The U.S. Postal Service has finally delivered — a profit, that is. Last month, the beleaguered government agency reported its first net quarterly profit in five years.
Have Americans rediscovered their love of greeting cards? Not really. A closer look at the numbers reveals that “profit” to be little more than wishful accounting.
Volume for most types of mail is falling. Households and businesses are sending fewer letters, which have long been the agency’s most profitable offering. And the projected costs of its retirees’ benefits are mounting.
The Postal Service recognizes these problems — and that they threaten its viability. But the agency cannot begin to address them until it stops engaging in accounting trickery and starts taking a more honest look at its finances.
This latest quarterly “profit” is the product of two factors. First, there was a billion-dollar-plus change in the agency’s workers’ compensation expenses caused by changes in interest rates — “a factor outside of management’s control,” as postal officials put it. Second, the Postal Service benefited from a temporary price hike — an “exigent surcharge” — implemented in 2014 to help it weather the Great Recession.
Without these two anomalies, the agency’s quarterly financial loss would have been in the neighborhood of a billion dollars.
The surcharge expires next month. The Postal Service estimates that this change alone could increase losses by $2 billion a year.
Since 2007, the agency has posted more than $56 billion in net operating losses, despite the fact that revenue has actually been rising for the last three years.
The primary cause of those multibillion-dollar losses is no mystery. The astounding growth of electronic communication has caused mail volume to tumble by more than one-quarter over the last 15 years. The volume of first-class mail — letters, greeting cards, bank statements, and the like — has declined by 40 percent since 2001.
The losses would have been even larger had postal executives complied with a 2006 law to prefund the retirement benefits of postal employees — to the tune of more than $5 billion a year. The U.S. Government Accountability Office recently reported that postal management has essentially ignored this requirement since 2011.
The Postal Service can’t borrow its way out of its financial hole; it reached its statutory debt limit back in 2012.
Lawmakers, postal officials and postal workers themselves have offered a number of ideas that they believe can rescue the agency.
Sen. Elizabeth Warren, D-Massachusetts, and postal labor unions want the Postal Service to expand into financial services for consumers — everything from ATMs to small loans.
The Postal Service’s management believes that it can carve out a successful future in highly competitive express-delivery markets. It has even been testing its prospects by offering same-day delivery for products like groceries.
But drastic moves like these may lead to even more devastating losses, particularly if the agency can’t get its financial accounting right.
The Postal Service utilizes an obscure and arcane system for measuring its costs. Its regulator, the Postal Regulatory Commission, and its own inspector general have both called for the agency to implement a new, modern accounting system. But its executives have resisted.
Nearly half the Postal Service’s operating costs are labeled “institutional” overhead — costs not attributed to any specific product. By categorizing such an enormous share of spending in this way, the Postal Service obscures the true costs of its transactions.
Consequently, it’s difficult to determine which products are profitable and which are losing money. That makes it impossible for the Postal Service to price its offerings appropriately.
Americans can’t afford a Postal Service that operates in this way. The agency has more than $60 billion in outstanding liabilities for which taxpayers could be on the hook.
The Postal Service is behaving almost exactly as one would expect a government monopoly competing with the private sector to behave. The postal economics of the past, where the first-class mail cash cow can erase losses incurred delivering other types of mail, no longer apply.
The Postal Service’s present costs and future liabilities aren’t going away. The agency needs to measure them honestly and transparently.
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