USPS ‘nearly breaking even’ if House-passed reform bill becomes law

The day after the House passed a bill to repeal the Postal Service’s mandate to pre-fund health care benefits for future retirees, USPS leadership see the legislation as a positive step in the long road to overhauling its business model and its financial outlook.

While the Postal Service saw its “best holiday peak period in recent history,” according to Robert Duncan, the chair of its Board of Governors, USPS still posted a net loss of $748 million in the first quarter of fiscal 2020. However, that net loss is about half of the $1.5 billion net loss the agency reported for the same period last year.

Had Congress already passed the USPS Fairness Act into law, USPS Chief Financial Officer Joe Corbett said it would have improved the agency’s fortunes by about $1.2 billion this quarter.

“We’re very nearly breaking even, were it not for pre-funding,” said Governor David Williams.

While the USPS Fairness Act would remove an “onerous requirement” for USPS to pre-fund its retiree health benefits, Duncan said the legislation by itself would do nothing to remedy the agency’s cash flow problems or its long-term financial position.

Postmaster General Megan Brennan warned members of the House Oversight and Reform Committee last April that, absent legislative or regulatory fixes, USPS would run out of cash by 2024.

In a call with reporters Thursday following the board meeting, she doubled down on that warning, and stressed that if the Postal Service does run out of cash, it would become “a crisis that will literally threaten our ability to deliver the mail.”

“The reality is we’re going to continue to advocate for responsible reform — that’s both legislative and regulatory reform — and continue to emphasize the urgency of getting legislation passed, because 2024 is not that far out,” Brennan said.

While Brennan said postal leadership would be “grateful” if the Senate and President Donald Trump approved the bill to eliminate the pre-funding mandate and forgive payments that USPS defaulted on, she cautioned that the bill is on “only a first step” toward a sustainable business model.

“For the Postal Service to continue to meet our universal service obligation and serve as the backbone of the nation’s delivery infrastructure, Congress will need to make a series of legislative changes that will allow us to transform our business model,” Brennan told the board.

As for what those next steps from Congress would look like, Brennan clarified to reporters that USPS management is developing strategies with its board that will identify financial “headwinds” and the impact of financial trends in the coming years.

“We will outline options available to the Postal Service — those that are within our control, and those that would require policymakers to approve,” she said.

Beyond legislation, USPS also seeks greater flexibility to set prices from the Postal Regulatory Commission, which has proposed allowing USPS to set postal rates higher than the rate of inflation under certain conditions.

The PRC, under a proposed rule, would keep a price cap on USPS market-dominant products, but would base that cap on factors like declining mail density, and mandatory payments to fund health benefits for future postal retirees.

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On Monday, the deadline to submit comments, USPS attorneys wrote that while the PRC made “significant improvements” compared to a rate-setting proposal it introduced in December 2017, the agency still requests further changes from its regulator.

“While these revisions are positive steps, the Commission’s new proposal unfortunately still falls far short of remedying the effects of the legacy ratemaking system and of giving the Postal Service a realistic opportunity to maintain financial stability,” USPS wrote its comments to the PRC. 

As for cutting costs within the Postal Service’s control, the board approved an integrated financial plan for 2020 that looks to cut 16 million work hours over the coming year.

This quarter alone, Brennan said USPS “aggressively managed operating expenditures” by cutting six million works hours. By comparison, the plan USPS released in 2019 planned to cut 9 million work hours over the course of the year.

Corbett said those work-hours cuts stood out as the largest reduction “in recent memory.”