July 05, 2012
The NYT reported on the worsening delivery record at the Postal Service as it makes plans for further job cuts and the shutdown of hundreds of processing centers. At one point the article told readers:
“A decline in mail volume, particularly first-class mail, which accounts for the bulk of revenue, has produced steady losses for the Postal Service — an average of $1 billion a month in the first half of the fiscal year — and forced it to propose closing about half its processing centers and cutting hundreds of thousands of jobs.”
Actually, the biggest factor in this loss is the requirement that Congress put into law in 2006 that the Postal Service prefund its retiree health benefits. Prior to this date, the Postal Service was following the practice that prevailed in the private sector of paying for retiree health benefits out of current income. Not only did Congress require that the Postal Service prefund its system, it also required a very rapid rate of build-up (10 years) and that make much more pessimistic assumptions about costs than private funds. In addition, the Postal Service is handicapped by the fact that it can only invest in public debt, unlike private funds that can invest in equities and other higher yielding assets.
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