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David Morris: Latest Proposal to Kill Post Office Ignores Real Causes of Its Financial Crisis

August 6, 2012

Peter Orszag, Obama's former OMB director, stands to benefit from the privatization of U.S. Postal Service.

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Image from Flickr via killthebird

By David Morris
By arrangement with On the Commons

If chutzpah can be defined as “killing your parents and then throwing yourself on the mercy of the court because you’re an orphan,” then Peter Orszag is the poster child for chutzpah. In his recent article in Bloomberg News he insists the best fix for the post office is to take it private.

Where does the chutzpah come from? Orszag was Director of the Office of Management Budget (OMB), an agency that played a key role in crippling the U.S. Postal Service (USPS) with a manufactured financial crisis.

Here’s the back-story. In 1970, after almost two centuries, the Post Office was transformed from a Cabinet agency to the quasi-independent USPS. In keeping with its new status, Congress eventually moved its finances off budget. Yet, as I’ve discussed before, the OMB and the Congressional Budget Office (CBO) ignored Congress and continued to include the USPS in the unified budget, the budget they use for “scoring” legislation to estimate its impact on the deficit.

Fast forward to 2001. The Government Accountability Office put the Postal Service on its list of “high-risk” programs because of rising financial pressures resulting from exploding demand from both the residential and commercial sectors. Then in 2002 the anxiety level fell dramatically when the Office of Personnel Management found the Postal Service had been significantly overpaying into its retirement fund.

It seemed a simple matter to reduce future payments and tap into the existing surplus to pay for current expenses. And would have been if the OMB and the CBO did not insist on adhering to their make-belief accounting system.

Several times between 2002 and 2005 Congress did overwhelmingly approved tapping into the existing surplus. Each time the White House nixed the idea because it would increase the deficit.

Finally, in 2006 the Post Office and Congress agreed to literally buy off the CBO and OMB. Budget neutrality over a ten-year period was achieved by requiring the USPS to make ten annual payments of $5.4-5.8 billion. The level of the annual payments was not based on any actuarial determination. They were produced by the CBO to equal the amounts necessary to offset the loss of the escrow payments. Under the Postal Accountability and Enhancement Act of 2006 the USPS was forced to prefund its future health care benefit payments to retirees for the next seventy-five years in ten years, something no other government agency or private corporation is required to do.

Citigroup would certainly be in the running to oversee the privatization of the post office, a process that would generate tens of millions of dollars in fees and undoubtedly handsomely benefit Mr. Orszag personally.

The Postal Regulatory Commission noted that those payments “transformed what would have been considerable profits into significant losses.” Indeed, 90 percent or more of the current deficit is a result of these artificially created debts.

The Post Office is indeed in a financial crisis, but not one of its own making.

Enter Peter Orszag, who still subscribes to the make-believe world created by his old agency, OMB. His article in Bloomberg News lists three problems the USPS faces. The artificial debt is not among them. He lists three counterarguments people might use to oppose privatization. The artificial debt is not among them.

A real world solution to the USPS fiscal crisis would be to remove the artificially generated financial noose from its neck and then 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 generate many new revenue-producing services.

But for Peter Orszag the solution is to ignore the fraudulent financial burden imposed on the USPS and sell off and dismantle its ubiquitous infrastructure. “In addition to its 32,000 post offices, it has 461 processing facilities, monopoly access to residential mailboxes and an overfunded pension plan,” he writes. “These assets would attract bidders. Consider, for example, that many processing facilities and post offices sit on valuable real estate, and it may be smarter to sell many of them than to keep them.”

Did I forget to mention that Peter Orszag is currently vice chairman of corporate and investment banking at Citigroup? Citigroup would certainly be in the running to oversee the privatization of the post office, a process that would generate tens of millions of dollars in fees and undoubtedly handsomely benefit Mr. Orszag personally. Now that’s chutzpah.

David Morris is co-founder and vice president of the Institute for Local Self-Reliance in Minneapolis, Minnesota and directs its Defending the Public Good Initiative. His books include The New City-States.

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