The Post Office is Broke

The headline is actually “Post Office Might Miss Retirees’ Payment” but the click-on-me teaser at the WSJ reads Post Office Nears Its First Default. The use of the word “first” not very subtly implies that there will be more. And there will be.

USPS StampIndeed, saying that the USPS “might” miss the $5.5B payment due in ten days is a bit too polite. They do not have the money and Congress has made it clear they will not act before the August recess. And there is a second $5.5B payment due at the end of September.

Which is not to say that missing these payments will cause much in the way of visible effect. They are, essentially, to make up an underfunding in the Postal Service’s pension plan. Skipping them may have serious long-term consequences, but for now the USPS can still buy diesel for its trucks and make payroll. For now.

The Senate did pass a bill rebating $10.9B, a coincidentally convenient figure, to the USPS that it claims to have overpaid into the Federal Employee Pension System. Last fall the GAO found that there was no overpayment, but, hey, this is Washington. The bill also bars closing more post offices, protects Saturday delivery, and declares that Tinkerbelle will live if we all clap our hands. (I may have made up that last bit.) The House has not yet considered it.

There is the argument that the law that requires the Post Office to fully fund its pension and other retirement benefits is unfair.  And it is true that the requirement is fairly unique. Governments, local ones in particular, habitually underfund their pensions, leaving future generations to pick up the bill. And in the private sector pensions are supposed to be funded fully, but the rules are sufficiently arcane and lax that shortfalls large enough to induce bankruptcy can occur. (Anybody else remember GM?)

The USPS has unique pension rules because it is a unique organization, a giant, highly regulated, non-profit company owned by the Federal Government. It has a government granted and enforced monopoly on delivering mail in the US, something that may seem of dubious worth now, but was once nearly a license to print money. And it has always been, at least in intent, self-supporting.

If a state underfunds its pension obligations that is a bad thing, and in as much as it involves politicians borrowing from the future without saying so, often a dishonest thing. But the state will presumably always be there to pay and the taxpayers who get stuck with the bill are the same taxpayers (or their children) who did not pay when the obligations were created.

But it cannot reasonably be argued that the USPS will always be there to pay benefits to retirees. Just when it will cease to exist, next year or 50 years from now, is debatable, but the ultimate result of technology overtaking it is both obvious and inevitable. And when it goes away, it will leave behind hundreds of thousands of retired workers owed pensions and healthcare.

Assuming that we do not intend to just stiff the old letter carriers, the only viable alternative will be that the Federal Government, that is, we taxpayers, will pick up the bill. In other words, saying that the USPS should not have to fully fund its retiree obligations is saying that future taxpayers should subsidize today’s mail service. This seems neither wise nor fair to me.

And the $11B the USPS will not be paying in the next few weeks is in some ways a distracting re-arranging of deck chairs. In the three months ended March 31, the USPS lost $3.2B. (It will not release results for the quarter ended June 30 until August.) Even without the onerous requirement that it pay for the retirement obligations it incurred during the quarter, it still lost $500M.

The brutal truth is that there is not enough money coming in to pay the USPS’s bills on an ongoing basis. And that is not a situation that will get better if left alone. This default is indeed the first of many.

27 Comments

  • By jim, July 20, 2012 @ 6:27 pm

    The USPS pre-funding obligation and the potential (likely) $5.5B default in question is for the USPS future retiree HEALTHCARE benefits, not the pension. Retiree healthcare benefits and pensions are separate funds and regulated differently.

    Unlike pensions, the private retiree healthcare benefits are NOT required to be fully funded.

    For their pensions the USPS employees are covered by the federal pension system (CSRS or FERS). THat obligation is paid and ran as part of the federal pension. In fact the USPS currently has surplus of $13B as of 2011 in the pension side mostly due to their shrinking workforce.

    The USPS certainly needs to fix its financial state for the immediate and long term. But as long as they’re losing money I think its OK to relax the requirement to prefund their retiree healthcare plans just as much as its OK to not require the S&P 500 companies to fund their $500B pension shortfall.

  • By nudge, July 20, 2012 @ 9:16 pm

    And if the advise of the Postmaster General were followed, without input from the Congress, the USPO would be in much better shape. Closing under used facilities and dropping Saturday delivery helps cut expenses. Congress needs to allow the Postmaster General to do his job.

  • By Christine Mattice, July 21, 2012 @ 10:05 am

    This is sad, but I can’t say I’m surprised. With the rise of the Internet, people are simply not using USPS as much, anymore. Plus postage has gotten so expensive!

  • By Craig, July 29, 2012 @ 11:17 am

    Well, I’m no expert–I admit it. But the figure I read is 75 years of benefits–which is to say, a baby was born today who will someday grow up to be a letter carrier, and the USPS is obliged to fund his health care in the year 2087, right now. Am I getting that vaguely right? Because that does seem somewhat onerous. And I also understand that the USPS is fine, operationally–those retiree health care payments are precisely the reason they are underwater today. As I say, I’m not an expert, and I’d be happy to be better informed. But the impression I get is of a mob of Congressmen pinning the USPS to the ground while a couple of them grab its right arm and make it slap itself in the face, all the while saying “Why do you keep hitting yourself?”

  • By Coupon Mage Software, November 3, 2012 @ 6:28 am

    This is sad, but I can’t say I’m surprised :(

  • By Atticus, December 19, 2012 @ 3:56 am

    Man, just when we thought you were back you vanished again!

  • By Mr. West, December 25, 2012 @ 6:36 pm

    “Man, just when we thought you were back you vanished again!”

  • By Mr. West, December 25, 2012 @ 6:39 pm

    Frank probably being investigated by the SEC for something, but hey … giving bad investing advice obviously isn’t a crime!

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  • By Pat Ashley, January 21, 2013 @ 9:37 pm

    The postoffice is still raisng its rates. Maybe if it stopped people wuld use the services more and then they wouldn’t have to default.

  • By Melinda Gonzalez, February 21, 2013 @ 4:32 pm

    I always thought it was odd that the USPS isn’t doing well. Even though people don’t write letters anymore, a HUGE amount of people send packages. Everyone buys stuff online these days, and some are shipped with USPS. I think back in the day there were far less packages delivered by USPS. You would think sending packages would make the USPS more money than stamps. Who knows, maybe it’s just mismanagement. Like everything else government run, perhaps they just don’t know how to budget.

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  • By John, March 27, 2013 @ 10:20 pm

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  • By Mr. West, May 19, 2013 @ 1:36 pm

    Got it: Frank won the Powerball lottery and went to a Pacific island. His next post: “The Lottery: Play it! Someone is certain to win it.”

  • By Thomas | MADD Finances, May 26, 2013 @ 7:16 pm

    Think they are just bad with money. People are always sending packages out so they cant need letters that much to make money.

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  • By Mr. West, August 15, 2013 @ 10:14 pm

    Here’s the book on Frank: Superb writer; smart guy with Ivy League education; asks provocative questions; has big ego; thinks he has all the answers … but the shocking truth: He doesn’t! His wife probably works and he stays home with the kids now.

  • By Robert, August 30, 2013 @ 9:41 am

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  • By Ali, September 10, 2013 @ 8:56 am

    I’m not surprised

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