passed the Postal Pension Reform Act in 2003, a bill that among other things shifted the liabilities for veterans’ pensions from the Defense Department to the USPS to cover up a budget deficit. Then, with the PAEA’s enactment in 2006, they transferred that liability back to the DoD, but included the past cost of the veterans’ pensions in the calculation for the annual payments for the $51.8 billion retiree health benefits fund that PAEA mandated.

This complicated accounting allowed federal budget officials to continue to avoid the increased federal deficit that would have resulted by simply returning pension overpayments to USPS.

From this point until today, USPS could no longer fund the cost of retiree post-retirement health care on an annual basis, as other federal government agencies continue to do.

PAEA mandated that over the 10-year period, from 2007 to 2016, USPS was to make payments into the newly-established reserve fund with a cumulative value of $51.8 billion in 2016. The target amount for those reserves was not established by actuaries based on expected future costs, but rather by politicians seeking to correct an earlier actuarial error while avoiding a federal budget problem.

This tangled mess of political maneuvering has now blown up into a manufactured crisis that is threatening American workers and the future of a beloved public institution. We should be expanding and growing our United States Postal Service, not tearing it down to prep it for privatization.

A pending bill with bipartisan support (H.R. 2382) would eliminate the prefunding mandate. Congress should finally act to fix their manufactured postal crisis.