TALKINGPOINTSGUIDEforBRANCHPRESIDENTSonthePOSTALFINANCIALCRISIS

TheTruthaboutthePostalServiceandtheNeedforCongressionalAction I.

THEPROBLEM:WHYISTHEPOSTALSERVICEFACINGAFINANCIALCRISIS

ThePostalServicehaslost$20billionoverthepastfouryears(20072010)anditisfastapproachingits $15billiondebtlimit.Asaresult,theUSPShasannouncedthatitwillnotbeabletomeetcertainendof thefiscalyearpaymentsthataredueinSeptemberandOctobera$5.5billionpaymenttoprefundits futureretireehealthbenefitsand$1.2billiontopaytheDepartmentofLaborforworkerscompensation costs. Althoughmailvolumeisfalling,theinternetisnotkillingthePostalServiceandneitheristheweak economy.AhugeCongressionalmandateiskillingthePostalService. ThePostalServiceisintroublebecauseofaBushera(2006)lawthatrequirestheUSPStomassively prefundthecostofretireehealthbenefitsoverthenext75yearsinjust10yearstime.Thiscostcovers notonlycurrentemployees,butemployeeswhohaveyettobehiredanditisontopofthecostfor healthbenefitsforcurrentretirees.NoothercompanyoragencyinAmericaisrequiredtoprefund futureretireehealthbenefits.

Pre-funding Payments to the Postal Service Retiree Health Benefit Fund (PSRHBF) Are Driving USPS Finances (Figures in $Billions) Reported Net Income w/o Payments to Added USPS Net Payments to Debt Year PSRHBF Income PSRHBF -$5.1 $8.4 $3.3 $2.1 2007 2008 -$2.8 $5.6 $2.8 $3.0 2009 -$3.8 $1.4 - $2.4 $3.0 2010 -$8.5 $5.5 - $3.0 $3.0 Total -$20.2 $20.9 $0.7 $13.2 Notes: A modified version of H.R. 22 was enacted in 2009, slashing the prepayment from $5.4 to $1.4 billion. The USPS has a $15 billion debt limit.

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Tenannualpaymentsofabout$5.5billionperyeartofundfutureretireehealthbenefitsweremandated inthepostalreformlawof2006,beginningin2007justwhentheGreatRecessioncausedmailvolume andrevenuetoplummet.(Thesamelawrequiredanadditional$2.9billiontransferin2007,raisingthe totalcostto$8.4billionthatyear.Thisadditionalcostwastheescrowaccountsetupbyanearlierlaw, theCSRSfundingreformlawof2003.) The$20billionindeficitsoverthepastfouryearshavebeenthedirectresultofthe$21billioninpre fundingpaymentsdictatedbythePostalAccountabilityandEnhancementActof2006.Seetableabove.In theabsenceofthismandate,theUSPSwouldhavebeenmoderatelyprofitableoverthisperioddespite theworstrecessionin80yearsanditwouldstillhaveborrowingauthoritylefttoweatherthebad economy. CongressandtheObamaadministrationmusttakeurgentactiontoavertafinancialtrainwreckthisfallat thePostalService.TheUSPSwillnotbeabletopaythenext$5.5billionpaymenttoprefundfuture retireehealthbenefits.Butthispaymentistotallyunnecessary.ThePostalServiceRetireeHealth BenefitFundalreadyhasmorethan$42billioninitenoughtocoverretireehealthpremiumsforthe next20years:

Postal Service Retiree Health Benefits Fund Balance ($Billions)

45 40 35 30 25 20 15 10 5 0 2006 2007 2008 2009 2010

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ThePostalServiceanditsunionssuccessfullyadaptedtotherecession,cuttingmorethan110,000jobs, buttheycouldnotabsorbtheheavycostofprefundingretireehealth. Norationalcompanywouldchoosetomakeprefundingfutureretireehealthbenefitsthehighest corporatepriorityintodayseconomyandnocompanywoulduseallitsborrowingcapacitytodoso. ButthatispreciselywhatthePostalServicehasbeenforcedtodo.Asaresult,itwillsoonexhaustits$15 billionborrowingauthorityalineofcreditestablishedin1970topermittheUSPStoinvestinitsretail andmailprocessingnetworksandtokeepitshugevehiclefleetuptodate. In2005,thePostalServicedidnotevenhavetouseitsborrowingauthority.Ithadnooutstandingdebt; todayithas$13.2billionindebt.Virtuallyallthisdebthasbeenusedtofinancetheprefundingofretiree healthbenefitsnottorestructurethePostalServicesnetworkoffacilities,ortoreplaceitsoldvehicle fleet,ortoinvestinnewproductsandservicestomeettheemergingneedsofthenationseconomy. OnlyaboutathirdofalltheFortune1000listofthelargestAmericancompaniesvoluntarilyprefund retireehealthbenefits,accordingtoannualsurveyconductedbyTowersWatson,aleadingaccounting andactuarialservicescompany.Ofthosethatdo,themedianlevelofprefunding(31%offuturecosts)is farbelowthatofthePostalService(48%). Nootherfederalagencyinanyofthethreebranchesofgovernmentisrequiredtoprefundfutureretiree healthbenefits.CongressmandatedprefundingfortheUSPS,butitdoesnotprefundandnoneofits specialagenciestheGeneralAccountabilityOffice,theCongressionalResearchService,the CongressionalBudgetOfficeortheLibraryofCongressdoeither.

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II.

WHATMUSTBEDONE:SAVINGTHEUSPSWITHITSOWNMONEYNOTAXPAYER BAILOUT!

Asamatteroffairness,theUSPSshouldbeallowedtofundretireehealthbenefitsonapayasyougo basisjustasmostbusinessesdo.Butifwearetoprefund,thenweshouldbeheldtothesame standardasprivatecompaniesthatprefund:Themedianleveloffundingamongthesefirmsisaround30 percent.Finally,ifwearetoberequiredtoprefund100%offutureretireehealthbenefits,thenitmakes sensetoallowtheUSPStouseitssurpluspensionfundstocoverthesecosts. Thereisasensiblesolutiontothepostalfinancialcrisisthatwontdirectlycostanytaxmoney:TheOffice ofPersonnelManagement(OPM),whichadministersthefederalandpostalemployeepensionplans, shouldacknowledgethefindingsoftwoexternal,privatesectorauditsthatfoundapensionsurplusof between$50billionand$75billioninthepostalportionoftheCivilServiceRetirementSystem.Congress shouldthenallowthePostalServicetousethesurplustocoverthecostofprefundingfutureretiree healthbenefits.

TheHayGroupfoundaUSPSCSRSpensionsurplusof$75billioninaJanuary2010studyitdidforthe OfficeofInspectorGeneraloftheUSPS.TheSegalCompanyfounda$50$55billionpostalsurplusinthe CSRSusingslightlymoreconservativeassumptionsinaJune2010studyforthePostalRegulatory Commission. BothstudiesrejectedthemethodsusedbytheOPMtoallocatepensioncostsbetweenthePostalService andtheTreasuryDepartmentforworkerswithCSRSservicebothbeforeandafterpostalreorganization. Allagreethatthecostofpre1971servicefortheP.O.D.istheresponsibilityoftaxpayerswhilethecostof post1971serviceforthePostalServiceistheresponsibilityofpostageratepayers.Butwhenitcameto measuringthecostofpre1971benefits,theOPMshiftedahugeamountoftheP.O.D.pensioncoststo thePostalServicebycalculatingbenefitsbasedon1971salariesnotthehighthreeaveragesalariesin placeattheendoftheworkerscareers,theactualaveragesalariesusedbytheCSRSbenefitformulato determinepensionbenefits.

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TheOPMmethodignoredthefactthatthecostofpriorservicerisesaswagesrise.Postalwagesrosein linewithinflationafter1971,butthecostofP.O.D.pensionbenefitsforpre1971servicewasfrozenat 1971wagerates.ThisunfairlyshiftedthecostofwageinflationonP.O.D.benefitstotheUSPS. Asthechartsbelowindicate,theOPMmethodsweregrosslyunfairtothePostalService.Thefirstchart showsthefairestwaytosplitthecostofpensionbenefitsforalettercarrierwhoworked30years,15 yearsfortheP.O.D.and15yearsfortheUSPS.Thisfairwaytoallocatethecostsistosplitthem proportionallywhattheHayGroupcallstheserviceratiomethod.Inthiscase,thesplitwouldbe50 50,halfandhalf.ThesecondchartshowshowtheOPMactuallysplitsthecostsbyusing1971wage ratestocomputethecostofpre1971service.ThismethodisgrosslyunfairtothePostalService shiftinganadditional30%ofthecosttothePostalService.

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TheOPMclaimsthata1974lawmandatesittousetheunfairmethodsforallocatingCSRSpensioncosts totheUSPSandthatCongressmustchangethelawbeforeitcanadoptthemodernmethodsendorsed bytheprivateaudits. NALC,theUSPSOIGandtheCongressionalauthorsofthe2006postalreformlawdisagreewithOPMs legalanalysis.A2003statute(PublicLaw10818)thatreformedthePostalServicespension contributionstopreventmassivepensionoverfundingrepealedthe1974lawcitedbyOPM.Moreover, the2006postalreformlawgavetheOPMbroadauthoritytomakeanydeterminationor redeterminationregardingitscostallocationmethodology,aviewthatissharedbybothSens.Susan CollinsandTomCarperwhowereintimatelyinvolvedinpassingboththe2003and2006laws.(Source: September28,2010letterfromSen.CollinstoOPMDirectorJohnBerry.) AsubsequentreportfromtheOPMrevealedthattheUSPShasa$6.9billionsurplusintheotherfederal pensionplan,theFederalEmployeesRetirementSystem(FERS).Thereisnodisputeaboutthissurplus. Indeed,citingthissurplus,thePostalServiceannouncedinJune2011thatitwouldsuspendmakingFERS pensioncontributionstopreserveitscashreserves. ThePostalServiceanditsemployeesdontwantataxpayerbailoutwehaveNOTreceivedANYtaxpayer fundsinnearly30years.Wewanttouseourownsurpluspensionfundscalculatedusingfairmethods topayforprefunding. TheUSPSwantstheadministrationtorequiretheOPMtoadoptthefairmethodsforallocatingpension costsproposedbytheprivateaudits.Ifitdoesso,undercurrentlaw,anypostalsurpluswillbetransferred intothePostalServiceRetireeHealthBenefitsFundin2015.ThisistheapproachincludedinSen.Susan Collinsbill,S.353. WealsosupporttheapproachincludedinTitleIoftheS.1010,Sen.Carpersbill(S.1010),whichwould requiretheOPMtofairlycalculatethepostalsurplusesbutkeeptheminCSRSwhileallowingtheUSPSto payitsprefundingpaymentsoutofthesurplusfunds.ThisminimizesthenegativeimpactontheCSRS fundingbalanceandaddressestheOfficeofManagementandBudgetsconcernthatamassiveshiftof fundsbetweenthetwotrustfunds(CSRSandtheUSPSRetireeHealthBenefitsFund)willincreasethe deficitsincetheTreasurymustamortizeanyincreaseintheCSRSsunfundedliabilityover30years. TitleIoftheCarperbillshouldbeincludedinthedebtlimitlegislationnowbeingdevelopedin Washington.ThereisbroadbusinesslabormailersupportforthefinanceprovisionsinTitleI,which wouldmandateafaircalculationoftheCSRSpostalsurplusandallowtheUSPStousethepostalsurpluses inboththeCSRSandFERStocovertheprefundingcosts.GiventhepositionofSen.Collins,this approachoffersthebestprospectforbipartisansupport. Ataminimum,NALCwantstheAdministrationtomaketheundisputed$6.9billionFERSpostalsurplus availabletotheUSPStocoverthecostofthe2011paymentdueonSeptember30,2011toavoidthe economicandpoliticaldamagethatwouldresultifthePostalServicefailstomakethepayment.This minimalstepisincludedinH.R.1351,abillsponsoredbyRep.StephenLynchandcosponsoredby169 otherrepresentativesfrombothparties.

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 III.

WHYCONGRESSANDTHEADMINISTRATIONMUSTACT

Ifnoactionistaken,theUSPSwillfailtomakethenext$5.5billionpayment.Thiscouldsetoffa firestormofbadpublicitythatwillhavedisastrouspoliticalandeconomicimpacts.Indeed,thereis growingevidencethatdoubtsabouttheviabilityoftheUSPSisalreadyleadingbusinessestoexitthemail system,cuttingjobsandhurtingaweaknationaleconomy.AUSPSdefaultwouldalsounderminepublic confidencetheUSPSandtheU.S.government. ThePostalServicehasexhaustednearlyallofits$15billionborrowingauthoritytomeettheheavycostof prefunding.ThishasdamagedthePostalServicesabilitytofunctionasabusinessforcingustokeep outdatedvehiclesandequipmentandtodelayneededinvestmentsintechnology,greenprocessesand productinnovation.Thisfurtherdepressesmailvolumeandemployment. IftheUSPSrunsoutofmoney,theeconomysfinancialpaymentssystemwouldbethreatenedwellover halfofallmonthlybillsarepaidthroughthemail,safelyandefficientlypermittingtrillionsofdollarsof transactionseachyear.Alossofservicewouldseverelydamagemillionsofbusinessesandthreatenthe economicrecovery. TakingactiontoresolvethePostalServicesfinancesisnotjustprolabor,itisalsoprobusiness.Thereis a$1.3trillionmailingindustryintheU.S.thatsupportsbetween78millionprivatesectorjobsthatis heavilydependentonahealthandefficientPostalService. AlargecoalitionofbusinessesurgedPresidentObamatoadoptthepolicyweareadvocatingearlierthis year.AnotherlargegroupofbusinessesandtradeassociationsjoinedNALCandthesixotherunionsand managementassociationswrotetoall435MembersoftheHouseofRepresentativestosupportH.R. 1351.Permanentlyfixingtheprefundingmesswillhelpkeeptheeconomicrecoveryontrackandthe businessmailerswhosepostagepaymentshelpedfundourpensionplansdeservefairnessasmuchasour membersdo. AfailuretoavertafinancialcrisisatthePostalServicewillempowerpoliticalforcesledbyHouse RepublicanswhowanttoforceamassivedownsizingofthePostalService.HouseGovernmentOversight andReformchairDarrellIssahasannouncedhisdesiretoforcetheUSPStoeliminate170,000to200,000 jobsacutthatwoulddestroythequalityofserviceanddamagetheeconomicrecovery. TheU.S.PostalServiceisbroadlypopularwithan80%plusfavorablerating(PewResearchCenter,see below).Italsohasdeepunderlyingstrengthsithasfullyfundedpensionsandhasbeenratedthemost trustedfederalagencyforprotectingprivacybythePonemonInstituteforseveralyearsrunning.It reacheseveryhouseandbusinesseverydayandcouldbeusedtoachieveimportantnationalgoals (homelandsecurity,aretailnetworkforanationalinfrastructurebank,stateandlocalneeds,etc.).The lastmile,transportandretailnetworksareveryvaluabletothenationandareworthpreserving.

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IV. ELIMINATINGSATURDAYDELIVERYISNOTTHEANSWER TensofmillionsofbusinessesandcustomersrelyonSaturdaydelivery,includingprescriptiondrug providers,creditcardcompaniesandweeklymagazines.Thousandsofbusinessesfiledpetitionsagainst eliminatingSaturdaydeliverywiththePostalRegulatoryCommissionlastyear. Ashifttofivedaydeliverywoulddomoreharmthangoodbydrivingcustomersoutofthemailsystem. Itwouldalsoinvitenewcompetitorsintotheindustryprivatecompanieswouldemergetoofferthe serviceonSaturdaythattheUSPSwoulddrop.Onceestablished,theywoulddemandaccesstothemail boxandperhapslobbyforderegulation. ThePostalRegulatoryCommissionsyearlongreviewoftheUSPSplantoeliminateSaturdaydelivery concludedthat5daydeliverywould:Save45%lessthanforecast,riskmuchgreaterrevenuelossesthan projectedandslowmaildeliverybytwodaysfor25%ofthePostalServicesmailvolume. Lowerqualityserviceisnottheanswer.A17%cutisserviceisnotworthitsavingjust4%ofcosts,even assumingtheUSPSwasrightaboutthelossofrevenues. Theshiftto5daydeliverywoulddestroy80,000fullandparttimejobsintheUSPS,including25,000city carrierjobs.Thiswouldexacerbatethenationaljobscrisisanddamagetheeconomicrecovery.

CongressmustensurethatthesixdayrequirementincludedintheannualFinancialServices appropriationbill(HR2434thisyear)isretained,justasithasbeenineveryyearsince1984.Thismeans rejectinganyefforttoleavethe6daylanguageunprotectedfromaPointofOrderchallenge. CongressmustnotsacrificeSaturdaydeliveryinapackageofspendingcutsattachedtolegislationtoraise thedebtlimit.

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V.

BACKGROUNDONTHEU.S.POSTALSERVICE

ThePostalServiceisanindependentestablishmentoftheU.S.governmentthatisspecificallyauthorized bytheConstitutionoftheUnitedStates.ItwasestablishedasthePostOfficeDepartment(P.O.D.)in 1775andwasacabinetdepartmentuntil1970,whenitwasreorganizedasanindependentagencyand renamedtheU.S.PostalService.AssuchitisoneoftheoldestinstitutionsinAmerica. TheUSPSemploys560,000careeremployees,makingthePostalServicethenationssecondlargest employernexttoWalMart.Itsannualsalesof$67billionwouldplaceitatnumber34thontheFortune 500listoflargestAmericancompaniesifitwereaprivatecompany. ThePostalServicedelivers40%oftheworldsmail. TheUSPSisfinanciallyselfsufficient.Itpaysforitsoperationsthroughthesaleofpostageandhasnot receivedanytaxpayersubsidysince1982.In1971,beforepostalreorganizationtookeffect,Treasury appropriationscoverednearly25%oftheP.O.D.sbudget.Intodaysdollars,thatwouldcosttaxpayers approximately$16.25billion.Sopostalreorganizationhassavedtaxpayerstensofbillionsofdollarssince 1970. PostageratesinAmericaareamongthelowestintheindustrializedworldand,relativetowages,stamp pricesareamongthemostaffordableanywhere.

InternationalPostageRatesforDomesticLetters FirstClassPostageRatesCompared Country Price Currency UnitedStates 0.44 $US Canada 0.59 $C Australia 0.60 $A Britain 0.46 Germany 0.55 France 0.60 Italy 0.60 Japan 80.00 Switzerland 1.00 CHF

$USEquivalent $0.44 $0.61 $0.64 $0.73 $0.77 $0.84 $0.84 $1.00 $1.20

Sincepostalreorganization,postagerateshaveincreasedinlinewithgeneralinflationeventhough taxpayersubsidieswereeliminatedintheearly1980ssotherealcostofmailinglettershasdeclined dramatically. ThePostalServicedeliverssixdaysaweekto150millionhouseholdsandbusinesses.Privatecompanies likeFedExandUPSdeliver5daysaweekinmostplacesandserveatmost20millionaddresseseachday.

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CriticscomplainthatlaborcostsmakeupahigherpercentageoftotalUSPScosts(80%)thantheydoin theprivatecompanies(50%65%).Butthecomparisonismisleading.TheUSPSisauniversalservice providerofbasicservicesthatrequiresdailydeliveryto78timesasmanyaddresseseachdaythanthe privatecompanies,whichfocusonparcelsandfreightservicesthataretargetedtoamuchnarrower rangeofrecipients.TheUSPSfunctionisinherentlymorelaborintensive.Indeed,thePostalServiceslast miledeliverynetworkissoefficientthattheprivatecompaniesrelyonittoreachplacestheydontserve. TheParcelSelectproductallowsprivatecompaniestodropshiptopostofficesforlastmiledeliveryby lettercarrierstheFedExversionofthisservice,FedExSmartPostisthefastestgrowingdivisionwithin theMemphisbasedcompany. Sincetherecessionbeganin2007,theUSPShasdramaticallycutlaborcosts,eliminating110,000jobsin responsetofallingmailvolumewhilemaintainingservicequalityatrecordlevels.Thankstothese measures,productivityisatanalltimehigh. ThePostalServiceisoverwhelminglypopularwiththeAmericanpeople:AccordingtoarecentPew Research,theUSPShasan83%approvalratingbyfarthehighestforanygovernmentagency.

PewResearchCenterSurveyonFederal Agencies PublicFavorabilityRatings,2010 Agency/Department PercentFavorable U.S.PostalService 83% CentersforDiseaseControl 67% DepartmentofDefense 67% FederalBureauofInvestigation 67% NASA 61% Food&DrugAdministration 58% EnvironmentalProtectionAgency 57% VeteransAdministration 57% CentralIntelligenceAgency 52% JusticeDepartment 51% SocialSecurity Administration 49% InternalRevenueService 47% DepartmentofEducation 40% Source:PewResearchCenterpoll,3/18/103/21/10

TheUSPSisanationaltreasurethatbindsthenationtogether;itsunmatchableuniversalnetworks provideanessentialinfrastructureservicethatisworthpreserving.TheUSPSprovidesatrustedpresence inourneighborhoodsthatpaysoffincountlessways,suchastheCarrierAlertprogram,theCities ReadinessInitiative,thenationalNALCFoodDriveandcountlessactsofeverydayheroismbythenations lettercarriers.

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