• on Dec 10th, 2012 in Finances: Cost & Revenue | 0 comments
    To borrow a saying often attributed to Yogi Berra, “It’s tough to make predictions, especially about the future.” Whenever people make estimates about liabilities for long- term expenses, such as pension and retiree health payments, they’re making predictions about the future. The problem is that predictions are based on the present, and the present is always changing. Since 1992, the Postal Service has had a surplus in the Federal Employees’ Retirement System (FERS) program, according to the Office of Personnel Management (OPM). A surplus occurs when assets exceed the amount of the liability. In October, the OIG released a white paper called Causes of the Postal Service FERS Surplus. The paper, produced with the assistance of Hay Group actuarial firm, examined the reasons behind the FERS surplus. Hay Group found that the surplus had emerged in part because of differences between the Postal Service and the rest of the federal government and recommended using assumptions based just on the Postal Service population rather than everyone in FERS. Hay Group developed an estimate of the surplus under Postal Service-specific assumptions. After the OIG released the paper, the Office of Personnel Management (OPM) released a new estimate of the FERS surplus as it does every autumn. In this new estimate, OPM used a different prediction for future interest rates and also made changes to demographic assumptions such as how long postal employees and retirees will live. OPM’s estimate of the FERS surplus declined substantially. To take into account this new information, the OIG asked Hay Group to update their previous estimate of the surplus to reflect OPM’s assumption changes and new 2011 data. Hay Group also included the most recent Postal Service-service forecasts about future salary increases. Hay Group found the projected surplus under Postal Service-specific assumptions to be $12.48 billion as of fiscal year (FY) 2012; whereas OPM, using FERS-wide assumptions, projected the surplus to be $3.0 billion.In either case, the Postal Service’s FERS fund is more than 100 percent funded, while Fortune 1000 companies are on average only 80 percent funded according to 2010 data. You can read more about the FERS surplus in the update to the original paper on our website.
  • on Oct 15th, 2012 in Finances: Cost & Revenue | 1 comment
    The U.S. Postal Service spent $12.3 billion on supplies and services in FY 2011, which made up about 17 percent of its total operating expenses. Suppliers to the Postal Service range from large integrators, such as FedEx and UPS, to individuals responsible for cleaning offices and transporting mail between postal locations. With thousands of suppliers, the Postal Service needs a procurement process that is agile, yet transparent and secure. When the Postal Reorganization Act created a self-supporting Postal Service, it exempted it from many federal purchasing laws, including the Federal Acquisition Regulation, which most other federal agencies must follow. Since then, the Postal Service’s purchasing policies have gone through many changes and iterations in an effort to follow the procurement developments of the private sector, streamline its acquisition process, and reduce purchasing costs. In 2005, the Postal Service implemented the Supplying Principles and Practices, which are not legally binding and allow it to make purchasing decisions based on best value rather than rigid factors. Postal contracting officials have much greater discretion than their counterparts at other federal agencies. The streamlined process was designed to create a more efficient businesslike approach, but it has also opened the door for potential problems, especially in the area of non-competitive contract awards. A 2010 audit by the Office of Inspector General on the Postal Service’s noncompetitive contracts said the Postal Service needed to put in additional controls to make sure its interests are protected. Among the suggestions were to strengthen oversight of noncompetitive contracting, maximize competition, and avoid any potential conflicts of interest. The streamlining of purchasing procedures also created a new process for resolving supplier disagreements. Previously, suppliers filed disagreements with the Postal Service’s general counsel and decisions could be appealed to a federal court. Under the new process, suppliers file disagreements with a Postal Service manager, designated as the supplier disagreement resolution official, whose decisions are final and cannot be appealed by the supplier. Do you think streamlining of the purchasing procedures has positively or negatively affected the Postal Service? What is working particularly well in the current procurement process? What could be improved? Should the Postal Service follow procurement developments of the private sector, or should it be required to follow more federal procurement rules? Share your thoughts below.
  • on Sep 17th, 2012 in Finances: Cost & Revenue | 9 comments
    Many international postal operators pay corporate income taxes to their national treasuries. Similar to a private company, these payments appear in the postal operators’ financial statements. Countries whose postal operators pay corporate income tax have essentially made a policy decision: They want their postal service to behave like a private business. This may not be surprising in solidly capitalist countries, such as the United Kingdom, Japan, or Taiwan, but many of these posts are from countries with long histories of centrally controlled economies, such as Armenia, Slovakia, and Croatia. The concept of a corporate income tax is not entirely foreign to the U. S. Postal Service. The Postal Accountability and Enhancement Act requires the Postal Service to compute its assumed federal income tax on the income earned from its competitive products each year. Rather than paying that income tax to the Treasury, however, the Postal Service essentially pays itself. The money is transferred from the Competitive Products Fund to the Postal Service Fund, and can be used to fund the postal network as a whole. Corporate income tax does not necessarily imply privatization either. The postal operators of Germany, the Netherlands, Malta, and Singapore all pay corporate income tax and all are publicly traded corporations. The remaining operators that pay corporate income taxes are, in essence, state-owned. One advantage of the use of corporate income taxes is that the payments to the national treasury are tied to the financial performance of the postal operator. Corporate income tax payments decline during downturns in the business cycle and increase during periods of prosperity. Another advantage is the fact that these national governments have a stake in the sound financial management of their postal operators. In short, they have skin in the game. What do you think? Should the Postal Service pay a corporate tax? Would such a tax encourage a more business-like approach to managing the Postal Service? Or does its public service mission and its current universal service obligations make a corporate income tax unworkable?

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