Why is the Postmaster General Understating Postal Revenue Gains?

In a May 9, 2014 press release, the Postal Service issued another quarterly press release turning an operating profit (of $261 million) into a loss. The supposed loss, an accounting fiction, was caused entirely by the 2006 law which generates a long-term loan to the Federal treasury, under the guise of “pre-funding” employee benefits.

In fact, the Postal Service is making a $1 billion operating profit in the first six months of its fiscal year. In their own press release in response, the National Association of Letter Carriers pointed out that the Postal Service has been turning an operating profit since October of 2012.

But the USPS release included this apparent misstatement: “’revenue…was up $379 million over the same period last year — the third straight quarter of revenue increase,’ said Postmaster General and Chief Executive Officer Patrick Donahoe” (underlining added).

The Postal Service has actually been reporting revenue increases for five straight quarters, dating back to January 1, 2013 (see below). So why is Postmaster General Donahoe minimizing that winning streak? Perhaps someone in Postal HQ’s statistics department was snoozing that day.

But there is a more disturbing explanation, that is consistent with the Postal Service’s “doom and gloom” reporting of its finances.

Over the last few years, faced with falling revenue, postal management has closed post offices, slashed rural office hours, sold historic buildings, cut jobs, and consolidated processing plants. It continues to seek closings and service cuts, such as eliminating Saturday delivery; but some of these moves have been delayed or curtailed by pushback from the public, from employees, and from legislators.

More recently however, postal finances have improved. Cash on hand increased from $2.3 billion to $3.7 billion over the last two quarters. Despite that, postal management has continued its campaign to impose austerity on the public (e.g., ending door-to-door delivery), and its employees (such as current efforts to privatize its trucking arm and shift retail work to Staples). Its biggest weapon has been the persistent “we’re losing billions” message.

So it appears more than suspicious that the PMG’s press release minimizes postal management’s own reports of increasing revenue over the past five quarters.

The persistent and misleading press releases about losses in the billions has also allowed right-wing commentators to paint a picture of the Postal Service as a failing business, even going so far as to call for privatization. But more importantly, they have the effect of drumming into the public, as well as employees, that drastic measures are called for, and there is no use in resisting.

In fact, postal reform is needed, but not the slash-and-burn kind. Postmaster General Donahoe is apparently marching to the tune of big mailers, who want a streamlined network of postal facilities, without the costs imposed by the postal mandate of prompt and efficient universal service.

A postal management that took social values to heart, instead of corporate ones, would look to strengthen the Postal Service, not shrink it. Postal banking, for example, with a long history here and overseas, could provide valuable financial services to underserved areas and populations, as well as generate substantial revenue.

The U.S. government – or more specifically, a lame-duck Congress – is to blame for the Postal Accountability and Enhancement Act of 2006, which required that the Postal Service pump over $55 billion into a federal treasury account, ostensibly for future retiree benefits – pre-funding.

A history of pre-funding on savethepostoffice.com cites an analysis by the Inspector General of the USPS OIG: “The aggressive payment schedule appears to have been set based on byzantine ‘budget scoring’ considerations rather than actuarial assumptions or an evaluation of the Postal service’s ability to make the payments.” In other words, pumping money into the federal budget was the motivator, not future needs, and regardless of ability to pay.

So the USPS cannot pay the $5.5 billion per year now, previous payments having drained its credit line – so, what? No actual  money changes hands, but it still counts as an asset in the federal budget, and it still counts as a debt in the postal budget. And thus, the phony losses that are reported by the postal press releases, and dutifully, if misleadingly, parroted by the media.

Equally important is that Congress does not want to eliminate the unneeded pre-funding requirement, in this climate of budget fights. But what would be the harm in ignoring the annual $5.5 billion dollar demand, “defaulting” as the Postal Service has done for several years, and carrying on as usual? Well, the harm is that this fanciful debt is being used as a battering ram to fool the public into thinking that postal finances are in such bad shape that a drastic overhaul is needed, as Representative Darrell Issa, the postal Voldemort, has been attempting to do.

It is in this context that a seemingly harmless error takes on a meaning of sinister proportions, as at least an echo of the larger campaign that uses an accounting fiction to persuade the public and the media that postal finances are in much worse shape than the factual reality: rising revenue, and operating profits.

Revenue Increases over Same Period Last Year (dollar amounts represent thousands):

1.  Jan-Mar 2014 – (P.3)- Quarter II of FY 2014 $ 16,727  up from$ 16,348 Quarter II of FY 2013

2. Oct-Dec 2013 -P.3)- Quarter I of FY 2014 $ 17,994 up from $ 17,660 Quarter I of FY 2013

2013 10K Report, page 105 shows:

3. Jul-Sep 2013 – Quarter IV Of FY 2013 $17,133, up from $ 15,706 Quarter IV of FY 2012

4. Apr-Jun 2013  – Quarter III of FY 2013$ 16,177 up from $ 15,613 Apr-Jun 2012

5. Jan-Mar 2013 – Quarter II of FY 2013 $ 16,348 up from $ 16,227 Jan-Mar 2012

David C. Yao is a local officer of the American Postal Workers Union and a founding member of Communities and Postal Workers United. Any opinions are his own, and do not necessarily reflect organizational positions.

 

16 thoughts on “Why is the Postmaster General Understating Postal Revenue Gains?

  1. tim says:

    For 29 days of the month, a small business could have an operating profit. On day thirty, the rent comes due. Oops. The business is actually losing money. If retirement health care is a liability, it must be recognized on the books as an expense against income. What part of simple accounting don’t you understand?

  2. Tim, you’ve put your finger on one important part of the debate – is the additional funding necessary? If you look on page 29 of the 2013 10K report (link in the article), the Postal Service already funds retiree health benefit costs, to the tune of $2.85 billion in 2013. The additional funding demanded was a throw-in in the 2006 bill (see linked article explaining its history) but has become a bone in the federal budget debate. Alarmists defend pre-funding, but no other employer is required to do it. Representative Issa defends it, but he has his own agenda versus the Postal Service, as well as against any other governmental agency.

    • tim says:

      Yes, it’s 2.85 billion in 2013, but that’s almost up 17 percent just since 2011! That’s only the cost of current retirees. Surely medical costs are going to increase in the future and Postal revenues are flat at best. It seems very prudent that the USPS be mandated to pay down this underfunded liability to protect the ratepayers and taxpayers of the future. Considering he sorry underfunded state of social security, Medicare, and the PBGC, the argument that no one else has to “prefund” is not very convincing either.

      • Congress ordered the Postal Service to fund 75 years of future anticipated benefits in TEN years.

        It’s not that no other company is required to do it, it’s that no other company would ever agree or try to do it because it’s nothing short of stupid, unless your agenda is something other than protecting “ratepayers and taxpayers”.

        Please explain how pre-funding health care benefits for people that haven’t been born, let alone hired yet, makes sense.

      • Actually, the Postal Service has put in $22 billion in the pre-funding account, so that expense is already “pre-funded.” The ones who are arguing to maintain the current schedule of over-zealous pre-funding do not have actuarial support, but are the same ones who are anti-government service and anti-post office. What we (as employees) need is to have old, worn equipment (e.g. trucks that are at the end of their useful life and rolling stock such as hampers) replaced as well as tech upgrades, so we can continue to make money, which after all is the best way to fund future obligations. So continuing to divert $ away from capital investments, ostensibly to fund distant obligations, is a great way to try and cripple the enterprise – which seems to be the whole point. Then you can say – see, government services don’t work! -After you’ve starved it of funds.

      • tim says:

        John and dcyao, according to the Gao, the USPS retiree health care unfunded liability at the end of 2013 was 48.3 billion dollars! This number already takes in account the money the Postal service has funded (not “pre-funded”). Pretending it is not there doesn’t make it go away. You can’t buy a $15000 new car and then ignore the future car payments because you have made a $5000 down payment.

        Plus I repeat, ALL pension plans are required to make long term projection costs and in the federal system a 75 year projection is standard. What part of the word “standard” don’t you understand.

  3. D James says:

    The Postal Service is bent on privatizing the clerk craft distribution side of its business and the only justification is CLAIMING LOSS.

    At the time it raised rates for citizens who use mail it provided bid discounts to big business mailers–anybody calculate the amount of money the postal service gave away through full service discounts, etc.?

    The postal service is spending a lot of money on fancy advertisements–as if the Spider Main rings three times when the mailman it told not to provide door to door service but use cluster boxes.

    Something is rotten but Prez Obama has nominated only Mrs Kennedy–why is he afraid to nominate people who believ in universal service?

  4. Pingback: PostalReporter.com News Blog » Blog Archive » Why is the Postmaster General Understating Postal Revenue Gains?

  5. Dan says:

    Hey Tim, What part of paying the retirement healthcare of employees who AREN’T EVEN BORN YET don’t you understand???? If you think that is a legitimate business expense, then YOU better not be running any business……………….

    • tim says:

      You must be referring to the 75 year projection that is used as a anti-prefund talking point. Well, all pension plans use long term projections to set current funding levels and federal programs like social security, Medicare, and the USPS use a 75 year timeline. Yes, you could set a shorter funding projection timespan, but if the trust fund runs out because of shortsightedness, who’s going to pick up the tab? Go back to the drawing board and come up with a better talking point.

      • There’s a difference between a highly inflated projection for planning purposes used to avoid shortfalls and forcing an organization to pre-fund based on that projection, again, in TEN years.

        Protecting the tax payer from potential liability via pre-funding is obviously valid as a concept.
        .
        The argument is that there is no reason whatsoever to mandate PAYMENT – 65 years in advance.

      • tim says:

        Did you know that it is probable that some current young postal employees and/or spouses will still be alive over 75 years from now? Shouldn’t their retirement health care costs be included in the current liability calculations, or should they be dumped on the taxpayers for intruding on the talking point dogma?

    • There really is such a fund on paper, the Postal Service Retiree Benefit Fund, which I’ve read has $44 billion in it. It also counts as being an asset on the books of the federal budget, so it helps reduce the budget deficit’s bottom number – that in fact was one reason for the intentionally overaggressive funding schedule. President Obama borrowed against the PSRBF briefly to avoid hitting the federal debt ceiling. So it doesn’t go into the general fund of the U.S. Treasury, but conversely it counts as an asset of the federal government in budget “scoring.”

      • tim says:

        One last comment, and I’ll be on my way. I’ll agree that congressional meddling over the decades has often hamstrung the Postal Service’s efforts of running an efficient organization. But, there is a difference between “funding” and “pre-funding”. Pre-funding is paying now for a service or product to be delivered at a later time. For example, paying upfront for a magazine subscription that will be fulfilled in the coming months. “Funding” is setting aside money for a future bill for services rendered NOW, like electric, water or “labor”. The PAEA mandates current funding for labor that has already been rendered. I think it’s a good, prudent law.

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