The Next Bailout: Save USPS or Its Padded Pensions
Postal Increases Spur Controversy, Pushback from Publishers
July 7, 2010
The US Postal Service is in the hole for $7 billion and is owed $55 billion in pension overpayments because someone wasn’t paying attention. When the Post Office Department became the Postal Service back in 1971, two sources of pension funding were merged in a complicated integration. The Office of Personnel Management, which is responsible for all federal pensions, ultimately calculated the full cost of the pensions, but put the burden on the new Postal Service to cover its own original liability of $55 billion. Not only did OPM wangle their share of the pension out of the USPS, they required 100 percent prefunding for both pension and health care retirement funds — an additional $5 billion a year.
Even if Congress acts to have the money returned, it may not help the USPS because pension and health benefit funding is only part of the problem. USPS is once again raising rates on first class postage — from 44 cents to 46 cents, and hitting second class mailers like magazine publishers with a whopping 8 percent increase. But this time, with businesses and consumers struggling with the economy, the increases may not fly.
Here are my two cents: There are three factors that are likely to bring down the Postal Service.
- The unions, with pension and health care deals that make you wish you had chucked your private sector job for walking shoes and a mailbag.
- The Congress, which requires the Postal Service to be self-funded, but ties management’s hands on meaningful cuts and policies.
- The customers, who have been or will be replacing snail mail with e-mail on everything from business correspondence and bill paying to wedding invitations.
One look at the revenue/cost projections of USPS in the out years, and you’d think you were looking at audience projections for the evening news. Downhill all the way. According to GAO, USPS has financial liabilities and obligations that totaled over $88 billion in fiscal year 2009. How does the Postal Service pay its bills with losses of $12 billion over the last three years (2007-2009)? It borrows from the U.S. Treasury. In fiscal year 2010, USPS expects a record loss of over $7 billion, and its outstanding debt to increase to $13.2 billion. But there’s a glitch: Borrowing from Treasury is capped at $15 billion, and at this rate, they’ll hit the ceiling next year. Another way to look at the problem: USPS liabilities and obligations increased from 100 percent of revenues in fiscal year 2007 to 130 percent of revenues in fiscal year 2009.
Customers and Culture Shift
Next time you open your mail, make a note of any real correspondence or invitations. “Snail mail,” as it’s known, is a dying breed. Just as landlines are being replaced by cell phones, so are personal and business correspondences being replaced by e-mail, social networks, evites, and a host of other electronic messaging services. Even letters to Santa are sent by text message to the North Pole. The result: mail volume has plummeted 17 percent – or by 36 billion pieces — in the past three years. And even though USPS would benefit from part-time workers, union contracts prevent outsourcing and require the Postal Service to keep full-time employees with full health and retirement benefits. “Limitations on the workforce mix of full-time and part-time postal employees … are key detriments of how postal work is organized and, thus, of its cost,” according to the GAO report.
Congress as the Board of Directors
Let’s pretend that you own a diner and advertise that you're open 24/7. At first, business was booming around the clock, until the all-night bowling alley across the street shut down. After a few months you see that 95 percent of your customers come in between 6am and 9pm each day and that staying open past midnight is costing a bundle in salaries, electricity and other expenses. You realize that you can't run your business for the occasional truck driver who stops in for a burger. But that's exactly what the USPS will have to do if Congress doesn't agree to end Saturday delivery, a costly, and as most Americans see it, unnecessary expense.
There are, of course, consequences to a five-day-a-week delivery system. Losers would be mail order prescription services whose customers might face serious delays, and credit card companies, which claim the loss of a day will cost them money. But the winners could be Americans who still post their bills and letters, magazine publishers, catalog mailers, Netflix and nonprofits because the estimated savings of $3 billion could avert or delay postage increases for first and second class mailers. For magazines — which have seen double digit postal increases over the past 10 years or so — the increase could be crippling.
That explains why a new group — the Affordable Mail Alliance — is asking Congress to make sensible cost cuts before raising prices on USPS’s best customers. Tony Conway, a spokesman for the Affordable Mail Alliance, told the Washington Post that the Postal Service's delivery network "is a system that's built to handle about 300 billion pieces of mail, and they've got about 170 billion, and it's set to decrease. It's basically twice as big as it needs to be. It's that excess capacity and costs that are creating the need in their minds to do this."
There are potential solutions to the postal crisis, and they go in two different directions. The first, and most likely — federalize the USPS again and place the debt burden on taxpayers. This would substantially raise the deficit and effectively ensure that no real reform would take place, since the 712,000 postal employees (at the end of 2009) are a formidable voting bloc along with their unions. The second option is privatization. Let FEDEX or UPS (or both) run the Post Office. If that fails, turn over 38,000 postal facilities to Starbucks with the proviso that they provide email access. They’d simply have to change the Post Office motto to:
Neither spam, nor phishing nor routing errors stays these messages from the swift delivery to their intended inboxes.