Background on the $15.9 Billion Loss by the Postal Service

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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.