Almost all of the agency’s financial problems stem from a unique, arcane accounting system that does not follow any business other than government agency and that does not reflect real costs. (“Completely absurd,” as one lawmaker calls it.)
The USPS posted positive cash flows of nearly $ 2 billion in the nine months ending June 30, up from $ 1.3 billion in the same period a year ago. It had positive average annual cash flow of $ 3 billion in the previous three fiscal years.
It is true that in recent years there has been a steady decline in traditional first class letters as bills and payments shift from traditional mail to online. But even with the drop in revenue and volumes from traditional letters, the USPS is making money on that business.
The decline in letter volume has been more than made up for by increased package versions, as consumers make more purchases online.
Cash positive does not mean profitable
Cash flow and profit are not the same thing. Profitability factors in the cost of doing business, and in the case of the Postal Service, those costs are significant.
The biggest drag for its finances is a unique rule that requires the USPS to pay for pension benefits to workers for decades to come. In 2006, Congress passed a law requiring the agency to have 75 years of value for benefits from retirement health care over a span of about 10 years.
“There is no other entity on earth that does such a thing. When I talk about it, people say it’s completely absurd,” said Rep. Peter DeFazio, the author of legislation that would remove this requirement. The legislation, which supports the USPS, has passed the Second Chamber with bipartisan support, and a version of the First Chamber also has bipartisan sponsors, but no vote has been planned yet.
The rule came into effect in 2007, just before the start of the Great Recession, when the Postal Service was still reporting profits. But the economic downturn hit hard, making payments unaffordable.
It is true that no other unit of government other than private enterprise that provides coverage for retirement health care needs to make such pre-financing payments. And in recent years, the USPS has not made the required payment, indicating a shortage of available cash.
Costs are calculated for theoretical payments
This is where it gets really absurd.
Even though the USPS has not made these payments, it theoretically continues to book costs as an expense – $ 16.8 billion since the beginning of fiscal year 2017. That affects most of the agency’s reported losses.
Retirees are still concerned because the USPS has made payments in the past. As of September 30, 2019, the balance of the pension fund for retirement health was $ 92.2 billion, with interest on the holdings covering most of the actual premium costs.
The cost of coverage for retirement health care is further inflated by the fact that only 74% of the nearly 500,000 retirees and their family members covered by that policy are fully enrolled in Medicare. Instead, they use the USPS health care policy as their primary insurance, rather than as supplementary insurance.
Nearly all private sector employers and governments that provide retirement health benefits require full participation in Medicare, Megan Brennan, a former postmaster general, told a House committee last year.
If the USPS required full participation in Medicare, it would eliminate approximately 90% of the USPS unfunded health care pension costs – about $ 33.5 billion – more than 10 years, she told lawmakers.
In addition to the cost of retirement health care, workers’ compensation is another hypothetical cost that weighs on USPS finances. Since October 2018, it has booked about $ 4 billion in costs over what it actually has to pay to cover the cost of job injuries or deaths that postal workers have.
Should USPS try to make a profit?
Aside from the question of whether accounting and bookkeeping rules are responsible for most of the losses, there is the question of whether or not USPS should earn money.
Most people do not realize that the service typically runs without subsidies for taxpayers, despite part of the government going back to the revolutionary war.
“This is the postal service. It’s not the postal service,” DeFazio said. “It doesn’t have to make money.” He said if it wanted to maximize profits, it would hurt many Americans, especially in rural areas that are expensive to serve.
.
