USPS outlines borrowing terms for $10 billion loan through the CARES Act

Included within the $2 trillion CARES (Coronavirus Aid, Relief, and Economic Security Act), which was signed into law by President Trump in late March,  the United States Postal Service (USPS) received an additional $10 billion in borrowing authority to address operating losses caused by the COVID-19 crisis, subject to terms and conditions imposed by the Treasury.

This loan comes at a time when federal financial assistance is direly needed by the USPS, as noted in a recent Washington Post report, which noted that the combination of the USPS’s fiscal outlook, the White House’s insistence on the USPS increasing its package rates, private sector competitors taking major steps to boost their respective delivery network, and USPS leadership saying at the onset of the COVID-19 pandemic that the USPS could be insolvent by October, are all looming, as the organization tries to right the ship.

With the $10 billion loan to the USPS secured, the USPS today issued a statement, laying out the terms in which it will provide the United States Department of the Treasury with specific information regarding the organization’s costs, revenues, and overall financial position, which includes providing Treasury, under strict terms of confidentiality, with those contracts that generate the most revenue for the Postal Service.

“Providing this information is merely an acknowledgment of the fact that Treasury has been designated by Congress as the lender for the Postal Service, and it therefore has a legitimate interest under certain circumstances in understanding those factors that affect our current and projected financial position,” USPS said in a statement. “Other conditions, such as the requirement that borrowed funds only be used for operating expenses, and not for capital expenses, were expressly mandated by Congress in the language of the CARES Act.

In its fiscal second quarter earnings release, which was issued in early May, the USPS reported that total revenue, of $17.8 billion, marked an annual increase of $348 million.

And it added that the COVID-19 pandemic’s impact on USPS volumes became apparent in late May, when daily mail volume saw declines, which has subsequently gotten worse.

The U.S. Postal Service reported total revenue of $17.8 billion for the second quarter of fiscal 2020 (January 1, 2020 - March 31, 2020), an increase of $348 million, compared to the same period last year.

What’s more, when it issued these earnings, the USPS said that it is estimated that the COVID-19 pandemic will substantially increase the Postal Service’s net operating loss over the next eighteen months, and threatening its ability to operate. 

In early April, a letter penned to United States Secretary of the Treasury Steven Mnuchin by John McHugh, chairman of The Package Coalition, a concern comprised of U.S.-based retail and e-commerce companies supporting fair competition in the package delivery business and the preservation of reliable package delivery services, called on Mnuchin to give the United States Postal Service (USPS) some leeway in regards to the CARES Act.

 Specifically, the Package Coalition asked Mnuchin “that Treasury not impose onerous terms and conditions—including harmful policy changes—on the Postal Service in exchange for COVID emergency-related borrowing.”

The letter explained that the CARES Act provided the USPS with an additional $10 billion in borrowing authority to address operating losses caused by the COVID-19 crisis, subject to terms and conditions imposed by the Treasury. What’s more, it added that Treasury should allow the USPS access to COVID emergency-related borrowing without conditions and that it would be inappropriate for Treasury to use this emergency-related borrowing authority to implement harmful policy changes advocated by the President’s Task Force on the U.S. Postal System.

The financial issues of the USPS come as no surprise, given commonly cited reasons related to its ongoing revenue declines in First Class and Marketing Mail, which USPS said each continue to see declining volumes, coupled with volumes expected to fall further in the future, due to what the USPS has called the “migration to electronic communication and transactional alternatives resulting from technological changes.” Things like e-mail, texting, and other electronic communications channels continue to hinder First-Class Mail, too.

In December 2018, the USPS’s precarious financial situation prompted the U.S. Department of Treasury to issue a Task Force report on the USPS, entitled “United States Postal System: A Sustainable Path Forward,” which it said provides a series of recommendations to overhaul the USPS business model in order to return it to sustainability and not shift additional costs to taxpayers.

Topics studied by the Task Force, according to the report, included: the expansion and pricing of the package delivery market and the USPS’s role in competitive markets; the decline in mail volume and its implications for USPS self-financing and the USPS monopoly over letter delivery and mailboxes; the definition of the “universal service obligation” in light of changes in technology e-commerce marketing practices, and customer needs; the USPS’s role in the U.S. economy and in rural areas, communities, and small towns; and the state of the USPS business model, workforce, operations, costs, and pricing.

“Now is not the time to force the Postal Service to limit access to postal package delivery services,” wrote The Package Coalition’s McHugh. “More than ever, Americans are relying on the Postal Service as a lifeline to deliver medicine, ecommerce products, and mail and package deliveries to connect people sheltering in their homes with their loved ones. In the near term, the Postal Service may play a critical role in distributing testing kits, stimulus checks and absentee ballots as Americans weather the challenges of the current crisis. Now is not the time to force the Postal Service to raise prices on its package delivery services business by changing costing rules or separating business lines within the Postal Service. Such changes would harm, not help, consumers and businesses, especially those in rural and remote areas of the country where the Postal Service is the only affordable delivery alternative. The only beneficiary of such policy changes would be private express companies who operate in competition with the Postal Service.”

In a recent interview, John Haber, founder and CEO of Atlanta-based Spend Management Experts, told LM that the balance between helping the USPS in the short-term and further damaging them in the long-term is very delicate. 

“While we have been preaching that reform is going to be mandatory for the USPS to continue to function over the long-term, it’s dangerous to tie some of these changes to the COVID-19/CARES ACT funding as advocated by the President’s Task Force on the USPS,” he said. “This decision needs to be re-evaluated as requested yesterday by The Package Coalition, The USPS Board of Governors and The USPS Postmaster General.  We are in agreement that protections must be built into the funding to ensure that the $10B in additional funding is used wisely and appropriately.”