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Why the U.S. Postal Service Keeps Losing Money Year After Year

(Craig Eyermann, Independent Institute) The government-run U.S. Postal Service began in 2020 with a dubious track record. It has lost money in each of the past 13 years.

In 2019, USPS made $514 million more in revenue than it did in its previous fiscal year, thanks to increases in postage rates and its package delivery business. But the agency also recorded a net loss of $8.8 billion, with 80 percent of that loss attributable to employees’ health-care benefits after retirement.

Losses stemming from retirement-benefits have occurred annually since 2006 when the U.S. Congress passed a law requiring the Postal Service to pre-fund the cost of providing its retiree health benefits, similar to how many businesses in the private sector are required to do.

The law reduced the risk to U.S. taxpayers of having to bail out the USPS for the massive unfunded liabilities it was otherwise set to rack up, unlike the many nearly insolvent pension funds for state and local government employees that still operate the way the agency’s retiree benefits system had previously operated. Unfortunately, because its retiree-benefits system started out so deeply in the red, the annual costs to the USPS of funding retirement benefits remain high, contributing to its annual losses.

The Postal Service could do more to address its shortfalls, but options are limited because, as part of the U.S. government, Congress sets the rates it may charge for its services and requires the agency to operate less efficiently than it is capable, often in response to political pressure to sustain numerous money-losing operations around the country.

Those restrictions may loosen as early as this year, as policymakers consider privatizing some parts of the Postal Service’s operations. Fortune‘s Nicole Goodkind explains:

In 2018, Trump issued an executive order to create a postal task force, led by Treasury Secretary Steven Mnuchin. The group was charged with figuring out how to make the postal service a more profitable entity. They recommended that the agency roll back collective bargaining rights for postal workers and sell off pieces of the service to private industry.

“The USPS’s current business model has become outdated due to changes in technology, markets, and customer needs and preferences,” the report stated. “It is unsustainable and must be fundamentally changed if the USPS is to avoid a financial collapse and a taxpayer-funded bailout.”

The next Postmaster-General will be charged with righting the Postal Service’s long-sinking ship. It’s a big job, and a necessary one, if it is to avoid requiring taxpayer bailouts, which is all but guaranteed if the agency continues with business as usual. Becoming more independent of the U.S. government will be critical to its success.

[Source]

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