GAO report dashes hopes of a $75bn rebate for USPS

A key review of the US Postal Service pension arrangements, ordered by the US Congress, has struck a decisive blow against hopes that up to $75bn in overpayments could be returned to the struggling USPS. The Government Accountability Office (GAO) said today it found “no evidence” of errors in the calculation of USPS payments in to the Civil Service Retirement Service since 1971, considering the pension law at the time.

The review, ordered by Congress last month, went against those of both the USPS Inspector General and Postal Regulatory Commission and their consultants, who had previously suggested there had been overpayments made by USPS between $50bn and $75bn.

The GAO finding was in line with the view from the Obama Administration’s Office of Personnel Management, that despite a recent change in the way pensions are calculated, the USPS payments were correct during the time they were made.

The GAO – the investigative and auditing branch of Congress – was a little unclear about whether there was actually a CSRS overpayment judging by the repeal of the original pension calculation law in 2003.

But, it said transferring requested funds from the CSRS to USPS would leave the taxpayer with a $56bn to $85bn unfunded pension liability, while for USPS it would provide “temporary relief” from financial problems, “but would not by itself address USPS’s long-term financial outlook”.

USPS is expected to record a $10bn loss for the 12 months up to the end of September 2011, having posted an $8.5bn loss the year before, thanks to declining mail volumes and its various pension and healthcare obligations. It is legally restricted to $15bn of government borrowing, with executives currently looking for ways to fill an anticipated $20bn gap in the budget by 2014.

Along with the CSRS “overpayment”, the Postal Service had also calculated a $6.9bn surplus in its other pension fund, the Federal Employee Retirement System (FERS). Given the surplus, USPS decided to halt its payments to the FERS fund until the surplus had been used up – subject to approval by the Department of Justice.

Today’s GAO report supported the view that there is a $6.9bn surplus in the fund, but noted a $7.3bn deficit in the CSRS fund.

Congress

Congress is continuing to seek legislation to help the Postal Service out of its budgetary hole, but given today’s findings from the GAO, it appears that the return of up to $75bn of “overpayments” from the CSRS is now moving off the table.

Republicans in Congress have taken the GAO report to be vindication of their view that returning pension funds to USPS would be tantamount to a “taxpayer bailout”.

However, those same Republicans are currently debating a bill that would allow the Postal Service a further $10bn in borrowing. Arguing for his bill today, Oversight Committee chairman Darrell Issa said that “when one part of the government gives funds to restructure another, it is not a bailout”.

Stephen Lynch, the Democrat Congressman pushing proposals to provide full rebates to USPS from both pension funds, dismissed the findings of the GAO as “nothing new”.

He criticised the report for ignoring the change in the law in 2003 in how pensions were calculated, and said the GAO and OPM were merely “nervous” of the scale of the sum that should be handed back to the USPS.

Lynch said: “The OPM and GAO have maintained their positions – it’s not uncommon for the GAO to side with the Administration position. The fact of the matter is there are several independent sources of analysis that have a greater credibility than the GAO.”

However, Congressmen revealed publicly today that their support for Lynch’s bill had been with the understanding that the overpayments issue was clear, and that the GAO report was making them reconsider their support.

In the Senate, Senator Tom Carper, a key driver of postal reform legislation in Congress, said today that it was time to move on from the CSRS issue and look for areas of postal reform where a consensus can be agreed.

Noting the “significant disagreement” among experts regarding the overpayment issue, the Senator for Delaware said: “I believe it would be more prudent to set aside this question for the time being in order to focus on the areas of postal reform where we have more consensus, including the Postal Service’s overpayment into the Federal Employee Retirement System.”

USPS and mailers

Commenting on today’s report, the US Postal Service said it was “disappointed” that the GAO had rejected the arguments of the Inspector General and PRC.

USPS chief financial officer Joseph Corbett wrote to the GAO stating that it had “mistakenly” endorsed the OPM position that based calculation of the pension on the 1974 law repealed in 2003, and that its reasoning why such a law should be the basis for USPS pension calculations was “flawed”.

He also criticised the report for leaving no room for compromise regarding the pension calculation.

“We believe a more balanced report by GAO would include a more objective analysis and provide compromise options for the Congress to consider,” he wrote.

The mailing industry lobby group Coalition for a 21st Century Postal Service sent a letter to Congressman Issa today stating that postal reform legislation now needs to move on, that “the country cannot afford to wait for relief for the Postal service”.

“We believe that moving forward at this juncture is critical to enacting meaningful postal reform legislation in time to forestall potential disruptions to service,” said the Coalition’s coordinator Art Sackler.

“Any such disruptions would have grave effects not only on the industry and the 8 million private sector jobs it supports, but on the economy as a whole, which still depends to a tremendous extent on the postal system for commerce and communications.”

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