The USPS Is An Aging Dinosaur That’s Also Subject To Some Unfair Accounting Rules

Whenever you get beyond a very superficial argument about the financial problems with the United States Postal Service, someone will come around to make TPM reader SM’s point about pension costs:

As a union organizer for SEIU, I have a distinctly labor perspective on the USPS crisis; and, I think that there are two HUGE pieces of information that are often left out of the “The USPS is an aging dinosaur” narrative often perpetuated by the mainstream media. Firstly, the USPS is subject to a regulation forcing them to pre-pay retiree health benefits for 75 years in the future. This means that they are paying for health benefits for postal carriers who haven’t yet been born. The cost of this regulation (a regulation not required of any other government or private entity) was about 5.5 billion dollars in FY 2011 and was even higher in previous years. Secondly, the Postal Service has overfunded their pension system by about $75 billion dollars in recent years. Thus, there is money in a separate account that could more than handle the current shortfall in postal revenue ($0 of which comes from tax dollars).

These are great points, but do they actually undercut the view that the USPS is an aging dinosaur?

The basic structure of the Postal Service is that it is required to deliver mail to any address in America and to do so at a flat fee. In order to make this financially viable, the USPS is also given a monopoly over regular mail delivery. This kind of government-created monopoly is a very old-fashioned way of delivering public services, but it works. Suppose you wanted to address the problem of low-income people’s access to fresh fruits and vegetables. You could say that only Safeway is allowed to operate supermarkets in the District of Columbia. But you could further stipulate that Safeway has to operate stores in all neighborhoods (i.e., no food deserts) and also has to sell a list of fresh fruits and vegetables at sub-market rates. The ability to sell things at monopoly prices in affluent neighborhoods would create monopoly rents that cover the losses, and thus both fresh vegetables and supermarkets in poor neighborhoods would benefit from cross-subsidy. The Postal Service’s combination of monopoly rights and universal service obligation work in a similar way. What’s more, since the Postal Service’s workforce is represented by an effective union, the workers share some of the rents. So far so good.

The problem for my Safeway scheme, of course, is that if the underlying demand for supermarkets starts collapsing for some reason, then there’s going to be a problem. And that’s exactly the situation the Postal Service is in. People are less interested in sending mail than they used to be. That reduces the quantity of cross-subsidy available, even while increasing the burdens of the obligations. You can try to resolve this by making workers eat the losses, but no matter how hard you squeeze the workers you’re still left with the basic decline of the underlying business. The real question, for the longer term, is whether we think the policy goal of the Postal Service — subsidized delivery of regular mail — is worth spending federal tax dollars on in a world where the value of the monopoly business is declining. To me that’s a hard case to make. There’d be nothing stopping town or state governments from subsidizing mail delivery in a competitive market if they felt it was important to their citizens, but the whole underlying basis of USPS’ decline is that regular mail is increasingly not important thanks to the rise of other communications technologies. The details of the labor/management/congress fight about accounting rules are obviously important to the lives of the people with jobs and benefits on the line, but are basically irrelevant to the structure of the issue.