The United States Postal Service has been in financial trouble for years, and some are concerned that it may shut down because of the significant spike in costs due to the COVID-19 pandemic.
Sen. Charles E. Schumer, D-N.Y., announced Monday that he would push for $25 billion in federal support to keep the service from closing down, as part of the next round of COVID-19 relief legislation.
The USPS has been reporting losses for over a decade, and the Government Accountability Office released a report in 2017 that classified the service as “high risk,” a classification that indicates that a government operation is very vulnerable to fraud, waste, abuse and mismanagement,
Since that report, few of the concerns that the postal system has been reporting have been addressed, and the service has remained “high risk.”
USPS is a unique service of the federal government in that it is only supported by its own revenues, much like a private business usually operates. In 2006, the government moved to modernize the system with the Post Office Accountability and Enhancement Act, which mandated that the USPS deliver mail six days per week, updated rate setting and classifications of mail items, and required that the service prefund health and retirement benefits for all employees for 50 years.
That last requirement, to prefund employee benefits for 50 years, is unique to the postal service. No other entity, in the public or the private sector, is required to prefund their retirement benefits. Normally, organizations pay those costs as they arise, and balance their retirement program budgets actively, based on current numbers, not anticipated ones.
Former Congressman John McHugh was chairman of the House Oversight Committee’s Postal Service Subcommittee, and cosigned the PAEA in 2006. He now serves as the chairman of The Package Coalition, an industry group that advocates for the postal system and the inexpensive package delivery services that it offers.
“I didn’t support that provision at the time,” he said. “This was an 11-year undertaking and the chairman of the full committee, in a spirit of compromise, agreed to accept it. It originally came from the Bush administration, who felt, in theory, if you were going to allow the postal service to compete like a private business, we should require it to, in areas like its benefits, operate like a private business and fully fund it.”
According to a report sent to the Senate Committee on Homeland Security and Governmental Affairs in 2013 by Dean Baker, co-director of the Center for Economic and Policy Research, the prefunding requirement mandates that the postal service put an extra $5.6 billion per year into their benefits program, equivalent to 8 percent of their annual revenue. In 2012, the USPS started defaulting on its benefits payments, but the service’s Inspector General Tammy Whitcomb said that regardless, it was the direct cause of the service’s $15 billion debt in 2015.
Enter the coronavirus. The postal service was in a financially unstable position before the pandemic, and it has only gotten worse since April. As the pandemic swept the United States, mail volumes dropped by more than 30 percent from last year’s numbers, and the postal service projected losses of over $22 billion over the next 18 months, as reported by the Associated Press. On top of that, the service has had to purchase personal protective equipment for its national operation, which only further reduces the potential for profit.
In early April, as the pandemic worsened around the country, former Postmaster General Megan Brennan told members of the House Oversight and Reform Committee that the USPS will “run out of cash this fiscal year.” She projected a $13 billion loss in revenue for 2020 that would balloon to $22 billion within 18 months, and asked for $75 billion in total financial aid.
Congress approved a $10 billion loan to the USPS in the CARES Act, but President Donald Trump said that the postal service would need to charge Amazon more for package deliveries if they wanted to see the money. The president has routinely criticized the way that Amazon uses the service to send packages, and has called for them to increase package shipping prices four times over. The administration and USPS have yet to come to an agreement over the issue, and thus the service has yet to receive the loan.
Mr. McHugh said that package delivery nets USPS a significant profit, over $8 billion. If prices were to increase, all of that profit would likely disappear as consumers and businesses switch to cheaper competitors, like UPS and FedEx.
A move like that could significantly affect people who live in rural regions like the north country.
“For consumers, particularly people out in remote and rural areas like you find in the north country, it would be devastating,” Mr. McHugh said. “Especially in this time with the COVID-19 pandemic where people are getting necessary supplies through package delivery and the USPS, everything from food to medicine to household goods. That, potentially, could all go away. For many parts of the north country, for many communities and residences throughout the Adirondacks, there really isn’t another choice. The private express carriers like Fedex, like UPS, don’t go there.”
Experts and government leaders, including Sen. Schumer, have stressed that any meaningful economic recovery from the pandemic will rely, in part, on a financially stable, efficient postal service.
“The fight to keep our post offices open by injecting the dollars needed to do the job and purchase the personal protective equipment and cleaning supplies required to keep everyone safe will begin tomorrow, and I am here to say: I vow to lead it,” Sen. Schumer said in a statement.