Rice Business professor explains Postal Service financials

The U.S. Postal Service was not created to be a traditional profit-making business, according to an accounting expert at Rice University’s Jones Graduate School of Business.

K. Ramesh, the Herbert S. Autrey Professor of Accounting at the Jones School, published a FAQ on his LinkedIn as a “pragmatic way to understand the forces at work and how they must be reshaped if reforms are desired.”

Profitability was not meant to be the sole criterion to evaluate the performance of a national postal service with important social objectives.

“Of course, the Congress clearly wanted an efficient postal service that can operate within the statutory mandate. For instance, the USPS has also used measures such as total factor productivity, on-time delivery and customer satisfaction to monitor its performance, ”he wrote. 

However, the Postal Accountability and Enhancement Act (PAEA) that took effect in 2006 amended the 1971 Postal Reorganization Act (PRA) — which established the USPS — and created an additional obligation for the Postal Service of roughly $5.6 billion per year for 10 years, Ramesh wrote.

“More importantly, the feasibility of making such payments would have required drastic changes to the strategy and operations of the Postal Service, which may not have been even possible given its statutory mandate,” he wrote. “Not surprisingly … the Postal Service has defaulted on $33.9 billion in PAEA-specified funding requirements.”

The legislative mandates of the PAEA and the PRA do not clearly state if the Postal Service “could (or should) ever function similar to a business entity and make the necessary transformational changes to become ‘profitable,’” Ramesh wrote.

Maintaining “operational effectiveness” throughout the country is an important social asset, Ramesh argues.

“If Congress is worried about postal delay that impacts the delivery of essential medicine and other time-sensitive items to all communities, then its immediate focus should be not on structural issues such as long-term financial stability, but on the near-term operational effectiveness in meeting the service needs of a broad cross section of communities in the U.S.,” Ramesh wrote.

By focusing on keeping the Postal Service running instead of reallocating funds and resources, Congress could ensure mail delivery in an “uninterrupted and timely fashion” through the end of year 2020, Ramesh explains.