The COVID-19 pandemic is all but certain to have a severe, negative financial impact on the U.S. Postal Service (USPS), significantly accelerating when it will face a liquidity crisis and be unable to provide basic services. Even if that liquidity crisis is after the COVID-19 pandemic subsides, this must be avoided as it would grind the American economy to a halt and disrupt daily life.
It is likely that the U.S. Treasury will soon increase a $15 billion line of credit to USPS. That is probably unavoidable. At the same time, Treasury should not issue a blank check as doing so would let Congress off the hook from undertaking overdue and much necessary holistic postal reform to address structural challenges the Postal Service faces.
In a five-year integrated financial plan issued on January 15, 2020, USPS said, “…we expect to run out of liquidity by 2021 if we pay all our financial obligations – and by 2024 even if we continue to default on our year-end, lump sum retiree health-benefit and pension related payments.”
Prior to the COVID-19 crisis, USPS projected a $7.6 billion net loss in Fiscal Year 2020 in its Integrated Financial Plan for Fiscal Year 2020. The organization also has a negative net worth of more than $65 billion and unfunded liabilities of more than $140 billion.
The Treasury Department line of credit has been essential for the Postal Service to continue to serve the public.
Shutting Down is Not an Option
Fifty year ago this week, in response to a postal workers’ strike that halted mail delivery, President Nixon declared a national emergency and called out the national guard to deliver mail. Sound familiar?
The Postal Service remains essential to the U.S. economy even though mail delivery has plummeted and less than half of bills are now paid this way. A halt, or significant slowdown in postal operations, would be catastrophic.
Legislative Postal Reform Should Occur by July 2021
On December 4, 2018 the Treasury Department issued a comprehensive report about the need for postal reform along with 25 legislative and administrative recommendations.
Key issues include defining the Universal Service Obligation (USO), the minimal, basic services that will be provided and how they will be paid for. Adjustments should be made to USPS’s payment obligations for its retiree health benefits based on the population of employees at or near retirement age.
USPS should also take a more granular approach to understanding its costs on a per product basis, as discussed by the USPS Office of Inspector General in a September 17, 2019 report.
Given the structural issues that USPS faces, the effects of COVID-19 and years of failing to address this issue, Congress should enact comprehensive postal reform as soon as possible and no later than July 2021.
The structural issues and challenges that USPS faces were discussed by leaders throughout the postal world at a March 6 Capitol Hill Postal Reform Conference hosted by the Lexington Institute. To view presentations click here.
About the Author: Paul Steidler is a Senior Fellow with the Lexington Institute, a public policy think tank based in Arlington, Virginia.
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