At long last, someone has suggested doing away with the accounting gimmick that helped get the US Postal Service into its current so-called “financial crisis”. Democrats on the House Oversight Committee have submitted their recommendations to the deficit reduction “super-committee”, and one of them calls for the Postal Service to be “on budget” i.e., to include its all of its financial operations in the Federal Budget.
The suggestion would fix the current situation that places the USPS’s operating budget “off budget”, while its pension and retiree health funds are “on budget”. This budget gimmick was the driving force behind the creation of the annual $5.5 billion “trust fund” requirement that was slapped on the USPS by the Congress and the Bush Administration in 2006.
A little historical background: in 2002 the Office of Personnel Management discovered that the USPS was paying too much into its Civil Service Retirement fund. (Note that this overpayment has nothing to do with yesterday’s GAO report, which dealt with the treatment of pre-1971 Post Office Department employees. The 2002 overpayment problem was discovered by OPM, and verified by the Office of Management and Budget in the Bush White House- no one disputes that it was real.) The amount the USPS was overpaying on an annual basis was about $5 billion a year. Newspaper headlines at the time suggested that the discovery would solve the financial problems of the USPS for years to come.
But the Bush Administration thought differently- in 2002 the US was already involved in a war in Afghanistan, and had also seen the first of the Bush tax cuts. The budget was starting to run a deficit, and returning the undisputed overcharges to the USPS would, according to Congressional accounting rules, increase that deficit. In 2003 Bush started another war, and Congress enacted still more tax cuts.
The end result was that it took until 2006 for a law to be passed finally resolving the continuing overpayments. Unfortunately for the USPS, the resolution didn’t refund the overpayments- instead, the PAEA law forced the USPS to continue them- but now they would go into a special on budget “trust fund”. Safely stashed in the “trust fund”, the money, now amounting to $42.5 billion, artificially lowers the federal debt, and allows opponents of the USPS to scream “BAILOUT” whenever anyone suggests that the money be returned, or simply has the temerity to ask how a company with over $50 billion in the bank (the “trust fund” plus the $6.9B FERS overpayment) could possibly be “insolvent”.
And that is why the Democrats’ reasonable suggestion stands no chance of being approved.
But here it is, for the record:
As part of the Omnibus Budget Reconciliation Act of 1989, the majority of the Postal Service’s finances, which are held in the Postal Service Fund, were placed in an “off-budget” status. The rationale for this provision was that since the Postal Service’s funds were derived primarily from rate payers rather than taxpayers, the Postal Service’s operations and finances should not affect national budget considerations. On the other hand, several Postal Service accounts and funds continue to remain “on-budget,” including the Postal Service’s share of the Civil Service Disability and Retirement Fund and the Postal Service Retiree Health Benefits Fund.
This budget accounting mechanism created problems for the Postal Service after Congress enacted the Statutory Pay-As-You-Go Act of 2010, which requires on-budget legislative changes that impact federal spending to be offset by decreases in other on-budget accounts or programs.61 Statutory Pay-As-You-Go Act rules do not permit off-budget changes to balance out on-budget changes.
In 2009, the Postal Service Inspector General issued a report highlighting the complications caused by this anomalous budget treatment. The report stated that, “despite its off-budget status … the Postal Service is still caught up in budget scoring decisions that erode its finances and obstruct its legislative program in Congress.” One example of these complications is the budget treatment of an estimated $6.9 billion surplus the Postal Service has accumulated in its Federal Employee Retirement System (FERS) obligations. Although there is agreement between the Postal Service and Office of Personnel Management (OPM) that the surplus funds should be returned to the Postal Service to improve its financial outlook, the transfer of funds from an on-budget account to an off-budget account would be viewed as increasing the federal deficit under the Statutory Pay-As-You-Go Act.
House Budget Committee Chairman Ryan expressed support for using a unified budget approach when he spoke about a provision in the Continuing Resolution (CR) for Fiscal Year 2012 to delay the Postal Service’s $5.5 billion retiree health benefits pre-payment. He stated:
The House Budget Committee scored this anomaly on a unified basis, so that both the on budget and off-budget effects were counted together. As a result, the 2011 cost and the 2012 savings offset each other and produce a score of zero in the CR (P.L. 111-68). This decision has precedent. A similar provision was included in the FY 2010 short-term CR where the House scored that provision on a unified basis pursuant to section 426(b) of the 2010 budget resolution.
Given the bipartisan support for this proposal, the Joint Select Committee should amend the Statutory Pay-As-You-Go Act of 2010, as recommended by the Office of Management and Budget in its submission to the Joint Select Committee.
In order to improve the short-term solvency of the Postal Service, the Joint Select Committee also should adopt the Administration’s proposal to restructure the Postal Service’s Retiree Health Benefits prepayment schedule and refund the Postal Service’s accumulated Federal Employee Retirement System (FERS) surplus of approximately $6.9 billion. Replacing the current Retiree Health Benefits prepayment schedule with a more realistic longer-term prepayment schedule will significantly enhance the Postal Service’s current liquidity and enable the Postal Service to right-size its workforce.