The U.S. Postal Service loves to say it “receives no tax dollars for operating expenses” and relies on sales to fund operations. It shies away, though, from discussing a $15 billion low-interest line of credit from the U.S. Department of Treasury. Without this, the Postal Service would be broke, and operations would grind to a halt.
That credit line is in danger of being significantly reduced as the U.S. Treasury pulls out all the stops to avoid a federal default and keep the national debt below the $22 trillion ceiling. According to the Congressional Budget Office, Treasury will exhaust the ability for financial juggling that avoids breaking the ceiling by late September or early October.
One of the first juggling maneuvers was on March 4. Treasury Secretary Steven Mnuchin informed Congress he was suspending new investments in the Postal Service’s Retiree Health Benefits Fund (PSRHBF) because the country had entered a debt issuance suspension period. As bonds come due in the PSRHBF, they will not be reinvested in Treasury securities, the only vehicle for these investments. This keeps Treasury’s debt lower.
Temporarily or permanently reducing the $15 billion credit line would provide additional cash for Treasury’s highest priority obligations, such as Social Security checks for the elderly. This may buy some time for a bitterly divided Congress to address the debt ceiling.
The Postal Service has had debt financing agreements with the Treasury Department since 1999. These were routinely rolled over for one-year extensions, but that changed in September when only a 90-day extension was agreed.
The Postal Service wanted more and expressed concern in a September 28 financial filing, saying, “Reducing the duration of the Agreement from one year to 90 days introduces significant uncertainty as to how USPS might fund operations in an expeditious and established manner in the face of unpredictable revenue short-falls. USPS is attempting to negotiate a longer extension before December 31, 2018.”
Three two-month agreements have subsequently been implemented. The current one expires June 30. Interestingly, the Postal Service did not make a required filing about this extension until May 3, three days after the previous agreement expired.
Clearly, the Postal Service needs this cash. For December 31, the latest period for publicly available information, the Postal Service reported $9.3 billion in cash and $13.2 billion borrowed from the Treasury. The likelihood of a near-term improvement from business operations is remote. The Postal Service is budgeted to lose $6.6 billion in fiscal year 2019. Its traditionally best quarter ended December 31.
While Treasury may be able to cut the credit line by a few billion dollars when the June 30 renewal comes up, going any further could trigger financial insolvency at the Postal Service. Mail and package delivery could be interrupted.
Treasury, though, has the right to demand more from the Postal Service. For starters, the Postal Service has missed $48.2 billion in required payments for postal retiree health and pension benefits. The Postal Service often sounds less than enthusiastic about a President commissioned Postal Service Task Force report Treasury issued in December.
Congress should take the following steps:
- Obtain details of the recent amendment agreement, including whether there was a temporary, technical interruption in financing.
- Ask the Postal Service to develop and share a contingency plan in case financing is significantly cut.
- Focus on placing higher priority on postal reform and finding budget and debt ceiling solutions.
There will likely be added impetus Friday, when the Postal Service announces its quarterly financial performance and has a call with stakeholders.
The Postal Service’s finances are a mess with the potential to soon unravel and wreak economic havoc. There is certainly time to avoid a crisis this fall. But the pattern of kicking postal reform down the road must end.
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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