The head of the U.S. Postal Service warned that service reductions and price increases could be an option if Congress doesn't move to increase the agency's borrowing limit.
In prepared remarks at a U.S. House of Representatives subcommittee hearing Tuesday, Postmaster General and CEO David Steiner said the Postal Service is set to run out of cash in about a year. He attributed the financial challenges in part to universal service requirements, a steep decline in mail volume since 2006, regulatory pricing restrictions and pension payment obligations. But the "most urgent" issue is the $15 billion borrowing cap unchanged since 1992, according to Steiner.
"This limit is one reason we were forced to defer capital improvements for many years, leading to a deterioration in our network that we are still trying to recover from," he said. "If you applied inflation over 30 years to that borrowing limit or looked at it based on revenue, the limit should be $30 to $40 billion."
In its most recently reported quarter, the Postal Service said it reached the $15 billion cap and had no borrowing capacity while also posting a net loss of nearly $1.3 billion. If nothing is done to address the shortfall, the Postal Service would eventually be unable to pay employees and contract transportation providers, meaning "it's highly likely that the mail will stop," Steiner said.
The ideal path forward for the Postal Service involves policy adjustments that would cut its financial losses by almost half without reducing service or increasing prices, Steiner said. This includes raising the borrowing limit via legislative change, changes to retiree pension benefit funding rules and workers compensation administration reform.
"They would demonstrate to the American public that their government is making great strides in reducing the losses borne by the Postal Service, and therefore protecting the long-term provision of universal postal services," Steiner said of the proposed reforms.
A less palatable path ahead could entail service cuts and price increases, according to Steiner. The Postal Service is mandated by law to deliver to every U.S. address six days a week under its universal service obligation, an undertaking that costs billions of dollars.
Steiner said 71% of delivery routes are "financially underwater," and the agency estimates it would save up to $3.5 billion annually by reducing one day of delivery per week. Congress could give the Postal Service the flexibility to reduce delivery days and greater legal authority to make changes within its post office network, he added.
"The simple financial solution would be to cut the number of days of delivery, and Post Office locations, which I don’t believe is anybody’s preference," Steiner said. "But if we are expected to deliver six days per week, absent the volume or pricing authority to justify or afford it, some source of funding beyond postal revenue needs to pay for it."
Steiner said it's unlikely that Congress or the public would tolerate large-scale service and pricing changes, which would leave raising the borrowing limit and implementing other reforms as the "Goldilocks" option.
"These reasonable changes amount to billions in savings and provide us the time and space to take continued self-help actions and to have the discussion about what the Postal Service should do to best serve the American public," Steiner said.
