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Why the US Postal Service is in great financial trouble



Paradoxically, business is booming for the USPS. The agency posted positive cash flow of nearly $ 2 billion for the nine months ended June 30. The agency has been cash flow positive for the past three years, thanks in part to increased parcel deliveries and the steady rate of premium mail deliveries.
Then how is it that the country’s most popular federal agency is making millions of dollars while facing one of the biggest financial crises in its history? The answer to the USPS’s financial curiosities can be traced back to a single source: Congress.

The United States Postal Service, founded in 1775, was founded in 1775 to promote the free exchange of ideas between colonies. It is one of the oldest government institutions in the country ̵

1; and yet operates with few financial benefits from a federal agency, while still bearing many of them at costs.

For one thing, unlike other government agencies, the USPS is not allowed to receive taxpayers’ money, but has to rely on revenue from postage stamps and package deliveries to support itself.

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And in contrast to private courier companies like UPS and FedEx, the USPS cannot set its own prices or book unprofitable routes. Instead, Congress sets shipping rates and requires the postal service to deliver to all homes in America – including a remote parish in the Grand Canyon where mail is mule-delivered.

These unique rules help maintain the USPS as a public service, not a company.

“UPS and FedEx depend on the postal service going where they don’t want to go,” said Peter DeFazio, Oregon representative, author of a USPS reform bill. “If you wanted to run it as a business, you’d eliminate the least profitable routes and cut out all rural routes. For much of the country, there is no substitute for the postal service.”

However, this combination presents a difficult model: The USPS is under the oversight of other federal agencies by Congress, but does not receive any tax revenue. It competes with private courier companies like a for-profit company but cannot set its own agenda.

A 2006 bill made the USPS’s problems worse

Despite these unique requirements, the USPS continued to generate positive net cash flows and was in fact profitable through 2006. At this point, Congress passed the Postal Accountability and Enhancement Act during a Lame Duck session.

Under that law, the USPS was required to pre-finance retiree benefits worth 75 years within approximately 10 years.

“There is no other entity on earth that does something like this,” said DeFazio. “When I talk about it, people say it’s absolutely absurd.”

So far, the USPS has paid $ 20.9 billion, but it also set aside $ 47.2 billion as of September 2019. However, these late payments are still considered an expense – which means that regardless of the agency’s financial successes in recent years, the balance sheets will continue to report huge losses.

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The Postal Service’s debt “is a direct consequence of the mandate to … pre-finance the retiree health insurance plan,” the USPS inspector general wrote in 2015.
Some policy makers see an opportunity for reform without resorting to the controversial cost-cutting measures of Postmaster General Louis DeJoy. One such solution is a DeFazio bill that would remove the pre-financing requirement for retirement.

Others reject the idea that the USPS is self-financing with its own revenue.

“We don’t say it [the Department of Defense] Selling weapons to generate revenue for the American people, “said California representative Ro Khanna.” We don’t say that about our health service or the National Institute of Health. So why should we have a different standard for the postal service? “

– Chris Isidore contributed to this report


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