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USPS Pushes Envelope on Financial Health Claims

by Pete Sepp / /

To defenders of the U.S. Postal Service's (USPS's) “business" model, the financial data for the April-June 2015 period showing a loss of "only" $586 million must seem like cause for popping the champagne corks. After all, for the same period in 2014, the reported loss was some $2 billion, over three times worse. But the trouble with champagne is, too much of it can begin affecting the senses.

So before pouring the bubbly, it's important to look behind the numbers, or at least what's being publicized as the numbers. They say, for example, that operating revenue increased "slightly" while operating expenses dropped by 7.2 percent compared to April-June 2014. A truly private business would welcome this trend, but in the case of USPS -- which has a government-granted monopoly over First Class and other certain types of mail delivery -- there's still trouble lurking beneath the surface.

For one, a postal spokesperson claimed that less red ink was evidence the Service was winning in a "growing and competitive marketplace," but failed to mention that USPS doesn't have the same types of regulatory burdens that weigh down private companies trying to operate in this space. That's fundamentally unfair in a free-market economy. Furthermore, USPS has lost money in all but a handful of quarters over the past six years.

Third, in this quarterly report, services like delivering letters, which are supposed to be USPS's key functions, are losing money and volume to tasks such as shipping and package services. Or are they? As NTU comments filed earlier this year with the Postal Regulatory Commission noted, USPS's accounting procedures are so opaque that it's difficult to tell whether the mail monopoly is subsidizing new lines of business, or even vice versa. Specifically:

Products that do not cover their costs must prompt the Postal Service to either establish a more rational pricing structure or investigate the merits and ability of providing them in the future. Inversely, strong profitability is reported for several monopoly-protected products, but under the current required practices, the Postal Service is at risk of allowing market-dominant product gains to subsidize products in more competitive areas.

For cost attribution specifically, the agency assigns just 55 percent of costs to specific products while the rest is categorized as “institutional overhead.” This current lack of transparency in accounting leaves the Postal Service unable to fully trace all costs or products and how they are imposed.

It remains clear that USPS has serious fiscal challenges, though the exact nature of those challenges might be less so.

Regardless, taxpayers have major reasons to be concerned: with finances this difficult to determine, they can’t ever know whether the content of the bag they’re holding is a celebratory bottle or a caustic bailout.