Postal Service Turns a Profit, But Hold the Happy Dance

And Yet Another Postal Reform Bill Heads to Congress

Panes of 44-Cent US stamps featuring characters from The Simpsons
Cost Of U.S. First Class Postage Stamps Rises to 44 Cents. Justin Sullivan / Getty Images

For the first time in five years of financial losses, the U.S. Postal Service (USPS) actually reported a quarterly profit. So why aren’t postal officials doing happy dances?

The $307 million net income reported by the Postal Service for the first quarter of fiscal year 2016 was a cool $1.1 improvement over its $754 million net loss during the same period in 2015.

But according to Postal Service Chief Financial Officer and Executive Vice President Joseph Corbett, the all-too rare profit rounded no corners or turned on any lights at the end of tunnels.

“While net income is favorable compared to a net loss, it unfortunately does not reflect the end of our losses,” he said in a press release. “Excluding the favorable impact of interest rate changes and the exigent surcharge, the organization would have actually reported a net loss of approximately $700 million in the first quarter.”

What is -- or was -- the ‘Exigent Surcharge?’

The “exigent surcharge” Corbett mentioned is the temporary 3-cent emergency First-Class postage hike, from 46 cents to 49 cents, approved by the Postal Regulatory Commission (PRC) in January 2014. The PRC placed a cap of $3.9 billion on the amount the Postal Service could collect through the exigent surcharge. That cap, having been reached, the surcharge is due to end in April 2016, when postage rates will be rolled back.

So, as Corbett noted, when the exigent surcharge ends, so will the briefly better times at the Postal Service.

Still Needed: Congressional Help

In fact, Corbett, clearly a half-full glass guy, projected that unless Congress passed postal reform legislation, the Postal Service’s losses would increase by about $2 billion a year starting in April 2016.

Or as Postmaster General Megan J. Brennan put it, “Despite these achievements and the best efforts of our employees, our financial condition will worsen without legislative reform.

Our financial situation is serious but solvable through the enactment of prudent legislative reform.”

As always, when anybody at the Postal Service says “postal reform legislation,” they mean any bill that would let the not-really a federal agency agency out of its federally required need to pre-fund the retirement benefits of its nearly 500,000 career employees at the cost of about $5.8 billion a year.

Where Postal Reform Stands in Congress

The latest postal reform bill – the Improving Postal Operations, Service and Transparency Act (iPOST Act), sponsored by Sen. Thomas R. Carper (D-Delaware), would do that, as well as making a 4.3% “exigent surcharge” postage rate increase permanent and allowing the Postal Service to make more money by delivering beer, wine and liquor.

However, the bill makes no mention of allowing the Postal Service to drop Saturday mail delivery as postal officials have urged for years.

At Last A Postal Reform Bill with Legs?

Unlike past failed postal reform bills, Sen. Carper’s bill seems to have glimmers of bipartisan support in Congress.

In a hearing of the Senate Homeland Security and Governmental Affairs Committee on January 21, 2016, three groups that had opposed parts of previous postal reform bills -- the postmaster general, the postal workers union (NALC), and representatives of the commercial mailing industry – all supported the main provisions of Sen.

Carper’s bill.

In short, Carper’s bill seems to have the support of people who get paid to manage the mail, deliver the mail, and pay for the mail. 

“There is a remarkable degree of consensus across a broad range of stakeholders -- including the unions, postal management and a representative sample of mailing industry companies -- about the most important reform elements,” stated Fredric V. Rolando, president of the National Association of Letter Carriers in his testimony.

To address the retirement plan pre-funding problem, Carper’s bill would make full participation in Medicare mandatory for Postal Service retirees.

“Medicare integration is the most important of these provisions,” Postmaster General Megan J. Brennan said in her testimony. “In most cases, it will cost less for our employees and retirees, while providing them with the same or better health coverage.”

Despite the Postal Service’s first quarter profit, “Our debt is at an unsustainable level,” Brennan noted, pressing the committee to act quickly to move the bill forward.

But hold on, because when it comes to letting the Postal Service out of its agreement to pre-fund its employee retirement plan, a top government watch dog says, “Not so fast.”

GAO Tosses a Monkey Wrench

In a statement delivered to the same January 21, 2016 Senate Committee on Homeland Security and Governmental Affairs, Lori Rectanus, Director, Physical Infrastructure Issues at the Government Accountability Office (GAO) pointedly suggested that releasing the Postal Service from its obligation to pre-fund its employee retirement plan could be risky business for everybody, including taxpayers.

“Large unfunded liabilities for postal retiree health and pension benefits -- which were $78.9 billion at the end of fiscal year 2015 -- may ultimately place taxpayers, USPS employees, retirees, and their beneficiaries, and [the Postal Service] itself at risk.”

The GAO has often advised Congress that pre-funding its retiree benefits protects the Postal Service from facing benefit payments it cannot make after its employees have retired.

How the Pre-Funding Requirement Protects Taxpayers

In addition, since postal employees participate in the same health and pension benefit programs as other federal employees, if the Postal Service ever reaches the point that it is just too broke to go on paying retirement benefits at their current level, Congress would have to tap taxpayers to make up the difference. The only alternative, as Ms. Rectanus testified, would be for the Postal Service to reduce benefits, or pay, neither of which option is likely to appeal to postal workers or their unions.

Postal Service Will Struggle to Make Those Payments

As to the Postal Service’s ability to make its required employee benefit pre-funding payments in the future, GAO auditors see little hope.

“USPS's financial condition makes it unlikely it will be able to fully make its required retiree health and pension payments in the near future,” stated Ms.

Rectanus in her testimony. “In fiscal year 2015, USPS was required to make $12.6 billion in retiree health and pension payments, but it only made $6.7 billion in payments as it did not make a required retiree health payment of $5.7 billion.”

Worse yet, after being “restructured” in fiscal year 2017, the Postal Service’s estimated mandatory benefits pre-funding payments will total $11.3 billion -- $4.6 billion more than what it paid in fiscal year 2015.