There’s a more fundamental controversy at the U.S. Postal Service than if it makes money on Amazon shipments.
Does it make money at all? You’d think that would be easy to answer, but it’s not. So, here’s my attempt to get to the bottom line.
The U.S. Postal Service emerged in 1971 from the old U.S. Post Office. The plan was for this new independent federal agency to take in revenue, pay expenses and end up with a surplus (income or profit in business) or a deficit (loss).
The theory went if they lose money, they would increase rates and/or cut costs. And customers would have a more responsive and economic service that didn’t require federal subsidies.
There were challenges though. Postal employees are federal employees and receive federal pension and health benefits paid from the U.S. Treasury. So, the USPS needed to reimburse the federal government for these. But there’s more.
Prior to 1974, most firms, including the Post Office, only accounted for retirement benefits as they were paid. That caused problems in many plans such as mining, teamsters and thousands of small businesses.
So, the accounting gods changed their rules and further, in 1974, Congress created the Pension Benefit Guaranty Corporation to insure pension funds. By 2015, it had paid $5.6 billion to participants of failed single-employer pensions, ending that year with $164 billion in obligations and $88 billion in assets. And its ability to withstand a large pension failure today is questionable.
In this environment, Congress passed the 2006 Postal Accountability and Enhancement Act, and required the USPS to fully fund its plans for past and current employees over 50 years. Congress also threw in an arbitrary, first 10 years of onerous required prefunding payments.
The Congressional Research Service’s couldn’t find the reason(s) for the amounts of the annual payments while the Government Accountability Office (GAO) noted, “The retiree health benefits payment schedule ... was significantly frontloaded, with total payment requirements through fiscal year 2016 that were significantly in excess of what actuarially determined amounts would be.”
So, the first 10 years of payments were onerous and couldn’t always be met by the USPS. The flip side is, if the fund failed, the deficit would add to the national debt owed by civilians.
The plan was after 10 years the USPS will continue to make payments based on calculations that would consider current employees’ future benefits and the current fund balance. The target was to fully fund the plans by 2056.
OK, are we making money or not? Most discussions of this point devolve into debate over the pension payments. But that doesn’t matter.
In 2017, USPS revenue totaled $72.21 billion and expenses were $72.378 billion for a net loss of $2.742 billion, a decrease from 2016’s $5.591 billion loss.
In 2017, USPS revenue totaled $69.6 billion and expenses were $72.2 billion for a net loss of $2.6 billion, a decrease from 2016’s $5.591 billion loss. But, according to “U.S. Postal Service Reports Fiscal Year 2017 Results,” much of this loss is outside the control of management.
So, if we eliminated all “non-controllable expenses and income” items, we’d reveal the “controllable expenses” and see if there’s operating income or not.
Oh, the annual payment on the unfunded liability as calculated by OPM is one. That adds back $955 million, and if we ignored the gain in workers’ compensation liability resulting from gains in discount rates (adds back $1.362 billion), remove the previously calculated CSRS supplemental unfunded liability expense of $1.741 billion, as well as the FERS supplemental unfunded liability expense of $917 million, and add back the change in normal cost of retiree health benefits due to revised actuarial assumptions of $527 million. Whew.
If we did that, we show a controllable loss of $814 million, a reduction of 2016’s controllable loss of $1.4 billion but, still, a loss of $814 million.
So, does the USPS make money? No. Even if we disregard the onerous requirements made by the 2006 Postal Accountability and Enhancement Act, we still lose money. That’s the way I see it.