The Costs of the Postal Service

by oracleofreason

It has recently come to light that the Post Office currently has 714 people who received a pension in excess of $100,000 per year, for the rest of their lives. On top of all of that, those same pension recipients also get health benefits. The New York Times understates the problem by saying the US Postal Service has a history of labor contracts offering generous health and pension benefits and no layoff provisions.

The grey lady also stated, in July that the USPS pre-funds all health costs for future retired employees. That cost the post office more than $20 billion since 2007 — a period during which its total loses amounted to $25.3 billion. and It’s pension obligations are also over funded by around $11 billion. Not since the debt criss has there been such an avoidable fiscal mess.

In order to pay for all of this the Post Office is raising delivery rates. Obviously the idea of them scaling back operations is a concept foreign to an entity that has a monopoly on the delivery of first class mail. Never mind raising postal rates drives people to seek alternatives to regular mail options which, in turn, drives down revenue. Apparently the post office thinks it can pay out all the high pensions that are bankrupting it on the back of international mail too. A flat rate envelope for international mail, for example, was $11.95 but was raised to $13.95. In the latest price increase raised it to $23.95.

The Congressional Research Service says almost all of the problems are do to rising spending, not lower income. The CRS states: the USPS has significantly increased operating expenses. A great deal of the rise in costs is attributable in part to the Postal Accountability and Enhancement Act (PAEA).8 The PAEA established the RHBF and requires the USPS to prefund its future retirees’ health benefits at a cost of approximately $5.6 billion per year…. They go on to point out that the effects of the PAEA’s mandatory payments to the Postal Service Health Benefits Fund on the USPS’s profitability were considerable.

In fairness the Post Office is not a private business and legally can’t act like one. It is managed by all sorts of Congressional restrictions. For example, the Post Office can’t sell packaging materials and supplies in their lobby. So they are restricted from seeking additional methods to generate income, but they are hampered by postal unions from reducing their most significant cost: personnel.

The employees of the USPS are federal employees and Congress mandates how much the Post Office has to pay into their pensions. Post Office officials say they have been forced to overpay $6.9 billion that they want back. But the federal government won’t allow it, and instead the money sits in government accounts making the USPS look bad but the federal government looks good.

For employees with service both before and after 1971, the federal government and the Postal Service share responsibility for CSRS pensions. The federal government pays for service through 1971, and the USPS pays for service after 1971. Congress set it up so that most the burden is put on the current USPS even though the employees were most employed by them. The percentage of CSRS pension costs allocated to the USPS for an employee who worked for both the Post Office Department and the USPS is greater than the proportion of the worker’s career that he or she spent as an employee of the USPS.

Postal employees today get pay less for their health benefits: USPS employees pay approximately 21% of their health care premium costs and 0% of their life insurance premiums, while other federal employees pay 28% and 67%, respectively. The Post Office can get people close to retirement to do so at huge amounts, but that’s probably the best they can do. However, even the decreasing revenue didn’t reduce income because increased in rates made up for it. So there was less work for the post office each year but not less income.

Congressional Research Service notes: the USPS is required to be self-supporting but that federal law provides it with very few authorities to control its employment costs—which make up approximately 80% of its total operating costs. With no ability to layoff unneeded workers they can only entice them into early retirement with generous benefits. The fact is that USPS has been run for the benefit of the postal employees, not the consumers. It’s revenue is forced into federal coffers through the backdoor by making they overpay the prepaid health costs. And the private Post Office is forced to carry the cost of employees who had been working for the pre-USPS post office that was entirely federal. Not surprisingly, Congress and the unions rigged the USPS to fail using it as a cash cow rather than as a means of serving the public.