If you’ve checked the Internet lately, you may have seen news pieces on the imminent demise of USPS. In fact, it’s difficult to avoid the subject. With the upcoming Presidential election, the Postal Service has become a political football between Democrats and Republicans. On one hand, Democrats keep pushing the message that USPS will go out of business without federal aid. On the other, some Republicans believe USPS should be privatized and raise its rates to make more money. Now, President Trump has cited mail-in-voting as a reason to oppose funding USPS, even though voting by mail is the only way many Americans will be able to cast their votes this year due to the Coronavirus pandemic. Amidst the conflicting messages, mainstream media outlets have adopted Democrats’ viewpoint that USPS is failing. However, most of these messages circulating are rooted in hyperbole, rather than in truth.
Don’t Believe the Media Messages that USPS is Going Out of Business
Recently, the media has portrayed the Postal Service as a cash-strapped organization that lacks the capacity to function properly. Package volume is now higher than it’s ever been, yes, and this has resulted in some strains on postal infrastructure. That said, data shows that USPS has actually been increasing in performance. USPS is an incredibly large organization, with hundreds of millions of mail pieces passing through its network each day. A small number of delays and lost packages relative to total volume have always been unavoidable. Since more packages have entered the network due to eCommerce growth amidst the pandemic, critics argue that delays and missing packages have become more widespread. However, the margin of error has remained nearly the same as it was before COVID-19.
It’s true that there are some pockets of service backlogs in very specific locations. These backlogs are likely related to local issues such as COVID-19 infections, staffing impacts at local Post Offices, or cutoff times for working that USPS is testing in specific regions. Speaking on operational efficiencies, Postmaster General Louis DeJoy said the following in a memo to employees on August 13th:
“I congratulate you on substantial improvements in our on-time dispatch schedule, which reached 97.3 percent, up from 89.8 percent. We also have reduced extra trips by 71 percent — a tremendous achievement. This means more mail is being moved to its intended destination on time and on schedule than in quite some time. And, we accomplished this in a cost-effective manner. This marks the beginning of our journey toward world-class performance necessary for us to compete and be sustainable.”
Pre-Funding Legislation: the Real Reason for the Postal Service’s Troubles
The real reason behind the Postal Service’s financial troubles goes back to 2006, when Congress enacted legislation called the Postal Accountability and Enhancement Act. This legislation required USPS to make federally-mandated payments several times a year to set aside money for future employees’ retirement and health benefits up to 75 years into the future. As a result, USPS was shelling out massive amounts of cash for the benefit of future employees who haven’t even been born yet. These federally-mandated payments were onerous, and carved out a huge hole in the Postal Service’s finances. Ever since USPS began making these payments in 2007, the organization began operating at a net loss each year. Once the media caught wind of this, they began painting USPS as a debt-riddled organization that could go out of business any day. Although, before the first pre-funding payment in 2007, USPS had always operated in the black.
Coincidentally, USPS owes one of these payments to the Treasury at the end of September, in the amount of $8 billion. The good news is, USPS can simply default on these payments without any real recourse. In fact, that’s exactly what the organization has been doing for the past few years. If USPS actually were to make these federally mandated payments, it would bankrupt the organization almost immediately. However, without any recourse, there’s simply no reason for USPS to make these payments and shoot themselves in the foot.
Another thing to mention is that this $8 billion payment would be directed into retirement funds that are already well-funded enough. Missing—or defaulting on—this payment won’t create any kind of crisis. In fact, USPS has some of the best funded retirement plans around. For example, a portion of this $8 billion would have gone to the Postal Service’s Retiree Health Benefit Fund. If no payments find their way into this particular fund, then it will run out of money 10 years from now…3 years after Medicare itself goes broke.
USPS Doesn’t Need the $10 Billion Loan from the Treasury
In addition to the pre-funding payments, the bigger issue is that USPS recently to accept a $10 billion loan from the Treasury. This amount of money will subsequently be available to the Postal Service, should the organization need it. However, USPS doesn’t need to take this loan, because it actually has a cash balance of $12.9 billion on hand. According to the postal insiders, this is a historically high level of cash for the organization.
The Postal Service’s daily cash burn to operate hovers right around $220 million. Judging from that figure, the amount of cash USPS has on hand translates to roughly 58 days of liquidity. If USPS defaults on the $8 billion it owes the Treasury, it will still have $12 billion on hand. Not to mention that package volumes are still on the rise. Consequently, so is revenue from these services.
In addition to that, this year’s Presidential election will see a massive influx of vote-by-mail ballots, since voters have limited in-person polling options due to continued social distancing ordinances. USPS makes a small amount of revenue off of mail-in-ballots, as well. Depending on individual states, USPS classifies mail-in ballots as either Marketing Mail or First-Class Mail, and mailing services are precisely how USPS makes the majority of its money. As a result, the upcoming Presidential election is set to inject another boost into the Postal Service’s finances.
In a Nutshell…
Despite the media’s messages, support for USPS comes from both sides of the political aisle. Democrats or Republican, no one wants to see the organization fail. The Postal Service is America’s most beloved institution, and has consistently ranked as such several years in a row. However, most media outlets’ reports about the USPS “cash crisis” haven’t taken into account all of the facts. In reality, the idea that USPS is desperate for cash and going out of business is simply not true.
No, the Postal Service is not going under. For a simple explanation why, here’s what it all comes down to: USPS doesn’t have to make any enormous federally-mandated payments to the Treasury, package revenues are on the rise and will continue to increase, and the unprecedented amount of mail-in ballots for this year’s election will create added revenue at a perfect time. With all this evidence, it’s difficult to believe the claims that is USPS going out of business anytime soon.