Inside Trump’s war on the postal service

So what’s going on and what’s changed? Here's a breakdown of what has happened in the last few days.

President Donald Trump admitted Thursday morning that he was intentionally blocking federal funding to the U.S. Postal Service to discourage the use of mail-in ballots in November’s elections.

“Now, they need that money in order to make the post office work, so it can take all of these millions and millions of ballots,” Trump said in an interview with Fox Business Network’s Maria Bartiromo. “Now, if we don’t make a deal, that means they don’t get the money,” he added. “That means they can’t have universal mail-in voting, they just can’t have it.”

The next round of stimulus funding for businesses, local governments and individuals impacted by the virus is being held up largely due to Democrats’ desires to fund the USPS, the president said. House-backed legislation would provide the Postal Service with $25 billion and also undo restrictions imposed on the agency in relation to a $10 billion line of credit recently extended to them by the Treasury.  

Trump’s message comes as rapid changes at the Postal Service have left Americans, politicians and even postal workers and their union representatives scrambling to figure out what’s happening, why it’s happening, and what it all means. 

A slew of of new policies, staff shake ups, and loan agreements have been instituted in the past month by newly-minted postmaster general Louis DeJoy, making it hard to keep track of what’s shifting and how. The changes also come as the Postal Service, already hemorrhaging funds and predicting potential bankruptcy within a year, posted dismal third quarter returns last week which DeJoy called “dire.” 

So what’s going on and what’s changed? Below is a breakdown of what you need to know.

Broken Business Model

The disappointing third quarter numbers came as DeJoy—a Republican fundraiser and Trump ally—announced a sweeping reorganization plan for the Service just three months after taking on the role. The changes include replacing 23 executives, including the two in charge of day-to-day operations.

Critics of DeJoy say that these shifts are an attempt to consolidate and centralize power around himself. DeJoy, however, claims that these changes must happen because the USPS operates on a “broken business model.”

DeJoy wrote in a memo released Friday that “without dramatic change there is no end in sight and we face an impending liquidity crisis.” DeJoy also announced a hiring freeze amongst managers and is seeking approval for an early-retirement scheme for non-union postal workers. 

DeJoy also announced that he would divide the service into three distinct “business units”: retail and delivery operations; logistics and processing; and commerce and business solutions. He added what he called “c-suite” positions to the agency: Scott Bombaugh will serve as the acting chief technology officer, Steve Monteith as the acting chief customer and marketing officer, and Pritha Mehra will serve as the acting chief information officer. The new roles are intended to “reduce our cost base and capture new revenue,” said DeJoy.

But union officials say that the shake ups are adding to mail delivery delays, which were already exacerbated by DeJoy’s decision to curtail overtime hours, multiple truck runs and more. “If we cannot deliver all the mail due to call offs or shortage of people and you have no other help, the mail will not go out,” read an internal USPS memo acquired by Fortune.  They also worry about the repeated framing of the Postal Service as a business, and stress that it’s a quasi-government service. By thinking of the USPS as a business, the goal becomes increasing revenue at the cost of servicing Americans, they say.

A restructuring of staff in key leadership positions, rapid reorganization of a massive institution, and hiring freezes will only continue to slow mail delivery ahead of a crucial presidential election where at least 78% of Americans will have the option of voting by mail, said union officials. 

Slow Downs

Since instituting overtime changes, significant mail delivery delays have been reported in at least 19 states. Some local offices have reported the removal of their sorting machines, further delaying the ability to deliver mail.  DeJoy said last week that he was working to fix problems as soon as they occurred. “We will aggressively monitor and quickly address service issues,” he claimed in a speech to the USPS Board of Governors last Friday. 

A slowdown in mail delivery, said union leadership, typically leads to a loss in revenue. In late 2011, the USPS announced nearly $3 billion in service cuts that slowed first-class mail delivery for the first time in 40 years. It ended the 2012 fiscal year with a record net loss of $15.9 billion, compared to a net loss of $5.1 billion for the same period the year before.

“Every time we’ve slowed down mail, we’ve lost revenue,” said Mark Dimondstein, president of the American Postal Workers Union. “These seem to be arbitrary decisions. If you slow down mail and packages, people are going to go elsewhere to get deliveries,” he said. 

Strings Attached 

DeJoy, a Trump ally who has contributed more than $2 million to the Trump campaign and other Republican causes since 2016, has also agreed to take a $10 billion loan from the U.S. Treasury, which has previously recommended selling and privatizing parts of the USPS.

In exchange for the loan, the Postal Service agreed to hand over proprietary information about 10 of its most lucrative contracts with third-party shippers like Amazon, FedEx and UPS. The Postal Service works with these shippers to deliver “last mile” deliveries, sometimes at slightly discounted rates, a practice that President Donald Trump has long derided, especially when it pertains to Amazon. 

Trump—who has called the agency Amazon’s “delivery boy”—falsely claimed that these types of agreements were the reason the Postal Service has been struggling financially. In reality, these deals only account for a savings of about 5% say experts.

The president, however, said he wouldn’t approve of any emergency funding for the USPS unless it raised package delivery fees four times, a number that analysts say would bankrupt the agency by making it uncompetitive. 

The loan also requires the USPS to deliver the Treasury with monthly and quarterly financial and volume reports.  

Previously, the Treasury had attempted to use the loan negotiations to gain control of personnel decisions, third-party contract approvals, package prices and union negotiation strategies but eventually settled for relieving proprietary information. 

Democrats have opposed the terms of the loan and have urged the USPS to hold out for potential no-strings attached funding in the next round of COVID-19 stimulus funding, an outcome that is becoming increasingly bleak.

Initially, an agreement was made between Democrats and Republicans to fund the struggling Postal Service with a $13 billion cash influx, but President Trump threatened to veto any aid, ending the deal.

In the most recent round of negotiations, House Speaker Nancy Pelosi, Senate Minority Leader Chuck Schumer, Treasury Secretary Steve Mnuchin and White House Chief of Staff Mark Meadows met with DeJoy privately, but the meeting ended in frustration. On August 6th they sent a letter to DeJoy demanding more transparency. 

“At [our] meeting, you confirmed that, contrary to certain prior denials and statements minimizing these changes, the Postal Service recently instituted operational changes shortly after you assumed the position of Postmaster General,” they wrote. “These changes include reductions of overtime availability, restrictions on extra mail transportation trips, testing of new mail sorting and delivery policies at hundreds of Post Offices, and the reduction of the number and use of processing equipment at mail processing plants.”

DeJoy, meanwhile, still holds a multimillion-dollar stake in his former company XPO Logistics which contracts with the USPS.

“The idea that you can be a postmaster general and hold tens of millions in stocks in a postal service contractor is pretty shocking,” Walter Shaub, the former director of the Office of Government Ethics, told CNN. “It could be that he’s planning on selling it, but I don’t understand the delay. He has managed to divest a lot of other things. And if he wasn’t prepared to sell that off, he shouldn’t have taken the job.”

Jacking up the price

Earlier this week, Schumer said that DeJoy had “informed some states that they may need to pay a first-class rate to deliver ballots rather than the normal rate — nearly tripling the cost.” The issues comes down to how states classify ballots, as first-class mail or as marketing mail. Marketing mail costs about 1/3 less than first-class mail but is not prioritized in sorting.

The extra cost comes as state budgets have been severely decimated by COVID-19, limiting funds available to vote-by-mail initiatives. Republicans have indicated that they are uninterested in including extra funding to facilitate elections in their next stimulus package.

“At a time when people will have to vote by mail in record numbers because they can’t or won’t go vote in person, the postmaster general is saying we should triple the rate of cost to vote by mail?” Schumer said. “What a despicable derogation of democracy.”

DeJoy maintained that he wasn’t mandating anything, but instead making a suggestion about ways to ensure that ballots are mailed and received in the most efficient manner.

The 75 year Problem 

The USPS has been rapidly losing money since a 2006 law, passed with the support of the George W. Bush administration, required USPS to pre-fund employee retiree health benefits for 75 years in the future (some critics say that the actual pre-funding requirement is closer to 50 years). That means the Postal Service must pay for the future health care of employees who have not even been born yet. The burden accounted for an estimated 80% to 90% of the agency’s losses before the pandemic. 

Critics call the law “draconian” and say that it was created with the intention of leading the Postal Service toward privatization. No other federal agency bears this burden.  

Those losses combined with lower rates of first-class mail and more competition from private mail services have dealt a crippling blow to the Postal Service, which was facing bankruptcy even before COVID-19. 

For this fiscal year, which ends Oct. 1, the USPS is predicting a revenue loss of $13 billion due to COVID-19. That’s on top of the nearly $9 billion the USPS had been losing annually before the pandemic. Nearly 40,000 workers have had to quarantine for two weeks after exposure to the virus, according to sources close to the USPS. 

Still, third quarter losses were narrower than the second. Quarterly revenue rose to $17.6 billion, from $547 million. Net loss, meanwhile, fell to $2.2 billion from $2.3 billion over the same period last year. 

DeJoy says not to worry 

In spite of all these hurdles and purposeful slowdowns, DeJoy has said that he believes the Postal Service will be well-prepared to deliver and receive critical ballots at unprecedented rates in just over 80 days. 

“Despite any assertions to the contrary, we are not slowing down election mail or any other mail. Instead we continue to employ a robust and proven process to ensure proper handling of all election mail,” he told the Postal Service Board of Governors last week. “Although there will likely be an unprecedented increase in election mail volume due to the pandemic, the Postal Service has ample capacity to deliver all election mail securely and on time, in accordance with our delivery standards, and we will do so.”

Whether it’s Trump’s “they just can’t have it” approach to vote-by-mail or DeJoy’s “everything will be fine” optimism, the facts remain facts: The Postal Service continues to lose money at an alarming pace, mail delivery is slowing, elections are less than three months away, and there is no eminent solution.

More politics coverage from Fortune:

• A comprehensive guide to voting in all 50 states in the 2020 election
• Commentary: How philanthropy could fix America’s broken politics
• The TikTok effect: U.S. ban could doom the global ambition of Chinese tech
• Commentary: Joe Biden’s childcare plan will benefit working families—but basic income would help even more
• The U.K. lifted border controls just as COVID took off. Lawmakers call this “a serious error”