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The Postal Service Isn't Broke; They Need a Bailout Anyway

Posted by Mark Fallon on Sep 7, 2020 4:00:48 PM

In my decades of working in the mailing industry, there’s never been as much public interest in the US Postal Service (USPS) as there is right now. I remember the headlines of 1970, but that’s because my father was a postal worker. I was just a kid and didn’t appreciate the situation.

50 years later, the situation is different. My business – and the businesses of my customers – are tied to the fate of the USPS. The pandemic has hit the mailing industry hard, with massive declines in volumes. News websites and social media are awash with stories about mounting losses and substantial delivery delays. The importance of vote-by-mail in the upcoming election has further politicized the situation.

The financial situation of the USPS is bad. It’s been bad since the recession of 2008-2009. By now, most people have read stories about the requirement for the USPS to prefund future retiree healthcare. This is due to the Postal Accountability and Enhancement Act (PAEA) of 2006. The PAEA was passed with bipartisan support, with a Democrat as Speaker of the House, a Republican as the Senate Majority Leader and a Republican President.

Under the PAEA, the USPS is required to pay approximately $5.5 billion in prefunding each year. Due to cash liquidity and lack of borrowing authority, the USPS stopped making payments in 2012. However, the liability is still noted in financial statements. Most of the losses posted over the last 13 years have been due to this requirement.

In the initial weeks of the pandemic, mail volumes plummeted. Based on the initial numbers, the forecasts indicated that the USPS might run out of cash on hand before October. However, package volumes skyrocketed, and revenues rebounded. The immediate financial crisis was forestalled.

That doesn’t mean the problems were solved. While the USPS charges more for parcels, they also spend more money processing and delivering them. The cash crisis has only been delayed. A previous stimulus package allows the USPS to borrow an additional $10 billion. Depending upon the economic recovery and a consistently high volume of packages, the USPS won’t run out of cash until some time between April and October 2021.

Some people point to this new forecast as an argument against any bailout for the USPS. However, that doesn’t include USPS leadership or many members of Congress. The USPS Board of Governors requested a mixture of debt forgiveness, cash and borrowing authority that added up to almost $75 billion. A few weeks ago, the House passed the “Delivering for America Act”, which includes $25 billion in funding for the USPS. A similar bill was introduced in the Senate.

Some type of bailout for the USPS should be passed now. The “good scenarios” that put off the cash crisis are based on the USPS going further into debt. The forecasts also rely on an unreasonable expectation of both a strong economic recovery and continued high volumes of packages. As the economy rebounds, more in-store shopping will take place. Amazon couldn’t handle the surge in shipping this spring, however they are investing heavily in building their own delivery network.

Additionally, the USPS is in the midst of a public relations nightmare. A combination of poor delivery performance and poor messaging has lowered confidence in the USPS. Every delay – whether veterans’ prescriptions or dead chicks for farmers – is reported and shared on every internet platform. One of the largest package customers, eBay, has announced an expanded partnership with UPS.

One argument against the bailout is that it won’t address the fundamental problems with the USPS business and pricing models. Those problems have been known for over a decade. To believe comprehensive postal reform is possible in the next year is imprudent.

The last comprehensive postal reform – the PAEA of 2006 – took years to get through Congress. This was even after President Bush appointed a Commission in 2002, that delivered a comprehensive report in July 2003. Three years later, the PAEA was passed on the last day of the Congressional session.

The current administration appointed an internal task force on the USPS. The Treasury department outsourced the work to a consulting firm. For $1.6 million, an underwhelming and incomplete report was delivered in 2018.

That same year, bipartisan reform bills were introduced in the House and Senate. The House bill, which was supported by the current White House Chief of Staff, Mark Meadows, was passed unanimously by the oversight committee. However, it was never brought to the floor for a vote. The Senate bill didn’t even get a hearing.

A bailout bill for the USPS should address 3 areas – debt, needed capital investments, and COVID-related expenses. To meet the PAEA payments, the USPS borrowed money from Treasury, depleting most of their borrowing authority. Necessary investments, most notably in replacing outdated and dangerous delivery vehicles, haven’t taken place. Protecting employees during the pandemic, as well as covering for employees who on leave due to being ill or taking care of family members, has been costly.

The country is going through one of the most contentious elections of the last 50 years. Providing funding now for the USPS will help restore confidence in the agency and the government. Any bill will require bipartisan congressional support and be signed by the President. All sides could claim a “win”.

At this moment, the USPS is part of the national conversation. After the election, that will probably not be the case. Other issues – the pandemic, the economy, race relations, and climate change (to name a few) – will retake center stage. Reform may be on the agenda, but it won’t be the top of the list.

Now is the time to invest in the US Postal Service.

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