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USPS - Post Office Spends Itself $540M Further Into Debt

11 Feb 2018, 10:46

http://www.insidesources.com/post-offic ... 540m-debt/



The U.S. Postal Service continued to spend itself into debt by losing $540 million in the first quarter of 2018, according to a fiscal report Friday.

The post office releases annual and quarterly reports to highlight its budget and expenses. More recent reports have urged for legislative and regulatory reforms to address budget shortfalls. But critics contest that the real issue is mismanagement. The latest report adds to the billions of dollars that the post office has lost in recent years.

The first quarter report covers the final three months of last year starting Oct. 1. It found that a decline in mail deliveries were not offset by strong enough package growth – accelerating a decline in what are commonly viewed as the main sources of revenue for the post office. An increase in worker compensation expenses is also driving losses.

“These changes in revenue and expenses resulted in a net loss of $540 million for the three months,” the report states. “[That] compared to net income of $1.4 billion for the same period last year.”

The Taxpayers Protection Alliance (TPA) has warned over the years that the issues stem from a deeper structural problem – arguing that the business model has served large business interests, often at the expense of ordinary mail customers. Amazon and some other companies get partially subsidized on their package deliveries.

“It’s been kind of a crappy week for taxpayers,” TPA President David Williams told InsideSources. “We had that budget deal that increased spending and now we have the postal service at a $500 million loss. This was not unexpected. But at what point does the postal service start taking these losses seriously? When does Congress take this seriously?”

The report found that the loss in revenue was primarily driven by volume declines in First-Class and Marketing Mail, increased retiree health benefits expenses, and higher transportation expenses. Williams warns that decline in First-Class Mail is a huge problem.

“That decline in First-Class Mail,” Williams said. “That should be just freaking everyone out at the postal service. We know they lose money on Amazon packages. We saw that almost a year ago when that report came out that said they subsidize each Amazon package by about $1.50. Now their cash cow is dying; First-Class Mail.”

The report found that revenue from First-Class Mail decreased by $309 million – with Marketing Mail falling by $248 million. Williams notes that all these factors together point to serious structural problems within the postal service.

“If we saw declines in First-Class Mail and there wasn’t a loss, then maybe there is something else good going on at the postal service,” Williams said. “But we’re seeing a $500 million loss. I think that’s really the top line story here. Their core business seems to be eroding.”

The report also found that operating expenses were $19.7 billion at an 11 percent increase over the year. That increase was largely driven by worker compensation expenses increasing by $1.4 billion. There were also increases in unfunded retirement benefit costs at $293 million – alongside retiree health benefits expense at $210 million.

The U.S. Postal Service has been hemorrhaging funds for several years with over $121 billion in debt and unfunded liabilities. The last annual report marked the 11th year in a row that the post office had a multi-billion dollar loss. The postal service has blamed increased labor costs, retirement benefits, and a lack of statutory flexibility over the years.

“In general the trend isn’t good,” Capital Policy Analytics President Ike Brannon told InsideSources. “They’re not doing a whole lot to get their expenses down. It’s just hard to see how they’ll get a lot more revenue. It just seems like there is no viable long-term plan to do this anymore.”

The postal service reported a net loss of $2.7 billion last year and a net loss of $5.1 billion for fiscal year 2015. It also reported a $5.5 billion loss in the year before that. The reports in past years have also put blame on issues ranging from legislative burdens and statutorily-mandated payments.

Congress and postal service management both have a role to play in fixing the budgetary problems. The post office can only enact so many reforms before interfering with congressionally-mandated restraints. Lawmakers have pursued reforms like a pending bill that includes several changes like giving the post office more control over pricing.

Williams notes that lawmakers and the postal service both share blame for not addressing fundamental problems. He adds there are several solutions the postal service could explore – like better financial transparency, a shift in focus back to primary responsibilities, and scrapping Saturday deliveries.

“First and foremost you have to get rid of Saturday delivery,” Williams said. “They need a board of governors, they need a full board of governors with folks on there who have financial experience that aren’t just yes men or anything like that. We need a board of governors at the postal service and we need a Congress that isn’t afraid of their shadow.”

Williams adds that the post office expanding more into nonessential services is problematic – since it takes resources and time away from where the focus should be. The postal service has faced increased scrutiny in recent years for expanding its services beyond mail delivery.

Williams admits that scrapping Saturday delivery could be a challenge given the political pressures that lawmakers might face. But he argues that one change alone could be significant with an estimated $2 billion in savings annually. Brannon isn’t optimistic the fundamental changes that are needed will be happening soon.

“I think the post office certainly doesn’t want to make difficult decisions that are going to anger their workforce and unionized workers,” Brannon said. “They don’t want to do anything that will anger the people they deliver mail to. And Congress doesn’t want to make a hard decision either.”

Congress has expressed interested in addressing the financial challenges the post office has been facing. Lawmakers have held hearings and drafted legislation in the hopes of finding a way to fixing the problems. Brannon, however, argues that lawmakers have shied away from solutions they should enact.

“Every time they come up with something that seems like an okay solution, like stop delivering Saturday mail, which seems like a very good idea, Congress steps in and says no,” Brannon said. “Closing the post office these days seems very difficult.”

The U.S. Postal Service could be headed for a taxpayer-funded bailout if the budget shortfalls aren’t fixed. The pickup in interest in recent years has been partially due to concerns over a bailout. Lawmakers and policy experts have warned about the possibility and the massive cost.

“The fact of the matter is this could become a taxpayer-funded bailout,” Williams said. “If this keeps going the way it’s going taxpayers are going to be on the hook.”

InsideSources found in an internal survey of postal employees in 2016 that the workforce is deeply dissatisfied with the direction of the organization.


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