The USPS funding crisis is bigger than the election, experts warn



The U.S. Postal Service is consistently viewed favorably by an overwhelming majority of Americans, but it has come under fire in recent months over its ability to stay solvent during the COVID-19 pandemic and to handle election mail in November.

Concerns about the election have been compounded by comments made by President Donald Trump, who has threatened to withhold funding from the independent agency because it would expand mail-in voting.

On top of this, new Postmaster General Louis DeJoy’s recent efforts to initiate cost-cutting measures before the end of USPS’ fiscal year on Sept. 30 have sparked Congressional review because he’s a major Trump donor who was appointed by a USPS board of governors with strong ties to Trump and the Republican Party.

Amid the increased concern about election security are key issues relating to USPS’ financial outlook that have plagued it for years. These include threats from competitors and customers like Amazon, UPS and FedEx, billions of dollars in debt, costly pension and health benefits and the shift toward digital communication and marketing.

Although it’s evident the Postal Service needs financial relief, numerous experts said getting through the election isn’t really at issue.

Even USPS itself, which initially expected to run out of money by the end of September, adjusted its forecast to either March or October 2021, thanks to the surge of pandemic-related shipping, which has enabled it to weather the pandemic better than expected.

Plus, it currently has more than $14 billion in cash and a $10 billion line of credit under the CARES Act. It’s also possible Trump, who has sent mixed messages regarding funding USPS, will agree to provide an additional $25 billion in bailout money.

While USPS is a government agency with federal employees, it doesn’t get taxpayer money and instead depends on commercial activities like selling postage, products and services to self fund.

Its current resources are more than enough to enable it to deliver ballots and handle any election-related mail, according to Kevin Kosar, an executive at the R Street Institute think tank who spent over 10 years covering postal issues for the Congressional Research Service.

“Trump has confused a lot of people by conflating the post office’s situation with voting by mail. Trump said that somehow the post office needs $25 billion to handle all these ballots, and that’s not right,” Kosar said. “The people who need money for voting by mail are state and local election administrators whose budgets did not anticipate this level of demand.”

Kosar said he’s concerned that the $25 billion bailout currently being considered by Congress is problematic because it amounts to a blank check that won’t actually help the Postal Service.

“It’s not doing things to better control its costs, it’s not giving it additional pricing authority, which are things you need if you want to balance your books,” Kosar said. “It’s basically forbidding the Postal Service from continuing what it’s been doing for years — reducing the number of post offices, blue collection boxes, mail processing machines — in an effort to curb their growing costs. The bill basically says quit doing that, which is not good for the Postal Service.”

Kosar, who acknowledged the Postal Service has major problems, says Congress should instead try to enact actual changes that help the Postal Service succeed in the 21st century.

Congress currently requires the Postal Service to deliver paper mail six days a week even as demand falls, resists the closure of underused post offices and sorting facilities, generally prohibits USPS from raising prices beyond the rate of inflation and requires it to use a largely unionized workforce. All of which amount to high costs, according to Kosar.

The Postal Service has lost more than $78 billion in recent years, including $8.8 billion in 2019. It also has more than $150 billion in unfunded liabilities and debt — more than double its revenue of $71.1 billion in 2019.

Part of the Postal Service’s problems are tied to the 2006 Postal Accountability and Enhancement Act, which required it to pre-fund its retiree health benefits.

But it also faces a marketplace where changes in digital advertising and communication have led to a decline in first-class mail, typically its largest source of revenue.

USPS has seen its parcel delivery service increase steadily in recent years and is now nearly on par with its first-class mail in terms of operating revenue. However, despite increases in parcel delivery, first-class and marketing mail continues to make up the vast majority of USPS activity in terms of volume.

While the Postal Service has a virtual monopoly on first-class mail deliveries, it faces stiff competition in the delivery of parcels from commercial entities like UPS, FedEx and Amazon. These companies are competitors but also serve roles as customers and key partners for the Postal Service.

“There are partnerships and there’s uncomfortable competition between them. They’re frenemies,” Kosar said.

All three companies depend on the Postal Service’s commitment to providing “universal service.” They rely on its vast and established national delivery network for their “last mile” deliveries to rural and remote areas where their own resources are limited.

But they also compete for delivery services. The Postal Service’s revenue of $71.1 billion in 2019 is comparable to its two main delivery competitors: UPS had $74.1 billion in annual revenue and FedEx had $69.7 billion.

Amazon, which helped drive the Postal Service’s surge in parcel deliveries, also poses a major threat as it builds out its own logistics network with a delivery fleet and lockboxes.

USPS acknowledged this in its 2019 annual report, saying the increase in service volumes over the past five years “is largely due to significant volume growth from three major customers, all of which are building the delivery capability that would enable them to divert volume away from the Postal Service.”

If that volume is diverted, the Postal Service warns that growth in this area may not last.

USPS also relies on these companies for help with its own deliveries, namely air transportation since it no longer owns or operates aircraft, said Mark Jamison, a retired postmaster who serves as an adviser to the website Save the Post Office.

“Both UPS and FedEx are two of the largest vendors that the Postal Service pays. FedEx flies most of their priority mail,” Jamison said. “FedEx and UPS have huge contracts with the Postal Service for services they provide. The Postal Service is paying them huge amounts of money.”

The 2019 annual USPS report notes that “a significant disruption in air transportation service could adversely affect our business and results of operations,” as could negotiations over terms of service with these companies.

“The Postal Service is reliant on these other companies, as well,” Jamison said. “You have all these weird relationships and postal reform is really needed to address all that.”



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