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

Data is updated nightly.

Cases: 751826

Reported Deaths: 13811
CountyCasesDeaths
Marion1033581790
Lake557861011
Allen41721692
St. Joseph37001565
Hamilton36612417
Elkhart29416461
Tippecanoe22926227
Vanderburgh22559400
Porter19364326
Johnson18481389
Hendricks17692317
Clark13231195
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Vigo12629253
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Monroe12219176
Delaware10969198
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Warrick7862156
Floyd7814180
Grant7246179
Wayne7165201
Boone6976103
Morgan6764141
Dubois6222118
Marshall6211116
Cass6023110
Henry5903110
Dearborn589878
Noble581688
Jackson509476
Shelby502296
Lawrence4749122
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Clinton443255
Harrison441775
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White332453
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Greene286885
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Scott270156
Clay267148
Washington246236
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Starke228058
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Fulton203443
Jay201032
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Brown104443
Benton102514
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Union72810
Ohio57911
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Ohio Coronavirus Cases

Data is updated nightly.

Cases: 1109374

Reported Deaths: 20213
CountyCasesDeaths
Franklin1288561469
Cuyahoga1158492216
Hamilton814161251
Montgomery525741049
Summit484431006
Lucas43380824
Butler39066606
Stark33348930
Lorain25690506
Warren24607305
Mahoning22383602
Lake21216389
Clermont20133253
Delaware18873136
Licking16668225
Fairfield16582204
Trumbull16559483
Medina15615273
Greene15289248
Clark14240306
Wood13296200
Portage13251216
Allen11916239
Richland11610211
Miami10857225
Wayne9147225
Columbiana9038230
Muskingum8908135
Pickaway8663122
Tuscarawas8654251
Marion8646139
Erie8058165
Ashtabula7171179
Hancock6998133
Ross6946163
Geauga6843151
Scioto6536106
Belmont6159174
Union584849
Lawrence5739102
Jefferson5681159
Huron5550122
Sandusky5444126
Darke5420129
Seneca5350128
Washington5323109
Athens524360
Auglaize502287
Mercer487585
Shelby477095
Knox4573112
Madison444566
Ashland435897
Putnam4335104
Defiance432399
Fulton432174
Crawford4045110
Brown402561
Logan387678
Preble3858105
Clinton379166
Ottawa373581
Highland359966
Williams348478
Champaign344959
Guernsey325254
Jackson318354
Perry297350
Morrow291840
Fayette285550
Hardin275565
Henry273667
Holmes2703101
Coshocton269260
Van Wert247264
Adams243256
Pike242835
Gallia240850
Wyandot234756
Hocking220663
Carroll197448
Paulding176642
Meigs148540
Monroe136345
Noble136239
Harrison114138
Morgan110024
Vinton85717
Unassigned03
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