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This Congressional Budget Office staff working paper analyzes the arrangements used by the U.S. Postal Service to fund certain benefits received by its employees: postretirement cost-of-living adjustments to pensions, compensation for job-related injuries, and health care coverage for retirees. The analysis identifies costs paid by the U.S. taxpayer and costs shifted to future generations of mail users. The paper also presents alternative ways of funding these benefits.

The paper, prepared at the request of the Senate Budget Committee, builds on previous CBO reports and studies that have dealt with the direct and indirect federal subsidies received by the Postal Service. In keeping with CBO's mandate, it contains no recommendations.

David M. Delquadro, of the General Government Management staff of CBO's Office of Intergovernmental Relations, prepared the paper under the supervision of Stanley L. Greigg and Earl Armbrust. The author gratefully acknowledges research assistance provided by Harold A. Pollack. The paper was edited by Francis Pierce and typed by Mary V. Braxton.
 

August 1988
 
 

SUMMARY

I - INTRODUCTION

II - COST-OF-LIVING ADJUSTMENTS FOR CSRS PENSIONS

III - WORKERS' COMPENSATION FOR POSTAL EMPLOYEES

IV - HEALTH INSURANCE FOR POSTAL ANNUITANTS
 

The accounting system used by the U.S. Postal Service (USPS) generally assigns labor and capital costs to the years when the resources are productive, regardless of when the cash payments for postal resources occur. This accrual cost approach is consistent with private business practices and provides a reasonable assignment of annual costs to each year's group of postal customers. It also provides a financial framework for USPS self-sufficiency as envisioned by the Congress: those who use postal services should bear the costs of those services.

An accrual cost approach is used to account for and fund workers' compensation benefits for postal employees, but not all postemployment benefits. In particular, the Postal Service uses a cash-based or pay-as-you-go approach in funding the employer's share of health insurance premiums for postal workers retiring since October 1986. Moreover, the USPS finances none of the postretirement cost-of-living adjustments (COLAs) for Civil Service Retirement benefits. Thus, the costs of COLAs received by postal retirees are borne by the federal taxpayer rather than the mail user.

To what extent are postal operations being paid for by federal taxpayers and by future generations of postal customers? How much higher would postage rates have to rise if certain indirect subsidies for postal employee benefits were eliminated? The answers depend on the particular timing and legislative approach enacted.

The Congress could, of course, continue the current funding arrangements, or provide direct appropriations to the Postal Service that would cover costs paid by taxpayers without affecting future postage rates. Direct appropriations would help frame debate about who should pay for certain postal employee benefits. Discontinuing the indirect benefit subsidies through higher postage rates would support a more efficient allocation of resources within the communication industry, and would lessen the burden on the federal budget.

This document is available in its entirety in PDF.