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Making the Service profitable again

NALC President Fredric V. Rolando told a congressional panel last week that fixing the pre-funding requirement for retiree health care should be the top priority this year in the effort to restore the financial health of the Postal Service.

“The single most important thing this subcommittee should do to address the crisis facing the Postal Service is to permanently reform the pre-funding provisions of the law,” Rolando told the House Subcommittee on the Federal Workforce, Postal Service and Labor at its March 2 hearing.

“In the absence of the pre-funding mandate, which no other agency or private company in America faces, the USPS would have recorded a net surplus of $837 million over the past four years, despite the worst recession since the Great Depression of the 1930s and despite continued electronic competition.

“It is clear in hindsight that [pre-funding] was a terrible mistake—particularly with the onset of the deep recession just around the corner,” Rolando said.

Several other witnesses before the committee, plus a few legislators, backed Rolando’s call for a rapid pre-funding remedy, as well as his assessment of the Postal Service’s potential profitability.

Postmaster General Patrick R. Donahoe told the committee that the Postal Service has made money in operations since the pre-funding mandate took effect in 2007 as part of the Postal Accountability and Enhancement Act of 2006 (PAEA), and he called for immediate action. “These issues must be addressed through legislation this year,” Donahoe said.

Rep. Stephen Lynch of Massachusetts, the panel’s ranking Democrat, said that solving the pre-funding problem should come before dropping a day of delivery or other drastic measures are considered. “Before we tackle issues such as changing delivery frequency and cutting services and laying off hardworking Americans, there are certainly some more palatable actions we should consider first,” Lynch said. “For example, we need to revisit the Postal Service’s arbitrary and fixed retiree health benefit payment schedule.”

Postal Regulatory Commission Chairman Ruth Goldway added her voice to the call for reform of the pre-funding requirement. “A majority of the commission believes the Postal Service’s current financial predicament is rooted in the PAEA mandate to rapidly pre-fund health benefit premiums for future retirees,” she told the panel.

Jim Sampey, executive vice president of Cox Target Media, owners of the Valpak direct marketing company, also pointed to the pre-funding mandate. “We believe that much of the responsibility for the problems of the Postal Service lies with the Postal Accountability and Enhancement Act,” Sampsey said, “and we urge the new Congress to fix that flawed legislation now.”

President Obama’s budget proposal for 2012 called for a substantial reduction in the pre-funding payment for 2011 and a gradual return of the USPS's $6.9 billion surplus in the FERS system, measures that would save $4.55 billion this year but do not resolve the CSRS overfunding issue that is key to a permanent solution for pre-funding retiree health benefits. The budget also calls for retaining the legal mandate for six-day delivery.

One factor that might affect congressional action on reducing the pre-funding requirement, though, is that the annual $5.5 billion payments count as income for the government, making annual budget deficits appear smaller. Any reform of the pre- funding requirement will therefore increase the deficit and draw opposition in Congress.

Donahoe emphasized that changes to the pre-funding mandate were not a “taxpayer bailout” as some members of Congress and media outlets have claimed, and he said that no taxpayer funds are needed to solve the Postal Service’s problems. The pre-funding payments come from money the Postal Service earns through sales and service, and reducing pre-funding would simply involve allowing the Service to keep more of its own money for operations by slowing the rate of pre-funding.

The discussion about “bailouts” was a distraction initiated by a member of the panel more interested in launching shrill attacks on the Postal Service and setting up soundbites than in genuine problem-solving.

The panel also discussed the USPS's CSRS pension plan, which two independent audits by private consultants have concluded is overfunded by between $50 billion and $75 billion. The Office of Personnel Management (OPM) is resisting efforts to transfer some of these funds back to the Postal Service to make the pre-funding payments.

While some of the new committee members were skeptical of the inspector general’s estimates, Donahoe and Goldway both insisted they were sound. Rep. Lynch, who was chairman of the subcommittee in the last Congress and has a firm knowledge of postal issues, noted that OPM has a history of shortchanging the Postal Service in pensions and benefits, and that Congress had to step in each time to require OPM to restore balance.

“Anybody can make a mistake, but in every single case, OPM overcharged the Post Office by tens of billions of dollars,” Lynch said. “So that’s the record we have here.”