With Friends Like These …

Some years ago under the guidance of Rep. John McHugh, R-NY, Congress passed legislation that added an inspector general position to the U.S. Postal Service hierarchy. Presumably, one purpose in establishing this position, and its associated staff, was to provide independent oversight of the USPS.

The first few inspectors general seemed interested mostly in developing an empire at an annual cost of several hundred million dollars and nitpicking the postal service. But the current IG, David Williams, seems to be taking a different, more productive tack. He has produced a fascinating white paper titled “USPS Cost Burdens.”

This paper illustrates in stark, simple language the fact that the USPS has been “… burdened with costs unnecessary for core operations, and these costs are not negligible.” Mr. Williams estimates the annual cost of these burdens at $5.2 billion and that removing them would lower the price of a First Class stamp by about 3 cents.

What are these unnecessary cost burdens, and who is causing them to be a postal service responsibility?

The largest of these burdens is an annual payment that Congress mandated the USPS pay into an escrow account. For 2006 that payment will be $3.1 billion. How will the escrow money be used? It’s up to Congress to decide, and presumably some future legislation will determine that. What’s the rationale behind this escrow account?

The postal service, based on a study by the Office of Personnel Management, was on track to overpay its pension obligations by $78 billion. The reaction by Congress was to reduce the USPS pension payment but mandate that the difference between the higher amount and the new, correct lower amount go into escrow. I’d be willing to bet that Congress will find some “perfectly logical” reason to keep the USPS from regaining the escrow money.

The second-largest cost burden involves military pensions – yes, military pensions. They will cost the postal service $1.8 billion in 2006. Essentially, Congress enacted a law that transferred to the USPS the responsibility for pension payments earned by postal employees when they served in the military.

No other federal agency pays these costs, which are rightly the Defense Department’s responsibility. It’s just a way that someone in Congress or the administration thought up to make military expenditures seem smaller than they are.

Another unfair burden deals with the new Medicare Part D prescription drug program. A little-known part of the program was enacted to encourage employers to keep providing drug coverage to retirees. Specifically, employers who have qualified programs get a rebate for each Medicare participant who stays in the employer program rather than enroll in Part D. However, OPM has decided that the postal service should not receive the rebate, even though it has a qualified plan. The rebate would have reduced USPS annual expenses by about $250 million.

And what would a subsidy paid by a governmental agency be without some benefit to either West Virginia or Alaska? In this case it’s Alaska, and it’s called the Alaska Bypass Service. This service is a way for shippers to fly large shipments of food and materials to remote areas of Alaska, bypassing postal facilities, yet pay just parcel post rates. The current annual loss to the USPS for “providing” this service is $50 million to $60 million.

Because of the terrain and lack of roads, delivery in Alaska clearly poses special challenges. What is not clear is why the postal service should be subsidizing this service. Shouldn’t it be a general responsibility of the federal government, similar to the building of highways?

There’s yet another item that requires, by law, the postal service to use U.S. flag carriers (airlines owned by U.S. citizens and incorporated in the United States), at rates set by the Department of Transportation, for outbound international mail that requires air transportation. The USPS has estimated that it could save $40 million to $50 million annually if it were permitted to bid out and contract for this transportation service on its own. The postal service contracts for most of the services it purchases, but not this one.

So we have learned from the inspector general’s report how the USPS, and therefore we users of the mails, annually pay $5 billion more than we should because of an ongoing series of congressional or administration decisions. Now you see why I’ve headlined this article: “With Friends Like These …”

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