USPS ability to remain self-funding “questionable” says Congressional report
The US Postal Service is still facing the prospect of having insufficient funds to continue operations, despite its cost-cutting efforts over the last few years, and its improving revenue. That is the conclusion of a new report from the Congressional Research Service, the public policy research arm of the US Congress.
With postal reform bills continuing to float around Capitol Hill with no guarantee of landing, the report out yesterday stated firmly that without legislative change, the US Postal Service will need to continue its debilitating deferral of much-needed infrastructure investments and start to decide who it will pay, and who it will not.
“Congress designed the USPS to be financially self-supporting. The agency’s ability to remain financially self-supporting over the long-term is questionable,” said the CRS.
The US Postal Service was actually debt-free in 2005, during a period when it was making “modest” profits. The federal agency went into the red in the 2007 fiscal year, and since then has lost $45.6bn because of the dip in the US economy and the long-term loss of volumes from the highly-profitable First Class Mail service.
Much of the losses have also come from the agency’s Congressionally-mandated obligations to fund its retiree healthcare costs many years into the future. That fund currently has $48.5bn sitting in it, which USPS cannot legally touch until 2017. USPS has obligations to pump an additional $48.3bn into the fund, but in recent years has defaulted on $16.7bn worth of payments because of its lack of liquidity in the rest of the business.
Operational losses worsened by the 21.7% drop in mail volume in the decade to 2013 saw USPS reach its legal borrowing limit of $15bn in October 2012.
Since then it has avoided bankruptcy by certain accounting measures such as draining completely its Competitive Products Fund, which is designed to contain revenues from USPS competitive products and pay out operational expenses for those services, while paying the equivalent of federal income tax on those services to support the universal postal service.
The current shortage of cash at USPS means it does not have the funds to invest in the long-term health of its infrastructure, or replace thousands of delivery vehicles coming to the end of their lives
In the last full financial year, up to September 2013, the Postal Service saw its revenues rise by $1bn compared to the year before, but expenses rose higher, by $1.4bn.
Of its $67bn in revenues in that year, $53.5bn (79.5%) came from monopoly postal products and services, the report stated, adding that this was about the same as in the previous year.
In the year so far, revenue has grown compared to the 2013 fiscal year.
Profitability has been affected by the USPS obligations to pay billions each year into its retiree healthcare benefits fund, and its decision to default on $16.7bn of payments so far. The CRS report, which notes that USPS plans to forego on this year’s $5.7bn payment as well, suggests that USPS would have been profitable each year back to 2004 without its retiree health benefits obligations, except for the four years up to fiscal year 2012.
In the last few years, as well as working to build revenue in growth areas like e-commerce shipping, USPS has been working to cut its operational expenses toward its revenue level. This has included the downsizing of its mail processing plant network from 675 plants in 2006 to 320 now, with plans to shut 82 more plants next year.
Nevertheless, the CRS report said expenses at USPS have not fallen quickly enough to put the agency on a more sustainable financial course.
The situation has left USPS with enough cash reserves to maintain operations for less than a month at current operating costs. And, any downturn in the US economy could see even this limited liquidity dry up completely.
“With no further borrowing authority the USPS could find itself with insufficient funds to continue operations, leading to a need for payment prioritisation and the continued deferral of capital and infrastructure expenditures,” the report stated.
Revenue trends may also indicate a long-term weakening in demand for the Postal Service’s current products and services, the report said.
To prove successful, legislative reforms would have to improve the Postal Service’s short-term liquidity problem, make “appreciable” changes to USPS revenues or operating costs, and help USPS to reduce its debt.
Reforms would also have to help USPS to pay its retiree health benefit liabilities, the report suggested.