In March 2021, in the DFA, USPS said it would be breakeven for Fiscal Year 2023. Instead, it lost $6.5 billion. Image: Kilmer Media/Shutterstock.com
By: Paul SteidlerThe U.S. Postal Service (USPS) needs to scrap its financial projections in the 10-year Delivering for America (DFA) strategic plan issued in March 2021 and take a hard, comprehensive look at how it does financial forecasting. A complete overhaul appears in order.
USPS should voluntarily issue new projections for Fiscal Years 2025-27 with a similar level of detail as in the DFA. By Fiscal Year 2027, if not sooner, USPS could be out of cash, as Postmaster General Louis DeJoy has warned.
Such new projections are important to the U.S. Congress, which has provided more than $120 billion in assistance to USPS since 2020. The U.S. Government Accountability Office, Congress’s nonpartisan, independent auditor, and the Postal Regulatory Commission will also be able to better perform their oversight duties of USPS with such information.
If USPS does not voluntarily provide this information, Congress should demand it and, if necessary, require it by law.
Recent financial projections are disconcerting.
In March 2021, in the DFA, USPS said it would be breakeven for Fiscal Year 2023. Instead, it lost $6.5 billion. At the start of Fiscal Year 2023, USPS projected a loss of $4.5 billion for the year. The actual loss of $6.5 billion was 44 percent higher.
The DFA plan also predicted USPS would have net income of $1.7 billion for Fiscal Year 2024. Instead, USPS announced November 14, via its Integrated Financial Plan (IFP), that it expects to lose $6.3 billion in Fiscal Year 2024, an $8 billion negative swing.
On April 27, in its two-year update on the DFA, USPS revised its financial projections, saying it would have cumulative losses of $70 billion for fiscal years 2021-30. Few details were provided. USPS had previously said in the March 2021 DFA it would be breakeven over that period.
The revised numbers that USPS provides for Fiscal Years 2025-27 should have the same or more detail as in the original March 2021 DFA report in Figure 35, “10-Year Delivering for America Projected Profit and Loss Statement – With USPS Initiatives.”
Financial forecasting is, by nature, subject to many variables and an inexact science. But the magnitude of USPS’s misses, and the serious financial challenges it now faces at a time of historic network change underscore the need for a new approach.
Steps that USPS should take include:
· Determining the core reasons for the prior DFA errors. In other words, what went wrong and why?
· Reviewing econometric models and alternatives that exist and should be implemented. With rapid, unprecedented changes in USPS’s business and operations, it is essential that the economic tools keep up. USPS may also need to strengthen its staff in this area.
· More precise product cost measurement. USPS should implement the recommendations of its Inspector General’s 2014 Greenfield study. This called for overhauling USPS’s product cost measurement system so it could price products more appropriately, that is cover the products’ costs. Simply put, if each product is priced correctly, USPS will not have financials losses.
USPS faces many challenges this holiday season and with its network redesign. The need for state-of-the-art data and predictive tools is more important than ever. The tools are an essential first step in making the financial and operational changes that will ensure long-term fiscal solvency for USPS so it can continue to meet its mission and finance its sizable retiree and other benefits.
About the Author: Paul Steidler is a Senior Fellow with the Lexington Institute, a public policy think tank based in Arlington, Virginia.
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