Key Observations On The U.S. Postal Service’s Finances

The U.S. Postal Service (USPS) files periodic, public financial statements with the Postal Regulatory Commission (PRC). Below are observations on notable financial trends and developments at USPS.

Operating Revenue and Growth in e-Commerce

USPS’s operating revenue reached a record $78.5 billion in Fiscal Year 2022.[1] This was the second consecutive year of record revenues. In the ten years ended 2022, annual operating revenue increased by $13.4 billion, or almost 21 percent.

In 2022, Shipping and Packages revenue fell $700 million (2.2 percent), but was also $700 million above USPS’s business plan. However, nationwide growth in U.S. e-commerce retail sales was 9.3 percent – about double the 4.7 percent assumed in management’s plan. These data suggest USPS lost more market share than forecast in 2022.

This bears watching, as management projects Shipping and Packages annual revenue will increase by $14.5 billion (47 percent) in its ten-year Delivering for America Plan (DFA), as USPS seeks to become the preferred delivery provider for packages. For letter mail, despite price increases at rates above Consumer Price Index inflation, DFA projects a $5.3 billion decline in annual revenue (12 percent).

Interestingly, neither DFA nor USPS’s FY 2023 Integrated Financial Plan includes a specific projection of U.S. e-commerce growth. Consequently, the competitive performance metric for becoming the preferred shipper cannot be objectively measured.

Cash Flows

Governments usually measure their annual results on a cash basis: total receipts minus total outlays equals the surplus/deficit, assuming no change in cash on hand. USPS results on a cash basis equal the change in cash (excluding cash infrequently provided by the federal government) minus the change in debt.[2]

After ten consecutive years of cash surpluses, USPS generated a $3.3 billion “deficit” in 2022. Most of this deficit is explained by unusual, generally non-repeating outlays. However, the remaining estimated $800 million is noteworthy, as a potential indicator of underlying changes in cash flows, before planned increases in capital investments have materialized.

Over DFA’s ten-year horizon, USPS results on a cash basis will both reflect and influence its capital investment plans. In September 2022, the federal government assisted USPS with a $3 billion contribution for zero-emission vehicles and associated infrastructure, reducing management’s need to $37 billion of funding for capital investments through 2030.

In 2022, USPS made a $500 million amortization payment for its Federal Employee Retirement System (FERS) pension liabilities. This marked the first yearend retirement payment of any kind by the Postal Service, after ten consecutive years of defaulting on all yearend payments due.[3]

Annual defaults on yearend FERS amortization payments began in 2013, and annual defaults on payments into the Civil Service Retirement System (CSRS) began in 2017. Through the end of 2022, USPS was past due on $18.1 billion of payments for FERS and CSRS combined.

Management explained the 2022 FERS amortization payment as “reflective of our improving financial condition,” which is questionable at best.

Interest Rate Risk

USPS benefits, at least initially, from rising short-term interest rates. This is because its cash investments of $19.2 billion[4] are responsive to changes in short-term interest rates, while only $5.5 billion of its debt has adjustable rates.[5]

At the end of 2022, USPS cash investments included a three-month Treasury bill.[6] This was likely the first time since the 1990s that USPS owned a Treasury security with a maturity beyond one business day. USPS will likely enhance its investment practices, integrating them with anticipated cash flows and Treasury market conditions. With the recent signing of a borrowing agreement with Treasury’s Federal Financing Bank, USPS is also better positioned to manage its debt and interest expense.

About the Author: Robert J. Pedersen retired from federal service in 2021, after a career that included 19 years as a USPS finance executive and five years with the USPS Office of Inspector General. Viewpoints expressed herein are solely those of the author, and not those of any organization or governmental entity.

[1] Unless otherwise noted, all references will be to fiscal years, which begin each October 1 and end the following September 30, and are named using the year in which they end.

[2] USPS reports its financial results in accordance with Generally Accepted Accounting Principles in the U.S. (GAAP). Consequently, its reported net incomes/losses can vary significantly from its results on a cash basis.

[3] From FY 2012 through FY 2021, USPS defaulted on yearend payments due for retiree health benefits (RHB), after which the 2022 Postal Service Reform Act eliminated past-due amounts for RHB and changed future RHB funding requirements.

[4] Source: U.S. Treasury, Bureau of the Fiscal Service, Treasury Outstanding Principal Report as of February 28, 2022. An additional $3 billion is held in the USPS Vehicle Fund.

[5] For an extensive and sophisticated discussion of USPS’s management of interest rate risk, see the USPS Office of Inspector General’s January 2023 report, “Postal Service Investments and Interest Rate Risk.”

[6] Source: U.S. Treasury, Bureau of the Fiscal Service, Treasury Outstanding Principal Report as of September 30, 2022.

Robert J. Pedersen