USPS at the end of financial tether – PRC

In the latest damning report from the US Postal Regulatory Commission (PRC) it has suggested that USPS is at the end of its borrowing authority and can only function with ‘internally generated cash’. The PRC says that it “faces significant financial challenges”.

The report came just a day after another report from the PRC that suggested that, “the majority of products failed to meet service performance targets for FY 2015″.

Regarding the USPS financial performance, the PRC said: “In FY 2015, the Postal Service generated its second consecutive annual net operating income. Increases in Competitive product volume and the continuation of the exigent surcharge were the primary causes of these results.

“The exigent surcharge generated an additional $2.1bn in revenue greatly mitigating revenue losses resulting from the decline in Market Dominant product volume, and Competitive product volume contributed more than $1 billion in additional revenue.

“After accounting for non-cash adjustments to the workers’ compensation liability, the supplemental payment into the Federal Employees Retirement System, and the Retiree Health Benefit Fund (RHBF) payment, which the Postal Service considers as non-controllable factors, the Postal Service had a total net loss of $5.1bn in FY 2015.”

The final figure is a net loss of over $5bn but the current set up for the USPS is such that it will always face financial problems.

As the PRC commented: “Although the FY 2015 Integrated Financial Plan included a capital investment budget of $1.5 bn for mail processing equipment, vehicles, and information technology, the Commission’s analysis identifies persistent financial challenges for the Postal Service.”

The PRC continued: “Significant balance sheet liabilities and off-balance sheet unfunded liabilities for pension and annuitant health benefits remain. At the end of FY 2015, the Postal Service’s total liabilities exceeded the total value of its assets by $50.4bn. This results from several years of net operating losses starting in FY 2007. Although FY 2014 and FY 2015 had a net operating income, the slow replacement of fully depreciated capital assets and substantial personnel related liabilities also contributed to this high net deficiency.”

The PRC statement included this stark warning: “Negative net worth indicates that the Postal Service has spent both its initial capital and the debt borrowed from the Federal Financing Bank. Simply put, its debts are no longer secured by its assets.”

In practice this mean that according to the PRC, is that USPS has reached the limit of its borrowing authority. All current activity must be financed with “internally generated cash”.

This severely limits the USPS ability to invest in “much needed equipment and other productive assets”. USPS’s liquidity will be significantly affected by the expiration of the Market Dominant exigent surcharge that the Postal Service intends to remove on April 10, 2016.