After the Postal Service pulled off a profitable quarter to start this fiscal year, Postmaster General Megan Brennan warned not to get too used to good news because more red ink was on the way.
It looks like her prediction is on the mark. This month, the Postal Service announced a second straight losing quarter. It reported a loss of $1.57 billion for the quarter, which leaves USPS more than $3 billion in the red so far this year.
Postal Service executives say requiring they prepay health and pension benefits for their employers makes it hard to turn a profit, and the $450 million they “lost” when a temporary increase was allowed to expire on April 10 has not helped. They say losing the price hike will account for half of the $4 billion they expect to lose this year.
But other numbers in the report suggest problems also lie elsewhere. For the three months ended June 30, total revenue increased 7 percent to $17.72 billion. But almost all that growth – all but 0.7 percent – is a one-time-only windfall that comes from an accounting change on “forever” stamps.
When it comes to what the Postal Service calls “controllable losses” – those acquired doing business rather than predestined pension payments – things are getting worse. The Postal Service lost $552 million in controllable funds this year, compared to $197 million a year ago. Its overall loss was nearly three times what it was in the third quarter a year ago.
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Volume was down 0.2 percent in first-class letters – the Postal Service’s most profitable product. Its package business – where it competes with UPS, Fed-Ex and others – grew 14.2 percent in revenues. But labor costs have risen far more than the Postal Service expected – all those flights and extra personnel to assure Sunday delivery for Amazon – and its package business is becoming like those unprofitable Amtrak routes where it hurts the bottom line for people to actually ride the train.
In other words, the economics of the Postal Service are getting worse and could get worse still under the next president.
The Republican Party platform calls for restructuring the Postal Service to ensure its essential function of delivering mail and preparing for the inevitable downsizing by seeking opportunities to privatize.
Conversely, the Democrats’ platform suggests we continue to look at the Postal Service as a jobs program. Their postal plank, written largely by the head of the American Postal Workers Union, concerns itself with making things better for union members as opposed to postal customers.
Democrats want to eliminate the pre-funding requirement for benefits and pensions, increasing the risk of the Postal Service – which is supposed to operate without direct taxpayer funding – turning to Congress to fund these obligations.
Democrats also want USPS to get back into the banking business. They support the Postal Service’s proposals to operate small financial outlets that would offer basic banking services for those not adequately served by the current system.
Sen. Elizabeth Warren, D-Mass., who has championed this cause, said such banks could serve up pre-paid credit cards, bill-paying and check-cashing services, EBT advances to vulnerable populations and even small-dollar, short-term loans.
The Obama administration has advanced efforts that, in effect, prohibit commercial banks from offering small-dollar consumer loans. This has helped to clear the field for postal banking by forcing out the legal businesses that make up the competition.
The Postal Service’s first banking services – from the Great Depression through the 1960s – died because banking became more accessible and profitable, and customers drifted away. Banking is even more accessible now. About a third of customers do all their banking digitally, and that trend figures only to grow. There is an “unbanked population” of about 20 million, and they are served by legal businesses, such as check-cashing services and online and consumer lenders, which the government now also seeks to put out of business.
The Postal Service has lost more than $40 billion since 2010. It expects to lose $4 billion more this year. It spends $1.6 billion per quarter more than it takes in and can’t deliver first-class mail on time. Its fastest-growing segment is also one of its biggest money losers.
But everything will be better if we’ll only let it run a bank?
The answer for the Postal Service is not searching for ever-more-exotic ways to lose money. It is to figure out how to make money on the services outlined by the Constitution.
There are no shortcuts – certainly not one involving the financial sector, in which the Postal Service has zero modern expertise. And it’s time for postal executives to stop pretending there are.
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