In a recent tweet, Congressman Dennis Ross says he’s worried about the US Postal Service’s ability to repay what he calls “IOUs”. Ross says that’s why he linked to the Daily Caller’s “bailout” article.

Ross may want to re-read the article- the only expert quoted in the piece says quite emphatically that what’s in the budget is not a bailout:

But Mike Schuyler, senior economist at the Institute for Research on the Economics of Taxation, calls both proposals totally reasonable.

“I do not regard what’s specifically in the budget as a bailout,” he told The Daily Caller.

“My reaction as an economist is 100 percent funding is a highly prudent thing,” he said, regarding the over funded FERS. But, he continued, “if you’ve got over 100 percent funding, and you need money, taking the money out of an over funded account probably makes sense. So I have no problem with that.”

Moreover, he said, “I do not think that allowing the Postal Service to reschedule its payment for the retiree health benefits fund is a bailout. If the Postal Service was told you never have to pay it: that would be a bailout.”

What the budget proposes, he says, is “a rescheduling.”

Ross cites “history” as suggesting that the USPS won’t be able to repay its existing debt, conveniently ignoring the actual history of the “trust fund” obligation, which arose after it was discovered that the USPS was overfunding its Civil Service retirement obligations by billions of dollars every year. Rather than return the money, Congress came up with the idea of prefunding future retiree health benefits. In an amazing coincidence, the annual amount Congress required the USPS to “pre-fund” was about the same as the amount of the annual CSRS overpayment.

The real reason Congress needed to establish the trust fund had nothing to do with prudent financial planning, and everything to do with the way Congress measures budget deficits. The money the USPS was paying in to the Civil Service Retirement fund had the effect of reducing the federal budget deficit, even though the money was earmarked for retirement annuities. Allowing the USPS to stop overpaying by $4 or $5 billion a year would increase the federal deficit by that amount. So, even though the OPM recommended in 2003 that the overpayments end, Congress kept them coming- as Dow Jones reported at the time:

A draft bill prepared by the Office of Personnel Management to allow the U.S. Postal Service to reduce its annual payments to the Civil Service Retirement System would improve the Postal Service’s fiscal position but could increase budget deficits by as much as $41 billion over the next decade, the Congressional Budget Office said.

“Although reducing the Postal Service’s payments to the retirement fund would improve the agency’s internal fiscal position, it could increase deficits or reduce surpluses in the unified budget by as much as $10 billion to $15 billion over the 2003-2007 period and by as much as $41 billion over the 2003-2013 period,” Acting CBO Director Barry Anderson said earlier this week in forwarding a report on the matter to House Budget Committee Chairman Jim Nussle, R-Iowa.

The result was first the “escrow” account, and then, in 2006, the PAEA “trust fund”. In effect, the Postal Service’s customers are being taxed to the tune of $5.5 billion a year in order to artificially lower the federal deficit. If this is a “bailout”, it’s the US Postal Service and its customers bailing out the taxpayers, not the other way around!

Can the USPS repay its “IOUs”? Only if Congress stops siphoning that $5.5 billion off the top every year, and allows the USPS the flexibility it needs to react to the very real, long term drop in mail volume. Congress forced the “IOUs” on the USPS when it implemented PAEA and the trust fund- only Congress can fix the mess it created.

This entry was posted on Tuesday, March 1st, 2011 at 8:00 am and is filed under Dennis Ross, politics, postal. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.