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The large loss posted by the U.S. Postal Service in Fiscal Year 2019 ($8.8 billion) is largely the result of external factors, not the normal operations of the agency.

More than half the loss stems from the 2006 congressional mandate that requires the Postal Service, alone among all public agencies and private companies, to pre-fund future retiree health benefits decades in advance. This accounted for $4.564 billion in red ink this year.

A large portion of the remainder of the reported loss is explained by historically low interest rates that have resulted in huge non-cash actuarial adjustments to the Postal Service's projected liabilities for future workers' compensation costs and pension benefits. Under accounting rules, the adjustment of future liabilities results in increased expenses in 2019, even though actual workers' compensation cash expenditures for the year declined and the agency’s pension funds remain well funded:

• The workers' compensation adjustment for the year—$2.155 billion—was particularly onerous in 2019.
•  Falling interest rates also inflated future retiree pension liabilities, causing amortization expenses for CSRS and FERS to rise to $2.677 billion.

Excluding these prefunding expenses, workers’ compensation adjustments and retiree amortization costs, the Postal Service’s revenues from the sale of postage exceeded the costs of processing and delivering the mail by $583 million.

The agency’s loss in 2019 also was inflated by the 2016 roll-back in postage rates (-4.3 percent) ordered by the Postal Regulatory Commission (PRC), which costs the Postal Service $2 billion annually.  

Legislative and regulatory action needed

The 2019 financial results demonstrate the need for legislative and regulatory actions regarding factors beyond USPS control. Lawmakers should repeal the 2006 congressional mandate to prefund retiree health. It has accounted for nearly 90 percent of the Postal Service's accumulated losses since 2007. Fortunately, there is strong support for this action in Congress.  A bipartisan majority of 281 members of the House of Representatives has co-sponsored a bill (H.R. 2382) to repeal the pre-funding mandate.

Congress also should permit the Postal Service to invest its massive retirement funds more sensibly--they are currently restricted to low-yielding Treasury bonds.

Meanwhile, the PRC should expeditiously complete its ongoing review of the postage rate-setting system. At present, USPS is constricted in its ability to adjust rates by no more than the Consumer Price Index, but the CPI is an economy-wide measurement of consumer goods and services that doesn’t fit a transportation and delivery provider. The PRC has the ability to correct this mismatch and relieve the resulting financial pressure. It also should revisit its misguided decision to roll back the price of stamps by two cents in April 2016, the first rollback since 1919.

Overall, the financial results underline the need to strategically address the key public policy factors described above. Doing so would allow USPS--which is based in the Constitution and which enjoys broad public and political support (90 percent in a recent Pew Research poll)—to continue providing Americans and their businesses with the industrial world’s most-affordable delivery network.