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Home Publications Blogs Beat the Press Background on the $15.9 Billion Loss by the Postal Service

Background on the $15.9 Billion Loss by the Postal Service

Thursday, 07 February 2013 06:30

The Washington Post, along with most other news outlets, reported without comment that the United States Postal Service (USPS) lost $15.9 billion last year. Some comment would have been appropriate since almost 70 percent of this shortfall is due to a payment of $11.9 billion to the postal workers' retiree health fund.

This is noteworthy because Congress has required that the Postal Service prefund its retirement fund at a level that has no match in the private sector. It also mandated that it build up to its targeted prefunding level in just 10 years making the burden much greater. In addition, the USPS is required to invest these funds, as well as its pension, exclusively in government bonds. In contrast, private sector competitors like UPS invest largely in equities which provide a much higher return on average. The result is to place an enormous burden on the Postal Service putting it at a serious competitive disadvantage. (Here's more on this one.)

Congress has put the Postal Service in an impossible situation. It has imposed restrictions, like the requirement that all assets in its pension and retiree health fund be invested in government bonds,that substantially raise its costs relative to competitors. It has also prohibited USPS from getting into new lines of business that take advantage of its resources in order to protect private sector companies from competition. However it still expects the USPS to be run at a profit.

Clearly the Post Service would face difficulties in any case as technology has led to a shift away from first class mail, the system's main source of revenue. However the restrictions that Congress imposes makes it impossible for USPS to adjust to changing economic conditions.

Comments (13)Add Comment
post office loss and constitution
written by rnemo2, February 07, 2013 5:58
Clearly the Republicans, at the behest of UPS and FED EX, wrote the law that forces the post office to remand an excessive amount into their pension fund so the PO will fail and leave a vacuum for privatization.

My question to you Mr. Baker is how can they shut down an agency that is in the constitution? It is the only one.

Look forward to your take on this pathetic Republican generated episode.
written by Mark Jamison, February 07, 2013 7:30
It's even worse than you report. The two primary pension funds for retirees are actually overfunded by several billion dollars and that doesn't take into account the a discrepancy in accounting that may make one fund overfunded by $55 billion.
The payments in question are to the retiree health benefit fund and were set up primarily as a budget scoring device to make the 2006 PAEA deficit neutral. That fund currently has $44 billion and the Postal Service does not even access it to pay retiree health benefits which are about $2.5 billion/year. Those payments are made from current revenues.
The losses look even less egregious if one looks at how the Postal Service must account for Workman's Comp through the Department of Labor. Those costs exceed $2billion a year above actual liabilities.
In 2002 the BOG along with PMG Potter published a Transformation Plan that pushed for five day delivery, reduction in post offices, a relaxation of the universal service obligation, and generally a move towards either a privatized or fully independent postal entity.
The current management of the Postal Service and Congress have used the economic downturn to manufacture a crisis to take them where they want to go. Pitney Bowes recently sponsored a white paper that is under consideration by NAPA (an organization full of Pete Peterson devotees like David Walker)which endorses a privatized model of the Postal Service.
The media has done a universally bad job of reporting on this and the editorializing (for example in NYT today) is even more misinformed.
it really is the fault of the congress
written by Jennifer, February 07, 2013 8:21
this is terrific story about the conflicting visions within the postal service.
Even with the digital changes that have occurred this does not have to make the postal service obsolete, remember how libraries were supposed to be doomed? It's really hard not see a deliberate campaign to destroy postal service as public entity- disguised as an inevitable outcome due to incompetence and choices made by the population.
Snail Mail is Catching Up to Email With Higher Prices and Lower Quality
written by Last Mover, February 07, 2013 9:07
Actually this is a success story along the lines of high speed internet service in America that costs several times that of other developed countries with much lower quality.

When first class postage rate for the first ounce of a letter reaches $5.00 and is delivered only one day a week, USPS can claim its price and quality for snail mail has attained that of American internet email.
written by watermelonpunch, February 07, 2013 9:09
The U.S. Postal Service, when all is said & considered, has been a great success story.
It's egregious that the reality of the situation is ignored by a lot of media.
INCLUDING international media!

Last night on NHK World Newsline, they reported on this, blaming all of the USPS financial woes on "internet billing".

I wonder how long any of the commercial delivery companies would stay in business if they were suddenly required not only to provide pensions, but also to fund them for employees not yet born???

The other thing I wonder is how many businesses (particularly small businesses) lose a lot of money because they're not considering the USPS.

I used to work somewhere a few years back, where I had to regularly ship things, from huge equipment requiring dedicated tarped flatbed trailer trucking, to tiny packages of less than a pound. Hands down, the USPS was almost always a lot less expensive for small and/or light packages, and by quite an amount of savings.
Apparently a lot of commercial delivery companies are not even interested in some of those types of shipping - and deliberately charge more to make up for them "not profitable enough".

One person working for one commercial shipping company, when I asked about the bizarre pricing, actually said they'd rather discourage tiny light packages, because they do not fit in with the mass processing system designed for the mostly large & heavy items that make up the majority of their business.
Having been at my local processing center of this company, and seeing the rough & tumble handling process there, that explanation made perfect sense.
daily mail is insane, Low-rated comment [Show]
written by Lex, February 07, 2013 10:34
NPR devoted fully eight minutes to the end of Saturday delivery yesterday afternoon, including a live interview with Sen. Susan Collins, R-Maine, without once mentioning the pension situation. I immediately emailed the ombudsman and ripped them a new one, not that that will change much.
written by PeonInChief, February 07, 2013 11:11
Supporters of private mail delivery have been going after the postal service for, oh, about a hundred years. What they never tell you is that private postal services sell into the government service when it's convenient for them. Check the tracking on your FedEx parcel sometime, and you'll find that the final leg of its journey is via the local letter carrier. That's because it costs a lot of money to deliver to suburbs and rural areas. Those routes are left to the government service.
written by JP, February 07, 2013 6:29
As a micro, by most standards, small business owner I can directly attribute our continued yearly growth and expansion of our customer base directly to the Priority mail shipments we now use in place of the UPS/FedEx service we automatically used for over 25 years. We now use USPS Priority Mail whenever possible and the result is lower costs, faster delivery, less damage, less loss and better customer relations.
We spend about 60K/year on shipping and the vast majority of that goes to the USPS and it is not just a cost of doing business, it is now an important part of our customer acquisition and sales completions. When we can deliver a product, time sensitive, in 2-3 days for a fraction of what our customers are used to paying via UPS/FedEx for the same service, our sale is made. We have customers giving us credit for the outstanding service and we are more than happy to remind them that it is not us, but it is the USPS that allows us to get them what they need so quickly and inexpensively.

Our customers become our salesmen. Our customers have proved to me that word-of-mouth is the best advertising and they DO communicate when they like both the product and service. The USPS service is a key part of our growth.
written by liberal, February 08, 2013 8:30
JP wrote,
We now use USPS Priority Mail whenever possible ...

Frankly, it irritates the hell out of me that such a large fraction of web commerce sites don't have a USPS option.
written by Mcmike, February 08, 2013 9:02
Orwellian upside down land to be sure with respect to pensions - height of GOP hypocrisy. But there's more.

Congres won't let them run it like a business; blocking attempts to cut costs such as Saturday delivery or close money losing rural offices.

Epic farce. Criminal really.

But it is an effective government program, like social security, and profit cronies want their hands on the market, so it must be killed. Education is next, along with water/sewer.
written by trish, February 08, 2013 11:15
this seems mostly about the insidious push for privatization of anything and everything in govt by our corporate hack revolving-door elected and appointed "public servants." and our mainstream corporate press- NYT, NPR, WP- has been useless (stupid and gullible, or complicit?)
Petitions to address postal service problems
written by Jen, February 12, 2013 9:13
There are two petitions here to address the problems the USPS is facing. Sign one or the other or both, and share with everyone you know. 150 signatures are needed to make petitions publicly viewable.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.