“The interest rates on the individual notes range from 0.135% to 3.7% with maturities ranging from less than one month to 25 years.”
Alliance Report – October 7, 2014
When the Postal Service was down to about as many days of cash as you can count on one hand, it had a pretty compelling narrative to convince everyone including Congress that major new legislation was needed. In its latest 10-Q financial report, USPS has changed from quoting the exact number of days to “the present cash balance can fund less than one month of operating activity.” To be clear, that means if all revenue were turned off which will never come close to happening.
The compelling reason for reform voiced by USPS management has changed from we’re about to run out of cash to we need about $5 billion to update our truck fleet by 2017. Another oft-repeated goal is to be debt-free by a future date. Actually, when the USPS was recreated as a businesslike entity in 1970, a $10 billion debt limit was put in place as a businesslike means to finance long- term assets that a large operation would need. Very low-cost financing was set up at the Federal Financing Bank in the US Treasury, at 1/8 of a percent over Treasury rates.
In the mid-1990s, Postal Service management made the case that with inflation its debt ceiling should rise to $30 billion; Congress raised it to $15 billion. Of course, we all know that USPS is currently using the full $15 billion financing capacity. Its latest 10-Q attests to the great rates it gets:
“The interest rates on the individual notes range from 0.135% to 3.7% with maturities ranging from less than one month to 25 years.”
It is clear that there are political reasons to advocate being debt-free, and to never increase the amount of debt above $15 billion. Otherwise the pressure for reform might be off. On the other hand, there are sound business reasons to finance long-lived assets with long-term financing, especially if you can obtain it at a very reasonable cost. As another element of perspective, this year’s USPS net interest expense will be about $160 million as compared to $72 billion in annual operating expenses, or 0.2%.
The Hill newspaper ran an article recently headlined “Hopes Dimming for Postal Reform.” It quoted Rep. Elijah Cummings (D-MD) the top Democrat in the House Oversight Committee as saying that the chances for a deal by the end of this year are “zero.” Rep. Cummings went on to say: “Before there was more of a sense of urgency, and I don’t think the sense of urgency is still there.” While Senate Oversight Committee Chairman Sen. Tom Carper (D-DE) expressed optimism about getting something done during the lame duck session after the November elections, his Republican counterpart on the committee Sen. Tom Coburn (R-OK) said: “You need to ask Carper what his conversations have been with the majority leader.”
Clearly, the lack of a real crisis at the Postal Service has combined with a Congress that is having trouble passing any legislation to make comprehensive Postal reform legislation very unlikely.