To fix USPS, everything needs to be on the table. Image: Your Hand Please/Shutterstock.com
By: Paul SteidlerOn April 6, 2022 as President Biden signed the Postal Service Reform Act (PSRA), there was abounding yet misplaced optimism that the U.S. Postal Service had turned the corner financially and would have a bright future.
Congress provided USPS with $107 billion in assistance from PSRA, on top of $10 billion from the December 2020 COVID package. Also in April 2022, USPS’s 10-year strategic plan said it would be breakeven in fiscal year 2023 if PSRA were enacted and if it received a far smaller amount of assistance through an adjustment stemming from a pension accounting dispute with the Office of Personnel Management. The latter has not happened.
Instead, tomorrow USPS will announce it has lost well over $7 billion for fiscal year 2023. This not only is far worse than expected in April 2022, but significantly higher than the $4.5 billion loss USPS forecast a year ago for fiscal year 2023 while anticipating a “mild recession,” i.e., a far tougher economic environment than occurred.
The financial problems facing USPS are structural, including the following, based on a report USPS filed with the Postal Regulatory Commission that tracks its performance in the first 11 months of fiscal year 2023 compared with USPS’s initial projections.
Plummeting mail volume. Twice a year, above-inflation rate increases have accelerated the reduction in mail volume at USPS. It is down 8.8 percent, more than twice what was projected and far above the historical trend of a 2.5 percent decline in the past 15 years.
Ballooning network construction costs. As USPS continues implementing a comprehensive network redesign of its sorting and delivery centers, costs for this work are rising. While USPS says this will lead to the efficiencies necessary for a financial turnaround when this will occur and by how much is unclear.
Flat package market. Package volume is down 2.3 percent versus projections of being flat this year. This is particularly concerning as the network redesign plan is based on an assumption of significant growth in package volume.
Lower productivity with a near-term turnaround unlikely. In its Fiscal Year 2022 Annual Compliance Report filed with the Postal Regulatory Commission, USPS reported its overall productivity declined by 1.7 percent to the lowest level in seven years. With mail volume down sharply, package volume down, and the time frame for when the network redesign will have its benefits kick in, further reductions in productivity, and corresponding financial decline, seem likely to continue.
To fix USPS, everything needs to be on the table. It needs to be able to invest its retiree health care and pension assets into a diversified mix of stocks and bonds for higher returns. Cost of living allowances need to be scrutinized. Cost allocation systems need to be overhauled so that every product sold is clearly breakeven or profitable.
These are major issues that merit comprehensive Congressional oversight hearings. Otherwise, the American people will be on the hook for even greater amounts of assistance to USPS and no guarantee that USPS will be able to operate in a self-sustaining manner, that is, without running annual deficits and defaulting on its retirement funding obligations.
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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