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Postal Service Challenges Have Plenty of Answers

The US Postal Service will default on a $5.5 billion prepaid retiree health benefit payment today, and this will surely lead to calls for privatization or mass jobs cuts. But the default concerns the unusual way in which the USPS, unlike virtually any other company in the world, pre-pays its health benefits many years out. Rep. Elijah Cummings explains:

To pay for other parts of the (2006 Postal Accountability and Enhancement Act) and still make sure it remained revenue-neutral, Congress required the Postal Service to begin prefunding nearly 100 percent of its future retiree health care costs over a 10-year period.

While this may have made budgetary sense at the time, Congress did not anticipate the 2008 economic crisis and its exacerbating effects on the Postal Service’s finances, which were already struggling with declining mail volume as Internet use increased […]

Though the Postal Service now has more than $45 billion in prepaid retiree health benefits funding, the law requires an additional $5.6 billion payment by Sept. 30, 2012.

In fact there are $11 billion in overpayments into that retirement fund. This is a ridiculous mandate on the USPS, which looks designed to send the postal service into default. This won’t immediately end mail service or anything, but it compounds the other challenges that the USPS faces from technological innovation. However, just ending this silly system of pre-funding would stave off the reckoning for many years.

There’s no reason that the Postal Service cannot bring itself out of these troubles. They provide a necessary service and hold a lot of prime real estate in every municipality in the country. But they cannot make changes to their business model without sign-off from Congress. And that has devolved into partisan rancor.

In this context, the idea of privatization has gained traction. But there are plenty of other options. Congress can allow the USPS to imitate the postal services of other countries and run a public option for simple banking, which would have benefits throughout the economy. They could let the USPS get into the broadband delivery business, which after all is the evolution of mail. Even within privatization options, there are possibilities, like running the USPS as a worker-owned co-op. Turning the still-important necessity of delivering mail over to the private market with no oversight may be the best solution for US finances, but clearly the worst from many other perspectives.

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David Dayen

David Dayen