Tad DeHaven

While Congress is busy trying to figure out how it’s going to continue screwing up the U.S. Postal Service, postal expert Michael Schuler has been busy analyzing the reasons why it’s so screwed up to begin with. Last week, Michael released a paper on congressional micromanagement of the USPS. A new paper looks at the complicated and controversial topic of postal retiree health benefits.

A common claim made by the postal unions and other defenders of the unsustainable status quo is that the USPS would be a-okay if a 2006 law hadn’t required the postal service to start setting aside money for future retiree health benefits. Here’s the background from Michael:

Before enactment of the Postal Accountability and Enhancement Act of 2006 (PAEA, P.L. 109-435), the U.S. Postal Service had been promising generous retirement health benefits to its workers without setting aside any money to pay the costs it would owe in future years. Because the Service was ignoring a very expensive fringe benefit in its income statement, its reported costs were artificially low and its reported income artificially high. The unfunded retiree health care obligation had mushroomed to $74.8 billion by September 30, 2006.

The 2006 law addressed the unfunded liability by requiring the USPS to annually set-aside an average of $5.6 billion from 2007 to 2016. However, USPS revenues began plummeting shortly after the PAEA’s enactment. The annual “prefunding” payments have been exacerbating the USPS’s financial woes. Naturally, postal management and the unions would like Congress to make the payments disappear. The problem is, eliminating the payments won’t put the USPS in the black, and it would merely set the stage for a major taxpayer bailout down the road. As Michael explains, moving to pay-as-you-go financing for retiree health benefits is a bad idea:


Tad DeHaven

Tad DeHaven is a budget analyst at the Cato Institute. Previously he was a deputy director of the Indiana Office of Management and Budget. DeHaven also worked as a budget policy advisor to Senators Jeff Sessions (R-AL) and Tom Coburn (R-OK).