How prefunding retiree health benefits impacts the Postal Service’s bottom line – and how Brookings got it wrong . . .
The author Steve Hutkins is a literature professor who teaches “place studies” at the Gallatin School of New York University. He has no affiliation with the U.S. Postal Service—he doesn’t work for it, nor does anyone in his family. Save The Post Office (his website) provides information about the post office closings and consolidations that are taking place, the historic post office buildings that are being sold off, the efforts people are taking to protect their post offices, and the things citizens can do to save their post office when it ends up on the closure list.
In October, the Washington Post ran a column by Lisa Rein entitled “Should the Postal Service be sold to save it?”
The article was about a recent paper by Elaine Kamarck published on the Brookings Institute’s website. Kamarck is the Founding Director of the Center for Effective Public Management at Brookings, as well as being a Senior Fellow in Brooking’s Governance Studies. Her paper is entitled “Delaying the inevitable: Political stalemate and the U.S. Postal Service.”
Kamarck’s thesis is that the Postal Service is going through a “crisis of obsolescence,” its financial losses are unsustainable, and “the political system is stuck and unable to do anything about it.” The thing to do now, concludes Kamarck, is split the Postal Service in two. One organization would fulfill the universal service obligation by delivering market-dominant mail. The other part would be privatized and take over competitive products (Priority Mail and package shipping); it would also be given the freedom to expand into new areas of business now prohibited for the Postal Service.
The article prompted several critical responses, including pieces by Dave Johnson in Crooks & Liars and Zaid Jilani in AlterNet. Rein also did a follow-up article in the WaPo — “Why sell off the Postal Service if it’s making money?” — in which she goes more deeply into the conflicting explanations for the Postal Service’s financial problems.
One of the main issues in the debate has been the Retiree Health Benefit Fund (RHBF). The critics of Kamarck’s paper (and Rein’s column about it) argue that were it not for the RHBF prefunding established in 2006 by the Postal Accountability and Enhancement Act (PAEA), the Postal Service would not have been posting huge losses. The core of the financial problem facing the Postal Service is the requirement to fully fund decades of future retiree health costs with ten annual payments of about $5.6 billion, an obligation imposed on no other business or government agency.
Kamarck anticipates this claim about the RHBF, and her paper tries to set it aside. In so doing, however, she makes an error that’s worth looking at in some detail.
The fly in the ointment
Kamarck’s paper addresses the argument about the prefunding as follows:
Many believe that the prefunding requirement for retiree health benefits accounts for all of the Postal Service’s financial problems. Although the prefunding requirement does account for a large share of net losses, retiree health benefits caused $22,417 million in expenses out of a total net loss of $5.5 billion in fiscal year 2014.
Kamarck is trying to make the case that prefunding the RHBF does not explain the Postal Service’s huge losses, which she thinks can only be explained by the declining mail volumes caused by the Internet. To make this point, she says that prefunding accounted for $22,417 million (or $22.4 billion) of the $5.5 billion loss in FY 2014.
This doesn’t make sense. She’s trying to show that the RHBF expense doesn’t account for such a large portion of the net loss, but according to her numbers, the expense was four times greater than the loss.
That’s not just illogical, it’s wrong. The RHBF expense in FY 2014 was not $22.4 billion. It was $5.7 billion, as stated in the USPS 10-K report. And the expense did not account for just a portion of the $5.5 billion net loss. It accounted for all of it. If it weren’t for prefunding, the Postal Service would have posted a profit in 2014.
I notified the Brookings Institute about the error in Kamarck’s paper on September 22, the day after the paper was posted on the Brookings website, but so far I’ve received no response, and the error still appears in the paper on their website. (run75441: This is not unusual for a source not to acknowledge an error and I have done it also with reports and studies. They just do not respond and the error goes forward as the truth even though challenged.)
Anyway, it seems like a pretty minor mistake, hardly worth noting, but it goes to the heart of Kamarck’s argument. She’s trying to refute the claim that prefunding explains the Postal Service’s financial problems, but the number she presents is wrong, and that’s all she has to say about the claim. If prefunding really is the cause for the Postal Service’s financial problems, the solution is obviously to fix the prefunding — not sell off and privatize the competitive products business, the one area that’s actually growing.
The Source of the Error
The error in Kamarck paper is derived from a misreading of a table in a financial analysis by the Postal Regulatory Commission, which is cited in footnote #8. On page 21 of the PRC report, there’s a table showing “Structure of Assets and Liabilities” for the Postal Service. [(You can see the table here.)
The table shows that as of September 30, 2014, there was a liability of “$22,417 million” for “retiree health benefits.” But this figure is not the expense for the retiree health benefit expense in FY 2014, as Kamarck says in her paper. Rather, as the PRC explains in the text following the table, “The Postal Service has not yet paid RHBF statutory prefunding obligations for FY 2011 through FY 2014, which total $22.4 billion and comprise 52.7 percent of current liabilities.”
In other words, the Postal Service did not pay $22.4 billion into the RHBF as required for 2011-2014 (it defaulted on these payments), so the total for these unpaid obligations appears as a liability for retiree health benefits in the table. The $22,417 million cited by Kamarck is the cumulative expense for four years, as of the end of FY 2014, not the expense for FY 2014 itself.
Kamarck is wrong on the larger point as well. Prefunding is clearly the primary cause of the Postal Service’s net losses, and to a significant extent.
The Impact of Prefunding
Kamarck acknowledges that the “prefunding requirement does account for a large share of net losses,” but she doesn’t say how large that share is.
The following table shows what’s happened since prefunding began. It shows each year’s net loss, as reported in the PRC financial analysis (p. 26), along with the prefunding payment for the year and what the profit or loss would have been without the prefunding.
The prefunding for 2007 includes $5.4 billion for the first annual RHBF payment and another $3 billion transferred into the fund from an escrow account, (An earlier version of this article neglected to include the escrow transfer, but it is included in the $5.1 billion net loss, as explained in the 10-K report for 2007.) The unusually large net loss in 2012 was due to the fact that the Postal Service was permitted by Congress to skip the RHBF payment in 2011, but then owed a double payment in 2012. The figures for FY 2015 are estimates based on the first eleven months of the year, as reported in the USPS financial report for August.
As the table shows, over the past nine years, the Postal Service has posted losses totaling about $56 billion. Almost $49 billion of it — 87 percent — was due to prefunding.
Over the past nine years, there were four years when the Postal Service would have posted a loss if it weren’t for prefunding — the years of the Great Recession and its aftermath. In the two years before the economy tanked, the Postal Service would have shown a profit if it weren’t for prefunding. In 2013 and 2014, with the economy improving and postal revenues stabilizing, the Postal Service would again have shown profits if it weren’t for prefunding.
The same will be true for FY 2015. As of September 1, 2015, eleven months into the fiscal year, the Postal Service had a net loss of $4.1 billion, including a RHBF expense of $5.2 billion. Depending on the size of the workers comp adjustment for September, the Postal Service will end the year with a net loss of something like $4.6 billion. But without the RHBF expense, it would show a profit of about $1 billion, about the same as last year.
Kamarck writes that “many believe that the prefunding requirement for retiree health benefits accounts for all of the Postal Service’s financial problems.” No one believes that prefunding accounts for all of the financial problems, but clearly it accounts for a huge part. This is not a matter of belief. It’s a fact.
The Origins of Prefunding
Congress should have fixed the prefunding problem back in 2009 or 2010, as soon as it became clear that the size of the payments was unmanageable in a recession. Unfortunately, privatization advocates in Congress (like Darrel Issa) wanted to use the crisis as justification for legislation designed to dismantle the Postal Service. Fortunately, there were others in Congress, Democrats and Republicans, who saw the value of having a vital public postal system. That’s why there’s been a political stalemate.
But Congress should never have imposed the prefunding payments to begin with. It’s worth recalling how that happened.
In 2002 the Office of Personnel Management (OPM) determined that the Postal Service was overpaying billions of dollars into one of its pension plans, but reducing the pension payments to the Treasury would have had a negative impact on the unified budget of the federal government — something that the Bush administration would not permit.
So when PAEA was winding its way through Congress, a deal was hatched between the bill’s creators and the Bush administration, specifically the Office of Management and Budget (OMB). Rather than paying for retiree health costs on a pay-as-you-go basis, as it had always done and probably could have continued to do, the Postal Service would begin setting aside funds for future retirees, decades in advance.
The idea for the fund may have come from Postmaster General John Potter, who in 2003 recommended to Congress that a different pension overpayment (involving postal workers who were vets) might be transferred to a new Retiree Health Benefit Fund. It was the next best thing to getting a refund on the overpayment, which Potter knew Congress would never approve. The Postal Service’s proposal to create such a fund is analyzed in more detail in this 2003 GAO report, which explains how the plan would be “scored,” i.e., how it would impact the federal budget.
Three years later, Congress created the RHBF to address a different pension overpayment problem. The overpayments were essentially shifted to the new fund, and they had to be as large as they were in order to offset the reduction in pension payments.
A 2009 committee report in the House of Representatives about PAEA explained it this way:
The payment schedule for the first 10 years was established primarily to make the PAEA budget neutral, responding to the concerns of the Office of Management and Budget at the time the PAEA was passed, rather than corresponding to actuarial requirements or financial conditions at the Postal Service.
There was no urgent need requiring ten years of huge RHBF payments. If Congress thought that it was a good idea to prefund retiree health costs, it could have spread out the liabilities on a 40-year amortization schedule, as Dan Blair, then the Acting Director of the OPM, had recommended in testimony to Congress in 2005. But Congress was using the new fund to solve the pension overpayment problem, and small RHBF payments wouldn’t have solved the problem.
USPS Inspector General David Williams tells the same story about the origin of the RHBF in a letter he wrote to the GAO about one of its reports expressing concern about postal liabilities.
“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,” wrote Williams. “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.”
So that’s how the whole mess got started. Congress was trying to fix the pension problem, and it created a new problem in the process. but it was the Bush administration’s OMB that was ultimately responsible for the payment schedule. The Postal Service — and its workers and ratepayers — ended up with a huge burden, all so that PAEA would be “budget neutral.”
(There’s more about the origins of prefunding in this previous post.)
Fixing the problem
Congress and the Bush administration created the prefunding problem, and one day Congress will have to fix it. The latest bill proposed by Senator Tom Carper, one of those who helped craft PAEA, tries to do exactly that. It would eliminate the existing payment schedule, cancel any outstanding payments, reduce the prefunding goal to 80 percent of projected obligations, and amortize payments over 40 years.
Congress should have passed a bill five years ago saying just that and only that. Perhaps then we would not have had to endure the endless stream of news articles about billion dollar losses, bleeding red ink, defaults on payments, and the obsolescence of the postal system.
Perhaps then the Postal Service might not have found it necessary to increase rates, lower delivery standards, close post offices and plants, sell historic buildings, and make draconian cuts to its workforce. And perhaps we would not be hearing from the Brookings Institute about why it’s a good idea to privatize the Postal Service.
(Photo credit: Brookings’ panel on “The Future of the United States Postal Service”)
How prefunding retiree health benefits impacts the Postal Service’s bottom line – and how Brookings got it wrong Steve Hutkins, Save The Post Office blog
And if the post office is so bad at what it does, why do UPS and FedEx use it for so many of their deliveries?
I assume they use the USPS because the post office can deliver them at a lower price than they can themselves. Which means, of course, that shipping costs will go up if the post office goes out of business.
By law the Post Office must deliver. UPS, FEDX, DHL, etc. will not deliver if it is out of the way of profitable routes and they drop off to the USPS. This is why the idea of privatizing the USPS is flawed. Companies which operate for profits solely will either not deliver and make it extremely expense to deliver packages and mail to out of the way places. The USPS will deliver First Class mail to Murphys or Angel Camp, CA at the same cost for making a delivery to Los Angeles even though the volume of mail is different. The same three carriers use USPS for packages to and the same happens when delivering to my home for packages.
Of course the basic point is that the post office isn’t supposed to be a money maker; it’s supposed to provide a service and it does. Private industry would not do what the post office does overall; it would only do what makes money. Rural delivery? Not so much.
Run this is hugely important and something I have been thinking on for a couple of years now but never had the time to dig out the numbers. (I have a different hobby involving government accounting).
Which leaves me with the biggest question of all. How soon until this requirement becomes moot because even with underfunding of this really outrageous requirement at some point soon they will meet the target.
That is ten payments of $5.6 billion was designed to cripple the Postal Service. But once that $56 billion is “in the bank” even if it takes 15 or 18 years to do it then it IS prefunded. And that obligation falls offf the books. That is this was a huge gamble that the PO couldn’t ultimately meet this obligation. And it has been an immense challenge and they have fallen behind. But that doesn’t mean the balance hasn’t been growing.
So exactly where is the fund compared to target? When exactly does this punitive mortgage on future health care benefits actually GET prefunded?
I ask because I have been trying to look for the answer. And need your help to find it. How far is the PO from hitting this target? (Quite apart from the question of whether it was fair to set it to begin with)>
I do not have this answer at hand; but, I know where to find it and I have put the question to the person who would know.
Let me make the question more simple: What is the current balance as compared to the ten year requirement?
A 5% shortfall per year on average? 10%? Where they at? And this number is NOT easy to chase down. Because I have been looking for it.
Jerry this isn’t quite right.
“I assume they use the USPS because the post office can deliver them at a lower price than they can themselves.”
The USPS cannot deliver them at a lower price than they can themselves EVERYWHERE. But they can undercut them on a last-mile universal basis.
A couple of decades ago a bright entrepreneur had an idea to sell first class postage at a discount to USPS. And have people deposit those envelopes in special mail boxes in urban areas. The idea was ingenious, back in the day a large percentage of first class mail was going to a limited number of locations. Because everybody had a gas bill and a phone bill. So it would pay to undercut the USPS and bundle up all those letters going to the Water Company and deliver them even if you had to remail all the ones going to Aunt Sis at full price.
But the business model only worked when you had sufficient customer density, there was no way to make it pay if you were sending people to suburban and rural areas to make pickups from your boxes. So it never got off the ground and ultimately would have been killed by online bill pay to utilties. If you are under the age of 60 you are unlikely to be putting a stamp on your phone bill and dropping it in a mailbox.
And the same principal applies here. Amazon may have big dreams of delivering packages by drone over the last mile. But it is not going to work if that package needs to go to Homer Alaska. So there only choice is to outsource last mile delivery to the only outfit that is committed BY LAW to provide it everywhere: the USPS.
UPS and Amazon have no other method of providing their overnight delivery options than paying USPS. To the point that USPS has package delivery on Sunday even though they don’t deliver regular mail and are under pressure to drop Saturday delivery. Amazon still needs SOMEONE to deliver packages to Prime Customers and have no other mechanism than subsidizing the USPS.
Irony of ironies. Overnight package delivery by third party shippers has turned into a lifesaver for the USPS.
Webb asks how much of the $56 has been paid. A good question.
Prior to 2012 it was paid – but it was paid with borrowed money that the PO can’t pay back. So was any of it really paid?
The Federal Financing Bank started lending the PO in 2007. Every year the PO borrowed more to make the payments. But in 2012 the lending limit of the FFB of $15B was reached, so the PO could not borrow more and had to default.
As of today the PO owes the FFB $14.9996B. As of now the FFB is rolling over the unpayable debt at 0.2%.
All the details of the PO debt are here:
And this is to 100% fund retirement and pensions?
Currently there is not a good business model for the broken-dead horse USPS. The rule is that you have to privatize to profitize. Their cost will continue to out run any profits with no end in sight. It is a broken business model that we should not keep funding. Perhaps the USPS could find a way to use more drones to become more efficient in deliveries or perhaps they should take a closer look at the pension and retirement plans they are promising. One other point of interest is that if we did not spent $2T on the Iraq war and give the “too big to fail banks” $??Trillions in bail out we may have been able to fund the dead horse on life support for a long time to come along with many other big pork government projects that are badly needed (schools and highways). This was the opportunity cost that past leaders chose to do with the money that is now gone. it also destabilized the middle eastern countries to what problems we have today.(unintended consequences).The best thing for the USPS to do is to contract out the work they still do to someone who has the ability and brains to do that work in a much more productive and efficient way that can generate even a small profit margines.
Seriously, now you have caught my attention. The PO is a non-profit which happens to generate a profit. It also goes to places where DHL, FEDX, UPS, etc to deliver packages and mail the three I mentioned do not want to go. It is not broken and it does generate funds beyond cost. The issue before it and us is the requirement to 100% fund healthcare and retirement; a requirement your company never had, Bruce Krastings business never had and never will have, the states have never had, the federal government has never had, the military has never had, etc. So why does this make sense for the USPS and it causes them to secure loans to pay bills. Duh, wait a minute; it does not make sense. The only operation which has managed to do this with any success is who? My God, it is Social Security! Not to 75 years actuary but decades were achieved in funding for SS. The issue is Congress and Bruce Krasting does not want to pay it back.
The same is happening with the USPS. Congress will use the funds to hide deficit and then whine about paying it back in USPS pensions. Fickle bastards aren’t they when the same rigidity in holding their feet to the fire to anti-up is used. Much of your reply is a non sequitur to the topic at hand. I did want to answer you on the topics applicable. Bill, think through this.
I live in a high density area — Los Angeles. I have mail order stuff that starts out with a private carrier and goes the “last mile” with the USPS all the time. Why is that if not because it is less costly for the private carrier?
Yes, the Postal Service has been forced by PAEA to use a $15 billion line of credit with the Treasury (by law the PS cannot borrow from any other source). Of course if you knew and understood how PAEA set this up in the first place you might not simply repeat one of those red herring factoids about Postal Service debt.
In the 80’s and 90’s the Postal Service was charged with funding the portion of their employee’s retirements that had been earned while in military service. It was an accounting gimmick designed to make budget deficits appear less. This resulted in an overfunding of pensions by at least $27 billion (actually the figure was more but that was due to actuarial models that were used).
It was agreed by all that placing the military pensions on the PS was inappropriate. Rather than simply credit the $27 billion back to the PS the Bush administration required that there must be a budget offset (postal revenues and expense are off budget but pension funds are held on budget). So the 2006 PAEA created the RHBF liability and deposited the $27 billion there. It also created a ten year amortization of a 70 year liability that was questionable to start with. It was well known that there was no way to suck $5 billion a year out of the Postal Service under the pricing and rate regimes so the $15 billion line of credit was created with the Treasury. Of course no one accounted for the impacts of the Great Recession or the concomitant drop in mail volumes (about 5 billion pieces of first class mail disappeared overnight – the various credit card and other solicitations the banking industry was sending out).
So, yes, the Postal Service owes the Treasury $15 billion. But the Postal Service also has about $340 billion in pension funds on deposit with the Treasury. Unlike a business the PS cannot get a higher rate of return in other markets as it is restricted to Treasuries. Estimates vary but both of the retirement funds, CSRS and FERS are over funded (GAAP suggests that the gold standard for pension funding is 80% of estimated liability – postal pensions are funded at over 100%).
As for the retiree health liability, well that is largely a fiction created as a reason to stash the $27 billion overpayment and also impose the ten year amortization schedule that helped Bush’s budget forecasts. Both CBO and GAO have admitted that with one small change the necessity of prefunding retiree benefits would evaporate (btw, the industry standard on that is 35% not the more than 100% the PS is being required to prefund). In 1984 as a result of changes to Social Security, Federal employees and their agencies were required to begin paying Medicare payroll tax (prior to that they didn’t pay and employees were not eligible for Medicare). However the law did not require retirees to enroll in Medicare and consequently FEHB, the Federal employee exchange, never offered supplemental policies which cost the employer cheaper premiums and reduce their healthcare liability.
If postal employees were required to use Medicare as first payer (about 22% don’t enroll in Parts B&D) then the supposed unfunded retiree healthcare liability pretty much evaporates according to both CBO and GAO. So arguing that the Postal Service owes the government $15 billion is simply disingenuous.
The 2006 PAEA separated postal products into market dominant (monopoly) and competitive products. The latter were free from rate regulation as long as they paid their attributable costs and contributed 5% to institutional costs. PAEA also created something called Negotiated Service Agreements or NSAs. These allowed the Postal Service to negotiate separate (and secret) agreements with folks like UPS, FedEx, and Amazon.
UPS and FedEx use the postal network’s last mile capabilities under NSAs and programs like ParcelSelect to get cheap rates determined by how far into the network the package is entered. We’ve done a great deal of reporting on this at STPO – enter “NSA” into the search and you will find a wealth of information.
So Mark maybe you can answer this question:
USPS was burdenrd with a 10 year amortization schedule to hit a 100% target. Lets say you and I agree this was unfair and overkill and that a smaller target on a longer time frame would have been adequate and fair.
And we know that USPS has struggled and of necessity missed this target. But by how much? How many years at the CURRENT rate of contributions (actual not target) does it project to full fund this?
Lets say I was faced with a 100% target over 10 years and at end of year 8 was only at 75%. And knew that in the next two years I would only be able to contribute 75% of my requirement (7.5% of 10%). Meaning at the end of year 10 I only have 90%. How much extension do I need? The 20 or 40 years that would have been fair? The year and a half it would take me to make this up under current contibutions? Or maybe 3 years or 5 years to ease the burden but still have the obligation be closed ended?
Granted that this was unfair to USPS retrospectively what is done is done and it would be nice to remove this socalled “unfunded liability” going forward. So what would be a reasonable amount of time?
I’ll give you two answers, the one I think is the fair one and the one that seems to be most politically tenable given the current obsession with “unfunded liabilities”.
I don’t have the numbers right at hand but I think the fund currently has $46 billion. Contributions for the last three or four years have been deferred. As I’ve said both GAO and CBO have said that simply changing the requirement to enroll in Medicare makes the problem go away.
So my solution is to make the change in law and require eligibles to enroll in Medicare and use that as first payer. Right now the proposal is to only apply that to the Postal Service but I think it should be Federal wide. If the law requires payroll deductions and participation then, like pretty much every employer plan in the country, Medicare eligibles should be required to use that first with the employer providing a supplemental policy.
The second part of that is that future accounting for the liability should be monitored and adjusted as conditions require – pretty much like every actuarial plan does. Funding should not be required to be at 100% but at 80% which has proven to be actuarially sound. BTW one other element to this which gets lost in the conversation – the Postal Service has been funding retiree health benefits out of current revenues forever; they haven’t even been able to access the money in the fund. The fact is that the prefunding probably isn’t necessary at all.
Now for the politically practical answer. With the exception of a few diehard reactionaries on the right the consensus on Capitol Hill seems to be that the liability should be recalculated, any overages in the other pension funds should be transferred to RHBF, and whatever balance is left should be amortized over forty years at an 80% funding level.
Something along the lines of the political practical answer may happen if we ever get legislation. Requiring Medicare participation just for postal employees is problematic because it separates them out of FEHB … but that’s another discussion.
The greater question, one which you more than almost anyone I read ought to be familiar with, is how we treat this whole issue of unfunded liabilities. I would argue that the issue is largely a Trojan Horse advanced by those who are obsesses with treating Federal government accounting the same as we treat entities like corporations or even states. In other words, people who are obsessed with imposing balanced budgets which is itself a Trojan Horse for shrinking government.
Mark to make explicit my point.
Whether the USPS is allowed to exit this (to make it simple) $5 billion a year obligation through meeting the $56 billion target in 2, 3 or 5 years or as you suggest “the consensus on Capitol Hill seems to be that the liability should be recalculated, any overages in the other pension funds should be transferred to RHBF, and whatever balance is left should be amortized over forty years at an 80% funding level.” the end result is that an attempt to kill the USPS in favor of privatization will be killed, dead, kaput.
Because whether actually funded or simply accounted for this particular attack point will be neutralized. However unfair it was to require the USPS to fund retiree health care benefits for employees that won’t even get hired for 40 years the dirty deed will be done and USPS weathered the storm.
We all (except a few trolls) agree that it was unfair to have the USPS be required to set aside $56 billion dollars. But the fact seems to be that they have $46 billion tucked away. Which is that much shield against the privatizers.
Which as you say feeds back into the whole nonsense about unfunded liability. It may be totally unfair to highlight unfunded liability to stat with, but what do the haters do if you meet their objections and fund ANYWAY.
Which is one of the attractions of the Coberly-NW Plan for me. The requirement to close the unfunded liability gap facing Social Security is largely bullshit. On the other hand Northwest Does it and permanently and under almost every foreseeable circumstance. It is a real solution to a non-problem. Just as fully funding this USPS Health Care retirement fund would be.
Take it off the table and say Eff You to the Haters. By exerting the system for the few years it would take to fund this on the Haters own term.
This begs an answer and I will play the straight guy in this.
“It may be totally unfair to highlight unfunded liability to stat with, but what do the haters do if you meet their objections and fund ANYWAY.”
They will use it to hide the deficit and then argue with you about paying it back when it is needed to pay pensions and healthcare. It is a part of the GF, yes?
The problem there is that the repayment is automatic and not requiring specific approval.
In 2005 Bush pointed to a filing cabinet in West Virginia or Baltimore full of Social Security Special Treasuries and called them ‘Phony IOUs’. Yet by 2006 his Administration was paying out cash interest to pay DI benefits based on those ‘phony IOUs’ and by 2008 was using cash to start paying off the principal. Because those were real legal assets that were the ‘property’ of the Trustees of Social Security who were legally and morally bound, and not least politically bound to honor them.
There is no reason to believe that this $56 billion plus interest will be treated any differently. It is one thing to go the New Jersey route and simply refuse to pay in the State’s share, another to abrogate bonds backed by Full Faith and Credit. Not least because Foreign Holders of Bonds might take away the fact that a U.S. government perfectly willing to screw over milliions and millions of U.S. citizen retirees might not be the safe haven it was held out to be.
Social Security had a large Trust Fund balance in 1971. By 1982 it was all cashed out. And at no point did the Nixon, Ford, Carter or Reagan Administrations try to make the case that we just couldn’t afford to pay back those legal obligations. Just like the Bush II Administration did for SocSec DI after 2006. ‘Phoney IOU’ is itself a phoney talking point, at best a debating tactic (“governments cannot owe themselves”, sorry in practice they have and do).
Thanks for the explanation. Even though I knew the answer, there are others who still may not know.
Ending the RHBF payments or making them more equitable will take some of the pressure off but the problem is that the laws governing the Postal Service make it a chimera, not public enterprise, not corporation. RHBF was designed to put the Postal Service in fiscal distress, under the best of circumstances the PS was not going to generate $5-6 billion a year in profits, the large mailers and the design of rate regulation wouldn’t have allowed it.
The brass ring that the privatizers are aiming for is the $67 billion a year in postal revenues. Even with drops in volume and the siphoning off of $18 billion a year through workshare discounts there are still significant postal revenues out there to be captured.
People imagine privatization as a sort of sale of the system. It likely won’t happen that way although I imagine some on Wall Street would love to get their hands on the $340 billion in postal retirement funds that are stashed in the Treasury. No, it’s a matter of chopping off bits and pieces, e.g. the Kamarck piece imagines separating last-mile delivery of competitive products into a separate entity.
Bruce, I largely agree with the NW plan as at least the most practical response to those who want to claim SS is insolvent. Ultimately though the “haters and trolls” will keep coming. Their weapon is “common sense” and the false comparison of Federal budgets and accounting to a family’s kitchen table budget or a corporate budget. Those comparisons ignore the value of public goods, they ignore the assets embodied in government – their argument is a disingenuous effort to either reduce government to Nozick’s “Night Watchman” or to J.P. Morgan’s facilitator of capital.
No. But they were able to set aside a huge chunk of what is in the end a closed end obligation. That is they go a lot closer than anyone had a reason to expect and wouldn’t take that many years to close out the position. And so free up that much cash per year.
Webb – I still want to know how much the PO has actually paid. You say it was “a huge chunk”.
This GAO report puts the PO payments (pre default) at 17.9B. Of that amount the PO borrowed $15b. So the net is about $3b. Is that a huge chunk?
The PO borrowed from FFB. The FFB loan is the only loan made by FFB that is not guaranteed by Congress. So this loan (unlike Soyndra and Fisker and soon to be Tonapah) has to be paid back.