Postal Service’s April Financial & Operating Statements Reveal Management’s Gross Failure to Control Costs

Issue Brief

The United States Postal Service Financial & Operating Statements for April are out, and they tell a story of missed opportunities. The Statements reveal that Postal Service management has watched revenues fall short of their internal “Budget” for several months back-to-back, yet its Budget for expenses has not been modified. Expenses have kept going and going like the Energizer Bunny. The result: massive losses.

The report covers Accounting Period 8, from March 24 – April 20, 2001, of Postal Fiscal Year 2001. (The Postal Service uses thirteen, four-week accounting periods.) The report includes Fiscal Year to Date totals. What becomes immediately apparent from page one is that while the USPS has faced revenues below Budget for many months, the Service has continued to spend as if the Budget were still on target.

Specifically, Year to Date Revenues are $751.8 million less than Budget, while Year to Date Expenses are just $49.8 million below Budget. Page four of the report elaborates. While actual revenues have fallen considerably short of the Budget plan for six of eight accounting periods this fiscal year-and only slightly above Budget for the other two periods-actual expenses have closely tracked Budget plan expenses throughout the year. In short, there has been no reappraisal of expenses in light of clear shortfalls from budgeted revenue. Can a business succeed if it does not react to revenue shortfalls by cutting costs?

The Postal Service apparently does not consider this a problem. As Postmaster General William J. Henderson observed in testimony before the House Government Reform Committee on April 4:

Our latest forecasts project losses in the range of $2-3 billion for this Fiscal Year. Through our Accounting Period 6 ending February 23, our revenue fell below plan by $344 million, or 1.1 percent. … Costs are only slightly over plan at this point….

Even in the face of mounting losses, there is no urgency to reduce spending. We see it not just in management comments, but also in the numbers. As the April accounting report indicates, for example, Year to Date Total Work Hours are actually 0.3% above Budget. This refusal to look internally to solve its problems-by cutting costs or increasing productivity instead of raising prices–is the central crisis facing the United States Postal Service. Instead of belt-tightening and improving efficiency, the Postal Board of Governors played a game of chicken with the Postal Rate Commission, leading to last week’s unilateral decision to raise rates beyond January’s rate increase. [See Lexington Institute Issue Brief, “Postal Service Board of Governors Playing Game of Chicken with Postal Rate Commission,” April 27, 2001.]

The April Financial & Operating Statements also make it difficult to blame the current crisis on the bogeymen of declining mail volume and soaring energy costs. Year to Date Mail Volume is actually 0.9% over Budget, and 1.4% higher than the same period last year (“SPLY”). [April Report, page 1] Year to Date Fuel and Utilities, meanwhile, while 18.4% above SPLY, and 3.9% above Budget, represent less than one percent of total operating expenses, and are just $11.6 million above Budget. [April Report, pages 7 and 8] We must look elsewhere to explain the Service’s substantial shortfalls.

Both the Senate Committee on Governmental Affairs, and the House Committee on Government Reform, will hold hearings this week on the problems facing the Postal Service. Perhaps our elected leaders can get to the bottom of why the Postal Service has so far refused to bring its expenses in line with its revenues.

Charles Guy, Ph.D., is the former Director, Office of Economics, Strategic Planning, U.S. Postal Service. He is currently Adjunct Fellow at the Lexington Institute.