The United States Postal Service (USPS) is about to default on its loan from the U.S. government. Many facilities, especially in rural areas of New Mexico, are faced with closure. Understandably, customers are frustrated, and want to know how it got this bad in the first place. They deserve answers and they deserve solutions.
USPS officials and some members of the various postal employee unions recently stated that they believe a piece of legislation, H.R 1351, United States Postal Service Pension Obligation Recalculation and Restoration Act, is the answer. This bill would bail out the USPS pension program. After all, we are told, USPS has overpaid into the Civil Service Retirement System by $50 billion to $75 billion since 1974.
But the notion of an “overpayment” is simply false. In 1971, the Postal Department, a cabinet agency receiving direct appropriations from Congress, was disbanded, and replaced by USPS, which functions on revenue from stamp sales and other retail endeavors. The formula that USPS and the government agreed upon required the taxpayer to pay the pension costs for employees of the Postal Department, but USPS would pay the pension costs for any employee who remained with USPS after the Department’s dissolution.
Since business began to slow a couple of years ago, USPS began calling this formula “unfair.” However, in 1973, the general counsel for USPS wrote a letter to the U.S. House of Representatives stating that the agreement was “proper” and that “the cost of this liability should properly and equitably be borne the by Postal Service.” Otherwise, taxpayers would have to foot the bill for USPS retirees.
The timing of the “overpayment” allegation is curious indeed, and shows a trend within most government agencies – the inability and unwillingness to make tough decisions. I did not vote to bail out the big banks, and I will not vote to bail out USPS.
A deal with the union
USPS also complains about an annual $5.5 billion retiree health-care prefunding requirement. The truth is that without this mandate, USPS would be stuck with an unfunded retiree healthcare liability of $100 billion by the year 2017. This year USPS will run a deficit that is nearly twice its annual health-care prefunding requirement, proving that the financial problems run far deeper than the financing of health insurance for the aged.
Despite this dire scenario, labor costs continue to eat up 80 percent of USPS revenue. This is a totally ineffective business model, and collective bargaining agreements are a major cause for this.
Even worse, according to the Wall Street Journal, USPS negotiated a 3.5 percent wage hike earlier this year for the American Postal Employees Union for the next three years, coupled with annual cost of living adjustments and protections against layoffs. USPS officials stated that this is the best deal they could get with the union because no agreement would have forced the parties to negotiate with a mediator, who likely would have given the union an even sweeter deal.
This business structure makes no economic sense, and it never will.
Solutions USPS needs to consider
USPS laid out a litany of bad solutions to poor excuses for its fiscal problems. USPS says that competition from the Internet is a main cause for the fiscal mess and failure of its business model. While the Internet undoubtedly has an impact on its bottom line, USPS decided to target rural post offices for closings, when the people in rural areas generally have less access to the Internet and are more reliant on their local post office. The people of San Patricio would be forced to drive 53 miles to Tularosa because the post offices in nearby towns do not have enough boxes. That is just one of the bad ideas that have been floated.
In direct contrast to this, one can look to private entities like UPS and Federal Express. These companies hold down labor costs, employ thousands of Americans, and offer generous benefit packages. They make the tough decisions that sometimes lead to layoffs, but keep the company alive to fight another day. UPS and Federal Express do not come to Uncle Sam looking for a handout – they find new customers to increase revenue.
There are solutions on the table that USPS needs to consider. For example, flexible shipping rates are an option that should be considered. Another option is to allow private companies to contract with USPS to run post offices that are on the chopping block. Real solutions to these difficult problems are out there as long as we work for them.
Unfortunately, solving long-term problems requires short-term pain. I hate to see people suffer, and I know these decisions will impact New Mexicans in particular. I take my responsibilities seriously, and do not believe you sent me to Washington to take the easy way out.
I am prepared to do what I believe is right, and will not kick the can down the road. In order to move forward, USPS must deal with its structural problems, hold down costs, and find new sources of revenue.
Pearce, a Republican, represents New Mexico’s 2nd Congressional District in the U.S. House.