The Postal Service may need a bailout. But it's actually making tons of cash

The House of Representatives on Saturday approved legislation for a...

Posted: Aug 24, 2020 5:32 PM

The House of Representatives on Saturday approved legislation for a bailout for the US Postal Service, which, on paper, has been posting huge losses for years. But in reality, the agency is generating billions in cash.

Virtually all of the agency's financial problems stem from a unique, arcane accounting system that no other business or government body follows and that doesn't accurately reflect real costs. ("Utterly absurd," as one lawmaker calls it.)

The financial problems have nothing to do with the expected surge in mail-in ballots for the election in November. And they are certainly not because of its contracts to handle delivery of Amazon packages, no matter what President Donald Trump claims about losses on those deliveries. Postal law, and investigations of those contracts, have confirmed that the USPS makes money on the contracts it has with Amazon and other major shippers.

The USPS booked positive cash flow of nearly $2 billion in the nine months ending June 30, up from $1.3 billion in the same period a year ago. It had positive average annual cash flow of $3 billion over the previous three fiscal years.

That positive cash flow came despite a large reported net losses — $7.5 billion the most recent nine months, up from a net loss of $5.9 billion in the year earlier period.

It is true that there has been a continual decline in traditional first class letters over recent years, as bills and payments shift from traditional mail to online. But even with the drop in revenue and volumes from traditional letters, the USPS makes money on that business.

The decline in letter volume has been more than made up by increased package shipments, as consumers make more purchases online.

Cash positive doesn't mean profitable

Cash flow and profits are not the same thing. Profitability factors in the costs of doing business, and in the case of the Postal Service, those costs are significant.

The biggest drag on its finances is a unique rule that requires the USPS to prepay for workers' retirement benefits for decades into the future. In 2006, Congress passed a law to require the the agency to pre-fund 75 years worth of retiree health care benefits in the span of about 10 years.

"There's no other entity on Earth that does anything like that. When I talk about it, people say it's utterly absurd," said Rep. Peter DeFazio, the author of legislation that would remove that requirement. The legislation, which the USPS supports, has passed the House with bipartisan support, and a Senate version also has bipartisan sponsors, but no vote has been scheduled yet.

The rule took effect in 2007, just before the start of the Great Recession, when the Postal Service was still reporting profits. But the economic downturn hit hard and made the payments unaffordable.

It's true that no other unit of government or private company that provides retiree health care coverage has to make such pre-funding payments. And in recent years, the USPS has not made the required payment, citing a lack of available cash.

Taking charges for theoretical payments

Here's where it gets really absurd.

Even though the USPS hasn't been making those payments, it continues to book the theoretical cost as an expense — $16.8 billion since the start of the 2017 fiscal year. That accounts for most of the agency's reported losses.

Retirees are still covered because the USPS made payments in the past. As of September 30, 2019, the balance of the retiree health benefits fund was $92.2 billion, with interest on the holdings covering most of the actual premium costs it made.

The cost of retiree health care coverage is further inflated by the fact that only 74% of the nearly 500,000 retirees and their family members covered by those policies are fully enrolled in Medicare. Instead they use the USPS health care policies as their primary insurance, rather an as supplemental insurance.

Nearly all private sector and government employers that provide retiree health benefits require full participation in Medicare, said Megan Brennan, a former postmaster general, before a House committee last year.

If the USPS would require full Medicare participation, it would eliminate about 90% of the USPS unfunded retiree health care costs — about $33.5 billion — over 10 years, she told lawmakers.

In addition to retiree health care costs, workers' compensation is another hypothetical cost weighing on USPS finances. Since October 2018, it has booked about $4 billion in costs above what it is actually having to pay to cover the cost of on-the-job injuries or deaths suffered by postal workers.

Should USPS be trying to make a profit?

Beyond the question of bookkeeping and accounting rules being responsible for most of the losses, there is the question of whether or not USPS should be making money.

Most people don't realize that the service typically runs without any taxpayer subsidies, despite being a part of the government that goes back to before the revolutionary war.

"This is the Postal Service. It's not the postal business," said DeFazio. "It doesn't need to make money." He said if it wants to maximize profits it would hurt many Americans, particularly in rural areas that are expensive to serve.

"UPS and FedEx depend on Postal Service to go where they don't want to go," he said. "If you wanted to run it as a business, you'd eliminate the least profitable routes, you'd cut out all of rural routes. There's no substitute for the Postal Service for much of the country."

Indiana Coronavirus Cases

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Cases: 613228

Reported Deaths: 9728
CountyCasesDeaths
Marion846851338
Lake45676687
Allen32980552
Hamilton29649315
St. Joseph27531382
Elkhart24478345
Vanderburgh19610250
Tippecanoe18108141
Johnson15191295
Porter14944169
Hendricks14485250
Madison11044222
Clark10811144
Vigo10795181
Monroe9458113
Delaware9170134
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Kosciusko810183
Warrick680299
Hancock6782104
Bartholomew6640100
Floyd6507110
Wayne6177162
Grant6027116
Dubois558680
Boone556468
Morgan548695
Henry511464
Marshall506984
Cass486964
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Noble475659
Jackson427747
Shelby420781
Lawrence393780
Clinton375044
Gibson374459
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Greene242262
Posey241028
Wells236951
LaGrange230062
Scott226839
Clay224332
Randolph215248
Jennings200636
Sullivan193533
Spencer193022
Washington188023
Fountain184927
Starke176444
Jay168623
Owen167637
Fulton164830
Orange160935
Carroll159715
Rush156318
Perry155929
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Parke13088
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Pulaski97837
Newton92021
Brown88335
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Martin74913
Warren6857
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Union6297
Ohio4977
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Ohio Coronavirus Cases

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Cases: 868656

Reported Deaths: 10768
CountyCasesDeaths
Franklin102154707
Cuyahoga865201153
Hamilton64744448
Montgomery43516419
Summit35250762
Lucas31663631
Butler31268232
Stark26096443
Warren19830142
Lorain19296229
Mahoning17471339
Lake16250154
Clermont16128112
Delaware1453680
Licking13326137
Fairfield1294981
Trumbull12920317
Greene12174141
Medina11732168
Clark11058265
Wood10457158
Allen9988127
Portage9454111
Miami924473
Richland9236118
Marion7486113
Tuscarawas7440183
Columbiana7409124
Pickaway732150
Wayne7111172
Muskingum710342
Erie6221130
Ross5558100
Hancock555292
Scioto542764
Geauga515955
Darke473492
Lawrence460658
Union456928
Ashtabula456473
Sandusky439562
Mercer435089
Seneca433866
Huron432841
Auglaize424164
Shelby422522
Jefferson422469
Belmont421145
Washington394240
Athens38389
Putnam378075
Madison358129
Knox356122
Ashland349038
Fulton340443
Defiance334486
Crawford325774
Preble322737
Brown315821
Logan312132
Ottawa296543
Clinton291543
Williams280367
Highland279018
Jackson265845
Guernsey257126
Champaign253428
Fayette239530
Morrow23464
Perry233718
Holmes226774
Henry221953
Hardin215533
Coshocton206922
Van Wert203445
Gallia199826
Wyandot196751
Pike178017
Adams177715
Hocking173224
Carroll157616
Paulding145321
Noble121040
Meigs109724
Monroe102232
Harrison89921
Morgan83931
Vinton71314
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