The third quarter of FY2017 saw a $2.1 billion loss for the Postal Service, including $587 million in “controllable losses”. Higher transportation costs accelerated controllable costs. They don’t include their mandatory payments to pre-fund healthcare expenses for future retirees as a controllable expense, which made up the bulk of its remaining losses.
This is a significant increase over last year. Revenue in this quarter stayed about the same as it did this time last year, at $16.7 billion.
Declining Mail Volume and Shipping Business
Increased losses came from declining mail volume, which is being replaced with costlier shipping businesses. First class mail revenue fell by nearly 7 percent. The agency must gain $2 in shipping revenue to offset every $1 in lost mail revenue.
Postmaster General’s Statement
Postmaster General Megan Brennan noted that the USPS’ pricing system is “fundamentally unsuited” for the current market because it fails to account for changes in volume/cost. She said, “Our financial situation is serious but solvable. The continuation of aggressive management actions and legislative and regulatory reform will return us to financial stability and enable the Postal Service to maintain the long-term affordability of mail, invest in America’s mailing and shipping industry and best serve the American public.”
The National Association of Letter Carriers noted that USPS would have turned a profit of $1.5 billion if the Postal Regulatory Commission hadn’t forced them to roll back an emergency price hike instituted in 2014. That was only the second time ever, and the first time in 97 years, that the agency decreases the price of stamps.
“Addressing these external financial burdens would allow USPS, which is based in the Constitution and which enjoys broad public and political support, to continue providing Americans and their businesses with the industrial world’s most affordable delivery network,” said NALC President Fredric Ronaldo.
PRC’s Upcoming Review
The PRC, an independent panel that oversees USPS, will conclude its 10-year review of the Postal Services rate setting system soon. They will likely give postal management freedom to raise the cost of postage stamps beyond the rate of inflation. A final decision is expected next month. Postmaster General Brennan said, “we’re clearly looking for the PRC to establish a new pricing system for us. From a financial perspective, the Postal Service continues to face strong financial headwinds.”
She also said, “This year, we’re seeing an acceleration in first class volume decline, so this dynamic puts even more financial pressure on the organization, given that our first-class mail pays our bills and defines our network requirements.”
Future Retiree Health Benefits Default
The agency also warned it will likely default on $6.9 billion in future retiree health benefits for the fifth year in a row. According to a Government Accountability Office report, the USPS has more than $120 billion in unfunded liabilities, mainly for retiree health and pension benefits. That same report also said that if Congress expects the Postal Service to pay for the same level of benefits for its retired employees, it ultimately puts American taxpayers at risk of needing to bail out the organization.
“Large unfunded liabilities for postal retiree health and pension benefits—which were $78.9 billion at the end of FY2015—may ultimately place taxpayers, USPS employees, retirees and their beneficiaries, and the USPS itself at risk. If GAO wants these benefits to be maintained at current levels, funding from the U.S. Treasury, and hence the taxpayer, would be needed to continue the benefit levels. Alternatively, unfunded benefits could lead to pressure for reductions in benefits or in pay. Thus, the timely funding of benefits protects USPS employees, retirees, beneficiaries, taxpayers, and the USPS enterprise,” GAO said.
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