“All legislation, all government, all society is founded upon the principle of mutual concession, politeness, comity, courtesy; upon these everything is based...” – Henry Clay, American Statesman (1777-1852)
In late March, two members of Congress released a statement that unless immediate actions were taken, the US Postal Service (USPS) would run out of cash in June 2020. Their goal was to garner support for adding $25 billion in funding for the USPS as part of the CARES act.
When the stimulus bill was passed, it included provision to allow the USPS to borrow an additional $10 billion due to the COVID-19 crisis. Interestingly, the additional debt can only be used for operating expenses and not capital investments - like new delivery vehicles.
Since that vote, there’s been an explosion of articles and television interviews about the financial struggles of the USPS. It seems that every politician has suddenly developed a sincere concern for the future of the USPS and its ability to serve our country. Similarly, reporters, columnists and pundits are writing articles and delivering commentaries about the financial insolvency of the USPS.
Postal leadership and industry professionals have tried to capture the attention of Congress and the press for years. It’s taken a crisis to turn the spotlight on the USPS. However, a light can both illuminate issues and blind people to other problems. It’s important to shine a light on the crisis caused by COVID-19, and focus on the underlying, long-term issues facing the USPS.
During a briefing to industry leaders, Postmaster General (PMG) Brennan announced that for fiscal year (FY) 2020, the projected decline in volumes are 50% for 3rd Quarter (April – June) and 57% in 4th Quarter (July – September. But that’s just the beginning.
The USPS is projecting a significant and permanent loss of mail volume. For the first quarter of FY2021, the USPS expects only 60% of pre-Covid-19 volumes, and only 74% of previous volumes for the rest of the year.
This drastic drop in volume will have a direct impact on revenue. The USPS projects a $13 billion revenue loss this year due to Covid-19. With that forecast, the USPS will run out of cash before the end of the fiscal year (September 30, 2020). If the USPS maximizes its statutory loan authority ($3.6 billion), plus the additional $10 billion loan, and defers Social Security payments, then cash liquidity would be extended until April 2021.
PMG Brennan reminded mailers that the volume and revenue forecast, while bleak, may not represent the worst-case scenario. There has been double-digit growth in packages, but the USPS expects that growth to slow. Suppliers continue to develop alternative methods for deliveries. Further, with unemployment rising, overall spending will decline, directly impacting package volumes.
Faced with these projections, the bi-partisan Board of Governors (all appointed by President Trump) unanimously voted to request from Congress:
- $25 billion grant to cover the losses due to Covid-19.
- $25 billion modernization grant to maintain and modernize the USPS infrastructure.
- Forgiveness of the existing $14.5 billion debt plus extend unrestricted borrowing authority to $25 billion.
Many commentators have spoken about the more than 600,000 employees of the USPS. But they miss the far bigger picture. A financially unstable USPS has a direct negative impact on the 7.3 million mailing industry jobs and the $1.58 trillion in sales revenue generated for the US economy (source: 2019 US Mailing Industry Economic Job Study, Envelope Manufacturers Association).
Congress must act now to resolve the current postal crisis, while committing to long-term stability. This may lead to a compromise that could pass both houses and be signed by the president.
One solution is to approve part of the USPS request, while delaying the remainder to allow time to debate the long-term solution. Pass the immediate $25 billion grant for losses due to COVID-19. However, the $25 modernization billion grant, loan forgiveness and extended borrowing authority are withheld. Any additional funding would be part of a postal reform bill.
Congress – and the American people – need to answer two questions set forth by PMG Brennan at a public hearing in early March:
- What services does the American public want the USPS to provide?
- How much, and through what mechanism, will the public pay for it?
Without an understanding of the role of the USPS in the 21st century, meaningful reform is out of reach.
Meanwhile, the rank and file of the USPS will continue delivering the mail.