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.

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