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How Phantom Accounting Is Destroying the Post Office

The massive post office deficit that is driving management to commit institutional suicide is make-believe.

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The House and Senate held 11 hearings on postal reform between 2003 and 2006. Sen. Susan Collins, chair of the Senate Governmental Affairs Committee commented, "two issues ... united every single witness who has testified before our committee ... a desire to see the escrow account repealed and the return of the military pension obligation to the Treasury Department."

Bills to this effect were well received in Congress. But again and again the OMB and CBO stepped in to thwart policy makers. In 2004, as the bills were moving rapidly through Congress, the Bush administration stopped the progress by announcing its opposition, justified by the impact on the unified budget. The next year, on the day a highly bipartisan bill was brought to the floor of the House, the administration again threatened a veto because of its " adverse impact on the Federal budget." Congress backed down.

In 2006 Congress finally passed a new law. The Postal Service was allowed to tap into escrow money and pension obligations for military service were shifted back to the U.S. Treasury. But again a quid pro quo was required that negated any financial benefits that would result. To achieve unified budget neutrality the USPS was required to make 10 annual payments of between $5.4 billion and $5.8 billion each to the newly created Postal Service Retiree Health Benefits Fund. The fund could not be tapped to pay actual retiree health benefits during those 10 years.

The level of the annual payments was not based on any actuarial determination. The numbers were produced by CBO as the amounts necessary to offset the loss of the escrow payments.

Remember, this all began because the post office discovered it had surplus funds. Unified budget accounting made sure it could never tap into this surplus unless at the same time it assumed new liabilities of an equal magnitude.

The solution to the post office financial deficit is simple. Give it back the money, that Congress, as a result of pressure from the CBO, has stolen from it over the past years. Then make future payments into the health fund for retirees actuarially based.

Once this artificially generated financial noose is removed from the Postal Service's neck we can get on with helping it navigate the shoals of an uncertain future. To do this USPS must build on its two most important assets: its ubiquitous physical infrastructure and the high esteem in which Americans hold it. In combination, these assets offer the post office an enviable platform upon which to build many new revenue-producing services.

But to do this Congress will have to remove another burden imposed by the 2006 law: a prohibition on the postal service offering non-postal services, like issuing licenses (e.g. drivers, hunting, fishing, etc.) or contracting with local and state agencies to provide services. Congress should also lift the prohibition on the post office shipping wine and beer.

In offering new services the USPS could learn from post offices in other countries. The French post office offers banking and insurance services. Remember that from 1911 to 1967 the U.S. Post Office successfully and profitably ran a nationwide postal savings bank. The Swedish post office will physically deliver email correspondence to people who are not online.

But before any of this will happen we need to 'fess up. The postal crisis is contrived. Let's stop scaring ourselves silly with make -believe deficit monsters and unshackle this national asset.


David Morris is co-founder and vice president of the Institute for Local Self Reliance in Minneapolis, Minn., and director of its New Rules project.

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