Murderous Reform: A Plan to Privatize Postal Profits at Public Expense

January 10, 2013


The National Academy of Public Administration has released a “Work-in-Progress” report entitled "Restructuring the U.S. Postal System: The Case for a Hybrid Public-Private Postal System."  The Academy is now embarking on a study of this proposal, which would privatize a large portion of the country's postal system.  

The Academy's study is billed as an “Independent Review of a Thought Leader Proposal to Reform the U.S. Postal Service.”  Unfortunately, no study conducted by a four-man panel chaired by David M. Walker, the former President and CEO of the libertarian Peter G. Peterson Foundation, can seriously claim either the independence or non-partisan objectivity that the Academy itself boasts.   

It has been my experience over the past 30 years that "hybrid public-private partnerships" are often little more than a sedative euphemism for the private sector taking the profits while the public bears the costs.  Such is the case with this "reform,” which will, as is so often claimed in such instances, "unleash the power of market forces" by transferring the USPS profit centers to the private sector while saddling the public with the cost for "the last mile."  Meanwhile, the public is already being stripped of its assets in broad daylight while the media sleeps.

The proposal is predictably one-dimensional — as befits men who seemingly have little or no sense of the public service mission for which the Post Office was created 238 years ago under the direction of Benjamin Franklin.  Its purpose, then as now, was democracy and equality, not efficiency or profit. Thus, the report omits much. 

Nowhere in the proposal is there any mention of unions, let alone of living wages, so one can only presume that a primary means of reducing costs will be to drive down the income of those postal employees who remain after the USPS is radically downsized and diminished as proposed.

The report also simplistically states that "the root cause of the postal crisis is the historic change in how we communicate," omitting other forces now undermining it such as Congress itself.  Nor does it mention the invaluable artistic, historic, social, environmental, and commercial function of many post offices currently being thrown onto the market with virtually no oversight.  It neglects to say that a commercial real estate firm (CBRE) chaired by Senator Dianne Feinstein's husband, Richard Blum, is profiting from the sale of properties paid for by taxpayers for well over a century. 

Finally, there is no serious discussion of alternatives characteristically described in such reports as “out of the box” for making the USPS solvent again, such as reviving the U.S. Postal Savings Bank and providing other public services currently available outside this country. That is because the self-proclaimed thought leaders who framed the report do not actually seek to save the Postal Service but to “reform” it virtually out of existence.

My studies of the New Deal have revealed an ethos of public service that seems entirely alien not only to the men who produced the Academy’s blueprint but to current postal management as well as to those in Congress who saddled the USPS with fiscal obligations seemingly designed to eliminate it as a competitor to private carriers, a goal long sought by those very carriers and by the libertarian think tanks they lavishly fund.

Several WPA-built structures here in California bear an inscription by the Roman poet Virgil: "THE NOBLEST MOTIVE IS THE PUBLIC GOOD."  The Academy’s preliminary report contains nothing noble or new.  Quite the contrary, it is yet more of the same demonstrably failed neoliberal experiment that has, over the past three decades, so disastrously despoiled the U.S. economy as it has demoralized our citizens.

Unleashing the power of market forces did not work so well in 1929 or in 2008, and it will not do so again as those very forces seek to finish off the public sector as a competitor once and for all. 

Dr. Gray Brechin is the author of Imperial San Francisco: Urban Power, Earthly Ruin. He is the founder and project scholar of the Living New Deal Project based at the U.C. Berkeley Department of Geography.  He works with others to stop the sale of the National Register-listed Berkeley Post Office. 

Photo Credits: David M. Walker; Dr. Gray Brechin (Steven Finacom)

Constructively closed: The emergency suspensions continue

January 8, 2013

The Postal Service continues to close post offices by emergency suspension over problems renegotiating leases.  Many of the problems are caused by the Postal Service.  A suspension is an easy way to close a post office — it avoids a lengthy discontinuance process and the possibility of an appeal to the Postal Regulatory Commission, and it makes it look like the closure is the landlord's fault.

In its annual compliance report to the PRC, issued just a couple of weeks ago, the Postal Service said it closed 237 post offices in fiscal year 2012.  Nearly all of those closing occurred in October and November of 2011, before the moratorium on closures began in December.  Since then, formal discontinuances have come to a virtual halt.  But the emergency suspensions continue.  The compliance report says that at the end of FY 2012 (September 30, 2012), there were 124 suspensions in effect. There have been several more suspensions since then.

Many of the suspensions have occurred because the Postal Service, or its real estate agent CBRE, put unacceptable demands on the landlord, like a large rent reduction (as much as 30 percent) or an early-termination clause.  So whenever a post office’s lease is coming to an end, it’s at risk for an emergency suspension.  During the first six months of 2013, nearly 1,900 post offices will have a lease expiring.  A list is here, a table here, and a map here

About 850 of these offices are on the POStPlan list and set to have their hours reduced.  While POStPlan has been advertised as the Postal Service’s plan to save post offices, that doesn’t mean it won’t suspend a POStPlan post office.  There have been numerous POStPlan offices closed by suspension over the past few months.

In its advisory opinion on POStPlan (August 2012), the PRC expressed concern that post offices would be suspended because of staffing issues and lease problems, but the Postal Service reassured the Commission that it “has no plan for using the lease negotiation process as a pretext to close Post Offices.” 

The Commission hasn't had much to say about suspensions since then.  In its annual report, issued just a few days ago, there’s a section on post office closings and appeals but no mention of “emergency suspensions."


The early-termination issue

Many of the post offices with leases expiring soon have already had a successful lease negotiation, but in most cases, the negotiations are ongoing.  The Postal Service has been cutting it close.  In years past, a lease was negotiated many months before it expired.  These days, the negotiations are often completed with just a few days left on the lease, sometimes even after an emergency suspension has been announced.

The Postal Service and the landlord may disagree over a number of issues, like the amount of the rent or responsibility for maintenance, but the issue that is causing many of the lease problems these days is the Postal Service’s insistence on adding an early-termination clause to the lease.   This clause permits the Postal Service to end a lease whenever it wants, and on relatively short notice too. 

Traditionally, the Postal Service would sign a five- or ten-year lease with an option for another five years.  The fact that the building would house a post office for a long time was one of the main reasons why investors got into the business of owning post offices in the first place.

Now the Postal Service wants to insert early-termination clauses in the leases, giving it the option to get out before the five years are up, sometimes with as little as 60 or 90 days notice.  These termination clauses have been the source of a lot of controversy, and the lessors have complained vociferously to the Postal Service and the PRC about them.

Because of all the complaints over the termination clause, the Association of U.S. Postal Lessors (AUSPL) got the Postal Service to agree to make the shortest termination clause 30 months.  In other words, the lease may not be terminated for the first two years, and after that the Postal Service needs to give 180 days notice. 

The termination clause makes it impossible for lessors to make long-term plans for their buildings.  They are put in an untenable position — accept the clause or lose a tenant — so it’s no surprise that lease negotiations have been breaking down. 

But that’s apparently fine with the Postal Service.  After all, if it had long-term plans to keep the post office open, why would it be insisting on the termination clause in the first place?  


Closed for a quarter in Climax

The post office in Climax, Georgia, was on the POStPlan list, set to be reduced to six hours a day, but on October 31, 2012, the Postal Service suspended operations due a problem negotiating a new lease.  The Postal Service should have looked around for another suitable location. There should have been several possibilities.  After all, the Postal Service cited lower average rents in Climax as justification for a big rent reduction.  But rather than finding another location, the Postal Service initiated a discontinuance feasibility study — the day after the suspension went into effect.

The case is currently being appealed to the PRC.  The Postal Service has filed a motion to dismiss the appeal on the grounds that the post office has not yet been discontinued — it’s just under emergency suspension and only being studied for a discontinuance — so an appeal is premature. 

The PRC’s Public Representative, who can usually be counted on to advocate on behalf of the community, has recommended that the case be dismissed for precisely that reason.  It’s almost inevitable that the PRC will dismiss the case, just as it has in previous cases where an appeal was filed while the post office was suspended but not yet discontinued. 

The Public Representative seems to think everything is fine in Climax. “Because the Postal Service has promptly initiated a discontinuance feasibility study,” writes the PR, “it does not appear that the Postal Service is keeping the citizens of Climax in limbo or abusing its suspension procedures.”  The folks in Climax and the landlord of the building probably have a different opinion on that subject.

In the materials submitted by the Postal Service, there’s a copy of the letter it sent to Climax customers.  The Postal Service explains that it wanted the landlord to drop the rent from its current $11.84/sq.ft. to $8.50/sq.ft., which it considered “fair market value,” with a 60-day termination clause.  The landlord offered to accept $8.75/sq.ft., with no termination clause, but the Postal Service rejected the offer.

The Climax post office was thus closed over a matter of 25 cents a square foot.  The landlord was willing to reduce the rent from $1,831 a month to $1,353 a month, but the Postal Service wanted $1,315 a month.  They were $39 a month apart when the deal collapsed.

How the Postal Service began prefunding retiree health care and fell into a deep hole

January 2, 2013

The Government Accountability Office (GAO) has just issued a new report (GAO-13-112) on the Postal Service’s retiree heath care fund.  It’s called “Status, Financial Outlook, and Alternative Approaches to Fund Retiree Health Benefits.”  

As the title suggests, the report is about the current condition of the Retiree Health Benefits Fund (RHBF), projections about the Postal Service's health care liability in the future, and the potential impacts of the various changes in the law being proposed by the House, Senate, and Administration.  What’s missing from the report is a little history.

Like most GAO reports on the Postal Service, this one is filled with dire predictions about the agency’s “ability to continue to fulfill its mission on a self-supporting basis.”  (In other words, a government bailout may be on the horizon.)  The GAO has issued a host of reports like this.  They use a lot of charts and graphs to dramatize how bad the Postal Service’s financial condition is (always “high risk”), and they recommend radical solutions, like downsizing the workforce, cutting services, and closing facilities.

The GAO report projects massive health care costs for future retirees.  It argues that any near-term reduction of payments into the RHBF will cause much larger payments in the long term.  It says that if the Postal Service is unable to cover its liability, someone else will get stuck with the bill.  Future postal customers (ratepayers) will face large rate increases, or the government (taxpayers) will have to step in with subsidies.  It’s also possible, says the GAO, that postal workers may come out at the short end: “The level of employee pay and benefits may not be sustainable and could be reduced.” 

“Therefore,” the GAO concludes, “we continue to believe it is important that USPS prefund its retiree health benefit liability to the maximum extent that its finances permit.”  

The GAO report is addressed to Congressman Darrel Issa.  That probably means Issa requested it, and from the look of things, the GAO has given Issa what he wanted — more ammunition with which to argue that the large retiree health care payments are necessary and inevitable.  The fact that those payments are driving the Postal Service deeper and deeper into the red gives Issa and his friends more justification for the anti-union and anti-government cutbacks they’ve been advocating.


Fixing one mistake with another

In preparing the report, the GAO shared a draft with the Postal Service and the USPS Office of Inspector General.  The comments of Inspector General David Williams are worth noting. 

One of Williams' main points is that it’s important to understand the historical context of how the prefunding obligation came about in the first place.  The Inspector General writes this in his letter to the GAO:

“The Postal Service started prefunding its retiree health benefits as a result of the discovery that, due to external fund management misjudgments, it was on track to seriously overfund its pension obligations by $78 billion.  This discovery was one of several fund management issues identified about the same time.  The decision to turn a mistake into a second prefunding obligation created its own problems.  A 10-year schedule of prefunding payments was structured toward a 100-percent funding goal.  The aggressive payment schedule appears to have been set based on byzantine ‘budget scoring’ considerations rather than actuarial assumptions or an evaluation of the Postal service’s ability to make the payments.”

In other words, the amount of the annual payments to the RHBF — around $5.5 billion — was not based on reasonable estimates of what needed to be put into the fund to cover the liability.  The amount was determined by budget scoring.

According to the way scoring works, even though the Postal Service is an independent agency with its own budget, aspects of its operations are included in the unified federal budget, which consolidates all revenues and expenses of the government.  Congress therefore estimates the effects of any legislation, proposed or enacted, on the federal budget.  The goal is legislation that is budget neutral.  

Those considerations, says Williams, determined the size of the annual payments to the RHBF, rather than an actuarial analysis of what they should have been.  In response to Williams' comments, the GAO added a bit more background to its report, but not enough to fully understand how the excessive health care mandate came about.  

Here’s the rest of the story.  It's pretty complicated, so there may be a few errors in what follows, but it's based on several government reports and a few news articles, listed here.  


From the “High Risk List” to “a much more positive picture”

In the late 1980s, Congress became concerned that the Postal Service would be unable to meet its pension liabilities, so it passed a series of laws to increase the agency’s payments.  In 1989, for example, Congress required the Postal Service to pay for cost-of-living adjustments for its annuitants retroactive to 1986.  The following year, Congress again increased the charges to the Postal Service for COLA payments by pushing back the applicable date to 1977.   In 1993, Congress required the Postal Service to pay $693 million for past interest which had accrued as a result of the unfunded liability for COLAs and health benefits.

Despite these and other increases in the pension payments, the GAO was concerned about the “rapidly deteriorating financial situation” of the Postal Service and its ability to cover its liabilities.  In April 2001, the GAO issued a report (GAO-01-598T) that focused on declining revenues, rising debt, management-labor relations problems, and increased competition (including electronic diversion to the Internet).  As a result of these concerns, the GAO put the Postal Service on its “High Risk List.”

In May 2002, Comptroller General David Walker testified to the Senate (GAO-02-694T) that the Postal Service had major liabilities and obligations estimated at close to $100 billion, including liabilities for pensions ($32 billion), workers’ compensation benefits ($6 billion), debt to the Treasury ($11 billion), and post-retirement health benefits ($49 billion).  That's the same David Walker who's CEO of the Peter G. Peterson Association and behind efforts to privatize the Postal Service.

At the request of Congress and the GAO, the Office of Personnel Management (OPM)
conducted a review of the Postal Service’s liability to the Civil Service Retirement System (CSRS).  Such a study had never been done before, and almost everyone expected the OPM to discover that the liability would be even greater than current estimates were showing. 

The actuaries went back into the books, and in November 2002, much to everyone’s surprise, the OPM discovered that “a review of USPS payments to the civil service retirement fund for pension obligations to employees on board before 1984 revealed a much more positive picture than previously believed.”

The OPM determined that rather than facing a huge pension liability, “contribution rates set in current law would ultimately result in an overfunding of the amount needed to cover CSRS benefit obligations attributable to USPS annuitants by $71.0 billion.”

The explanation for this surprising revelation was relatively simple: The pension fund was invested in Treasury bonds that were “earning interest at a higher rate than presumed in the statutory funding formula” (a static 5 percent).

The potential for overfunding was actually even more than $71 billion determined by the OPM.  When a November 2003 GAO report (GAO-03-448R) looked at the OPM calculations, it put the potential overfunding at $103 billion. 

The main difference between the OPM’s calculations and the GAO’s involved veterans working at the post office.   Under then-current law, the Treasury was responsible for retirement benefits based on prior military service of postal employees.  The OPM’s calculations had the obligation as belonging to the Postal Service.  The GAO said that if the obligation — estimated at almost $27 billion — were considered the Treasury's responsibility and therefore added to the CSRS overfunding, the total overfunding would top $100 billion.  (More on the military pension costs in a moment.)


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