Is the Postal Service Really Broke?

The U.S. Postal Service would be in Chapter 11 if it were a business, the Postmaster General points out, but others claim he and some political conservatives are manufacturing a crisis.

There has been much debate and confusion regarding USPS’s financial status. It helps to break the issue down into three questions:

Question #1: Is the Postal Service broke?

This is a debatable point, though the Postal Service’s financial reports show that it is indeed broke and about to exhaust its ability to borrow.

Those who say USPS’s finances are OK point out correctly that it has prepaid billions of dollars to the federal government to cover future retirees’ health benefits and overpaid billions more into a joint federal/USPS pension fund. A Congressional accounting game designed to mask the size of the government’s budget deficit basically has the Postal Service borrowing billions of dollars each year so that it can turn around and lend billions back to the government in the form of prepaying into the retiree-benefits fund.

Business-style accounting would treat that $21 billion loan to the federal government as an asset, giving USPS about $2 billion in net capital at the end of Fiscal Year 2011 rather than the -$19 billion net value it reported.

Then again, a real business would never allow so much money to be loaned at no interest to a debtor that has the power to change or cancel the repayment terms unilaterally. Nor would it have allowed billions in overpayments to the pension fund over the course of many years.

So the answer to Question #1 is basically that yes, the Postal Service is broke but also that it has a moral, if not legal, claim on enough funds to wipe out its deficit.

Question #2: Is the Postal Service losing money?

Yes, but again the situation is not as clear as the financial statements would indicate.

In the past five years, USPS deficits totaled $25 billion, but $21 billion of that was from the prepaid retiree health costs – a burden that no other public or private employer faces. That, coupled with the pension overpayments, has led postal unions to claim that the Postal Service is in fact not a money loser but rather is being bled dry by the federal government.

It’s true that, if not for the prepaid retiree benefits, USPS would have been profitable in 2007, 2008, and 2009. The past two years, however, would have been unprofitable even without that burden.

Fiscal years 2010 and 2011 would have been in the black if both the prepayments had been eliminated and the pension overpayments had been returned. But using a one-time windfall (return of the overpaid pension funds) to balance budgets isn’t sustainable in the long run.

That leads us to the third question:

Question #3: Is the Postal Service going broke?

Let’s put it another way: If Congress corrected the shenanigans involving retiree benefits and pension funding and no other significant changes were made, would the Postal Service still be headed for insolvency?

Yes.

Mail volumes, especially of highly profitable First Class Mail, seem almost certain to continue their long-term decline. Unless something changes, revenue will keep decreasing more rapidly than costs.

You can debate the numbers and projections, but sooner or later tough choices have to be made about the Postal Service’s cost structure. That doesn’t mean we have to accept Rep. Darrell Issa’s plan to put USPS through a sort of Chapter 11 restructuring that would cancel its union contracts and set up more regulatory oversight.

You don’t have to be a Tea Partier to acknowledge that the Postal Service has more distribution centers, more post offices, more employees, and more supervisors supervising supervisors than it needs.

And acknowledging those facts doesn’t mean negating the obligation to treat USPS employees decently and fairly. (After all, judging from what I hear and read, many postal workers already get plenty of abuse at work.)

Still, we can’t hide from the truth: The patient is sick, and the cure won’t be easy. Those of us who want to maintain a viable postal service must decide: Would we rather swallow some bitter medicine today or face Dr. Issa’s amputation saw tomorrow?

Related articles:

• Why Are the Postal Service's Financial Problems Such a Surprise? Dead Tree Edition pointed out more than two years ago that Congressional inaction would lead to a financial crisis at the Postal Service. But we also incorrectly predicted Congressional proposals to let USPS run a national lottery.
• Congress Hears the Truth About Postal Service Finances The USPS Inspector General explained how "burdensome and flawed benefits payments" put the agency in a hole.
• It's Time for Liberals To Rethink USPS Downsizing Some interpreted this article to be advocating a certain position merely because the son of a man took that position. But the point is that a man with good liberal credentials and intimate knowledge of USPS's finances is pushing to shrink the agency.