USPS’s Widening Third-Quarter Financial Losses Are Alarming | Citizens Against Government Waste

USPS’s Widening Third-Quarter Financial Losses Are Alarming

The WasteWatcher

On August 9th, 2019, the United States Postal Service (USPS) released its latest financial report for the third quarter of fiscal year (FY) 2019 and, following previous patterns, the outlook is dire.  The USPS’s net loss widened from a year ago, from $1.49 billion a year ago to $2.3 billion this year, for a total loss of $5.9 billion for the year.  USPS is on pace to fulfill U.S. Postmaster General (PMG) Megan Brennan’s caution that the agency will run out of money in five years as it approaches its 13th consecutive year with a multi-billion dollar loss. 

The USPS’s lackluster fiscal quarter was notably weakened by a controllable loss for this quarter of nearly $1.08 billion, compared to a controllable loss of $889 million for the same quarter last year.  This controllable income figure, which excludes items that are “outside of management’s control,” such as its retirees’ health and pension expenses, account for the USPS’s direct costs and revenues of the services that it provides to consumers. As a result of its routine business functions alone, the USPS’s costs have increasingly exceeded revenues each year since 2017 and are expected to result in a $3.1 billion loss in 2019. This data point contradicts the rhetoric of postal executives and their allies on Capitol Hill, who have adopted the mantra that the USPS would be profitable were it not for its congressional mandate to pre-fund retiree health and pension liabilities. 

The pre-funding requirement amounted to yearly payments averaging roughly $5.6 billion from 2007 to 2016. The USPS has defaulted on $33.9 billion in pre-funding payments.  In 2017, the USPS concluded “prefunding” and embarked on a different strategy in which the agency is obligated to pay “the normal cost of retiree benefits attributable to the current year’s service of our employees.”

When the USPS’s current governing statute, The Postal Accountability and Enhancement Act, was enacted in 2007, USPS viewed the pre-funding obligation favorably.  Now, if you listen to statements by postal executives and some members of Congress, the pre-funding requirement has morphed into the USPS’s biggest, and apparently only impediment to financial success.

Consistent with previous financial reports, the USPS’s third quarter shows that first-class mail volume is rapidly dwindling and USPS executives and stakeholders clearly view the parcel delivery sector of its operations as the revenue generator of the future.

Parcel delivery is also a cost driver for the USPS, which faces a host of logistical problems.  The USPS still requires more employees to move a parcel, when its labor costs are already 76 percent of USPS’s overall operating costs.  Other parcel delivery companies are highly automated, especially emerging entrants into the delivery market, such as Amazon.  The USPS’s management structure and the laws governing its relationship with its labor unions hinder the financially stressed agency’s ability to take any meaningful action to address labor costs.  One of the USPS’s labor unions, the National Rural Letter Carriers, just ratified a new three-year contract in which its members extracted a 4.2 percent pay hike from the USPS, retroactive to 2018 and through 2021.  In exchange, the agency will cover only 72 percent of its employee health insurance, rather than 73 percent.    

Postal executives persist in claiming that they are aggressively managing the USPS’s business operations.  But several OIG reports have documented the agency’s failure to identify, measure, and realize cost-savings. 

As the losses mount, the USPS seems unable or unwilling to partner with Congress to identify a reform path forward.  In an April 30, 2019 House Oversight and Reform Committee hearing, Rep. Mark Meadows (R-N.C.) chided PMG Brennan for failing to provide the committee with its ten-year business plan that the agency has been crafting for months.  That plan has still not been delivered, despite the USPS’s assertion that its recovery resides largely in the hands of Congress.  

It’s past time for the USPS to deliver its business plan and for Congress to begin crafting a reform plan that gets the agency on stable financial footing and protects taxpayers from a massive bailout.   

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