Results are in for the latest fiscal year, and the financial situation does not look good for the U.S. Postal Service.
Costs are higher than expected, and revenues are lower. Mail volumes have fallen, reducing profits in the Postal Service’s monopoly-protected business of last-mile delivery. Instead of working for efficiencies in that area, management has turned to side businesses to bolster revenues — with, at best, mixed results.
These side businesses can look good on the accounting books because they, in essence, use government equipment, manpower and vehicles to further private aims. But the Postal Service’s books do show those items, particularly the higher labor costs needed to service those side businesses, and the hit to the bottom line is devastating, particularly when benefits and pensions are figured in.
The above may sound like an accurate picture of the current lay of the land, but it actually comes from a report from the Lexington Institute in 2002.
The difference between the 2002 report and the Postal Service’s release in recent days of its fiscal 2015 results lies more in scale than substance. In 2002, the Postal Service expected to lose $2 billion, according to the Lexington report, and already was $520 million ahead of that pace.
In 2015, the Postal Service lost $5.1 billion and now has lost more than $51 billion since 2007. It claimed a 1.6 percent increase in revenues to $68.9 billion, but, for the fourth straight year, did not pay a penny of its legally required prefunding of retirement benefits.
Mail volume declined by 2.2 percent to 154 billion pieces, but revenues from its package delivery and logistics side businesses climbed by 14.1 percent.
In other words, if the Postal Service’s approach to returning to fiscal health was going to work, it would be working right now. It has realized as many efficiencies as the market will bear on its monopoly business of last-mile mail delivery and plunged into side businesses from coast to coast and beyond to right its financial ship.
On the mail delivery side, it has closed 140 mail centers and 3,000 small post offices, reduced career employees by a third and relaxed delivery standards, only to do worse against the new goals than it ever had against the old ones.
Meanwhile, its shipping and packaging businesses, which were expected to put the Postal Service back in the black for the first time since 2007, have increased revenue by one-seventh in a year’s time.
Yet, the Postal Service continues to lose massive amounts of money. And the $5.1 billion probably understates the problem since more than half the costs of both mail delivery and the side businesses falls under a category known as “overhead expenses.”
No regular business could operate like this. No regular business could co-mingle assets between a monopoly-protected concern and a competitor in the free market without raising concerns of regulators.
But then, no regular business realizes $14.1 billion per year in fiscal gains by paying no property taxes, sales taxes or motor vehicle licensing and registration fees on its more than 210,000 vehicles. It does pay a 35 percent federal tax on income from its competitive-market products, but the law specifies it pay these taxes to itself.
“At the heart of the problem is the fact the Postal Service leaves nearly half of its total operating costs assigned to “institutional overhead,” not attributed to any specific product offerings,” wrote Dan Soifer of the Lexington Institute. “This allows the Postal Service to strategically lower prices to gain business in the growing online shopping market, a strategy its executives believe can save the agency. But with the likelihood that it is losing money on its growing package business, the results could multiply losses disastrously.”
The Postal Service has received a lot of good advice on this over the years. Stick to your core business, on which you have a monopoly, and focus on delivering the mail as efficiently and profitably as possible. Clean up your accounting system both to improve transparency and efficiency and to better assess growth opportunities. Adjust to market challenges as quickly and responsibly as possible. Those recommendations are in that 2002 report and more current ones as well.
But it’s hard to be hopeful when one sees the Postal Service’s latest report, which cries out for “legislative reform” but admits its controllable expenses — those that reflected management decisions — went up $1.3 billion from last year.
It was a “combination of factors,” the Postal Service says, including “higher compensation costs,” including for benefits, and “additional work hours partly associated with growth in the more labor-intensive shipping and package business.”
In other words, what is driving the Postal Service toward what is beginning to seem like an inevitable massive taxpayer bailout is the businesses its management has entered to try to save it. It’s time to cut our losses before they can’t be papered over anymore.
McNicoll is a conservative columnist and freelance writer based in Alexandria, Va. He has worked as a newspaper writer, editor and columnist, as a senior writer for The Heritage Foundation and as director of communications for the House Committee on Oversight and Government Reform. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.
