Seven Myths About The Postal Service And Its Finances

Over the past few days there has been an explosion of news and editorial coverage about the U.S. Postal Service (USPS) and its deteriorating financial condition. Some of the coverage states or implies that all was well with USPS before the COVID-19 crisis hit and that if the government simply floods it with tens of billions of dollars in cash, all will be well again.

That is flat-out wrong.

The Postal Service had experienced enormous financial problems for more than a decade before the COVID-19 crisis hit. Those problems will continue unless systemic, holistic changes are made. First and foremost is to define the mission of the organization and to set the parameters for how that mission is to be paid for by USPS customers and, if necessary, taxpayers.

This is a duty of Congress, and one that is much harder to do, and frankly less glamorous, than simply throwing money at the Postal Service.

Under the CARES Act, Congress appropriately expanded USPS’s borrowing authority by $10 billion. With this and other credit lines, USPS now has access to $23 billion in cash. On April 9, 2020, the Postmaster General warned the House Oversight and Reform Committee that USPS would lose an additional $22 billion over the next 18 months due to COVID-19.

If necessary, Congress should provide additional loans to USPS. A better solution is to make holistic reforms and to tie any additional assistance to a broader “grand bargain” of postal reform.

To get there, we need to dispense with the following seven common misconceptions about USPS’s financial situation.

USPS’s Financial Problems Started With COVID-19. The U.S. Government Accountability Office (GAO), Congress’s independent audit watchdog, first included the Postal Service on its High-Risk List of agencies in 2009. It has been on the list ever since.

At the end of Fiscal Year 2019, USPS said it had a negative net worth of $71 billion.

In addition, GAO has reported, “USPS’s total unfunded liabilities and debt ($143 billion at the end of fiscal year 2018) have grown to double its annual revenue.”

Eliminate Retiree Health Benefits Payments And All Will Be Fine. First, the Postal Service has not made any actual pre-funding payments for retiree health benefits since fiscal year 2010. GAO has also warned that the fund for these benefits is on track to be depleted by 2030.

The Trump Administration Wants To Privatize USPS. In December 2018, the Treasury Department, following an executive order from the president and seven months of wide-ranging discussions with stakeholders in the postal community, issued a Postal Service Task Force report that rules out privatization. It presents dozens of wide-ranging reform recommendations, half of which USPS could take and another half that require Congress to act. This is the definitive document on the administration’s postal policy.

The President Hates USPS Because Of Its Amazon Deal. This fails basic logic tests. First, the president is on USPS’s side in wanting to make sure that it maximizes its revenue from Amazon. USPS, to its credit, has also moved in recent years to increase its package prices, placing more emphasis on covering costs than revenues. Furthermore, the president championed a campaign at the Universal Postal Union, the UN agency that effectively sets international package prices, to eliminate preferential prices for Chinese-based shippers. This measure is expected to help Amazon.

Congress Has Been Working Hard To Find Solutions. Since the December 2018 Treasury Department Task Force report was issued, the U.S. House of Representatives has held one, yes just one, hearing on postal matters. There has not been any substantive postal reform legislation introduced. The Senate has done much better, having held a hearing on the Treasury Task Force report plus several hearings regarding presidential nominees to the USPS Board of Governors and the Postal Regulatory Commission (PRC). Several nominees were also confirmed. Beginning in 2019, the Board of Governors had a quorum for the first time since 2014. The PRC has all five Commissioners in place.

All Is And Will Be Bleak At USPS. While the COVID-19 pandemic has presented a severe hit to the direct mail business, parcel shipments are up about 20 percent. Political mail may also be much higher later this year as in-person political activity is likely to be curtailed.

Just Let USPS Charge What It Wants, And All Will Be Fine. Today, 70 percent of USPS’s volume is for monopoly products, i.e., mail. Further, the USPS Office of the Inspector General has made clear that USPS can and should have a better understanding of the costs of its individual products so they can be priced accordingly. Throwing large, unrestricted funds at USPS in this environment would amount to taxpayer subsidies of business mail, while removing key incentives to impose basic accounting disciplines.

For additional information, please view speakers at the Lexington Institute’s March 6, 2020 Capitol Hill Postal Reform Conference at our YouTube page here.

About the Author: Paul Steidler is a Senior Fellow with the Lexington Institute, a public policy think tank based in Arlington, Virginia.