Back in my previous life as a financial analyst, one book that was always on my shelf was “How to Lie With Charts” by Gerald Jones. The title is meant to be tongue in cheek- Jones’s purpose is to help presenters avoid creating misleading charts and graphs. But I couldn’t help thinking of the title after reading Kevin Kosar’s article “Four charts explain the Postal Service’s financial struggles“, which was posted on the RStreet blog yesterday. Kosar was formerly an analyst with the non-partisan Congressional Research Service, where he frequently wrote analyses of the postal service’s finances. He now works for the very partisan RStreet lobbying organization.
What led me to connect Kosar’s piece with Jones’s book wasn’t the charts themselves for the most part, but rather the conclusions Kosar wants the reader to reach based on the charts. He certainly isn’t lying- but his charts don’t always support his conclusions. And sometimes they show the exact opposite. Let’s look at them, one by one:
The first chart is pretty straightforward, and shows the decline of total mail volume, down 25% from its peak. Not really anything to argue about there- no one disputes the fact that volume is down.
The next chart shows the USPS revenue trend. Here Kosar does make the chart a bit more impressive by only showing a portion of the data- instead of using zero as the base as he did in the volume chart, he starts at $60 billion, making the drop from 2008 to 2009 appear about five times as big as it would have appeared on a zero-based chart. But it isn’t so much the chart that’s misleading- it’s the comment that follows it. I would think that the casual observer looking at this chart would see that the USPS is starting to recover from the recession. Not Kosar:
Figure 2 tells the tale; between 2007 and 2012, the USPS’ annual revenues fell from about $75 billion to $65 billion. Increased postage rates and carrying more parcels has bumped up the Postal Service’s revenues the past two years, but not by enough. As Figure 3 below shows, the rate increases, which came under a special legal provision, will expire in early 2016.
So revenue is up recently, but “not by enough”? Enough for what? We’ll come back to that in the next chart. What’s interesting is how Kosar takes a positive- a revenue increase- and spins it into a negative. Apparently “carrying more parcels” is somehow a bad thing? And the fact that the USPS made more money by raising prices is a problem? He notes that the price increase “came under a special legal provision” as if that means the extra money the USPS took in wasn’t real revenue. But the fact is that the “special legal provision” actually limited the postal service’s ability to raise prices.
In the third chart Kosar shows the impact of the PAEA trust fund requirement on USPS expenses:
Postal unions will tell you the USPS is in financial trouble because Congress forced it to pre-fund its current employees’ future retirement health benefits. It’s true these costs are significant, at more than $5 billion per year. Yet even if one wished away these employee compensation costs, the USPS still has not been able to keep revenues above costs.
What’s curious about Kosar’s comment is that the chart shows the exact opposite. Without the trust fund charges, the USPS did “keep revenues above costs” for the last two fiscal years. In other words, chart 3 disproves Kosar’s comment on chart 2 that the USPS raised revenue in those years, “but not by enough”. Kosar also refers to critics of the RHBF trust fund requirement as wanting to “wish” away the trust fund, conveniently forgetting that the RHBF is not some fundamental requirement based in sound accounting practice- it was, one might say, “wished” into existence by Congress in 2006- it can be “wished” away by Congress just as easily.
Lastly we get to the debt “spike”. Here again, the data and the chart are straightforward, Kosar’s comment, however, is a bit curious:
The Postal Service had no debt in 2005. Come 2012, it had hit its $15 billion legal debt cap. With too little revenue coming in and expenses too high, debt piled up. Even without paying into its Retiree Health Benefits Fund, the service’s debt grew another $3 billion over the past three years.
Hmmm… so the USPS had no debt in 2005, but managed to hit its statutory $15 billion limit by 2012? What could have caused that? Did something happen in, say, 2006 that drastically altered USPS finances? The obvious answer is, of course, PAEA. Kosar, however, ignores PAEA’s impact in those years, blaming instead “too little revenue coming in and expenses too high”. Well, yes, expenses were too high- and the main contributor was PAEA, and the RHB trust fund. My source for that assertion is none other than Kevin Kosar. In a report he wrote for the Congressional Research Service just last year, Kosar added up the trust fund payments the USPS made after the passage of PAEA in 2006- a grand total of $17.9 billion.
In other words, according to Kosar’s own previous report for CRS, without the trust fund payments the USPS would still be debt free.
The pre-funding requirement is far from the only problem facing the USPS- no serious observer would say otherwise. But the numbers clearly show that pre-funding is behind the postal service’s proverbial “massive debt”. That’s just simple arithmetic!