The U.S. Post Office Nearing Default – Bailouts Loom Without Addressing the Problem


he post office continues to suffer under a failed business model, losing $5 billion last year, and $3 billion the first quarter of this year.

Since the monolithic government bureaucracy is running the post office, they can’t adjust to changing times without a decree from Congress.  Also at issue are the inflexible union rules and pension requirements. Another problem is the peoples’ inability to accept changes to their current services. The economy is partly to blame but if the business model were flexible, it would adjust as the private companies have.

In August 2010, the USPS lost $3.5 billion in three months. That was $1.1 billion more than it lost in the last quarter of 2009. Overall, they lost $8.5 billion in 2010. The post office posted net losses in 14 of the 16 previous quarters. As of  July, 2011, the post office lost $20 billion in the previous four years.

Between 2006 and 2009, mailings dropped 17% and it has been getting worse.

Over the previous three years, the postal service cut costs by $10 billion but the money is not coming in and they suffer from a liquidity problem. People are doing more and more over the Internet. Tax day, for instance, used to be a busy day for the postal service and they would have to expand hours to handle the increased volume of mail. People today are filing online, eliminating the need for their services.

Daily Finance reported in August, 2011 –

”Given current trends, we will not be able to pay all 2011 obligations,” said USPS chief financial officer Joseph Corbett in a statement. “Despite ongoing aggressive cost reductions totaling over $10 billion in the last three years, it is clear that a liquidity problem is looming and must be addressed through fundamental changes requiring legislation and changes to contracts.”

Sometime in 2012, they will default without a bailout or a significant change in services and union contracts. What politician will touch union contracts in an election year? The post office will not be able to pay its employees and gas up its trucks, officials warn, forcing it to stop delivering the roughly three billion pieces of mail it handles weekly.

Legislative requirements are needed since Congress has the final say. Under discussion is eliminating Saturday mail delivery but it would take an act of congress because it is legislatively protected.

At the root of many problems is Congress’ failure to act and every policy decision must be approved by Congress, making it difficult for them to work efficiently like UPS or FedEx. John McCain called the USPS a “model of inefficiency..”

The NY Times  reported –

“Decades of promises to unions includes non-layoff clauses. You can’t run a business like that. Union workers receive better benefits than federal workers for no reason. Labor represents 80 percent of the agency’s expenses, compared with 53 percent at United Parcel Service and 32 percent at FedEx, its two biggest private competitors.”

In 2007 Congress passed the Postal Accountability and Enhancement Act. The law required the USPS prefund it’s retiree health care benefits for the next 50 years.The USPS was forced to pay between $5.4 billion and $5.6 billion per year into its retiree health benefits trust fund. No private company is required to do this but no private company is faced with the same unsustainable union rules, wages and benefits. It is a pay as you go system.

The number was later cut but the expenditure had been set aside, burying the post office in more financial difficulty. The GAO claims this is needed to make the post office self-sustaining.

Delaware Democrat, Tom Carper, thinks he has a solution and has introduced a bill, the 21st Century Postal Services Act, aimed at reducing operating costs and modernizing the failed business model.

Carper would take funds set aside for employee pensions and put them back into the operating budget. He claims this won’t cause us future problems because the post office overpays. This is disputed by the nonpartisan Government Accountability Office. I tend to side with the GAO and see this becoming another feeding of the beast at taxpayer expense without really fixing the problem.

The GAO report –

…Some have referred to “overpayments” that USPS has made to the CSRS fund, which can imply an error of some type–mathematical, actuarial, or accounting. We have not found evidence of error of these types…

…Any change in the USPS’s share of responsibility for CSRS benefits would provide some temporary relief from the pressures USPS faces because of declining volume, revenue, and inflexible costs, but would not by itself address USPS’s long-term financial outlook. Such a transfer of CSRS funds would not be sufficient to repay all of USPS’s debt and address current and future operating deficits related to USPS’s inability to cut costs quickly enough to match declining mail volume and revenue. Last year, GAO issued a report (GAO-10-455) that outlined a number of options to address USPS’s financial viability that Congress could consider–such as realigning its operations, networks, and workforce–so that USPS could modernize to meet changing customer needs…

In other words, Carper’s plan, if the GAO is correct, will amount to a shortfall that will have to be made up by the taxpayer. It will be another bailout at the expense of future generations.

Carper also wants to use buyouts to encourage retirement of 2/3rds of 150,000 unionized employees near retirement. This does not address the continuing union extravagances.

The unions have set up a creative way to circumvent the system and use worker’s comp as an alternative retirement plan because it is more lucrative and they don’t care if they do it on the backs of taxpayers. Forty percent of federal workers near retirement who claim worker’s comp are postal workers. Does anyone really think that is reasonable? Carper would do away with the practice of paying worker’s comp to employees over 65 and have no intention of returning to work.

Sen. Susan Collins of Maine has been critical of the practice and has introduced a bill to end the practice.

As the Senate hotly debates the issue, lawmakers are considering limiting compensation packages for postal service executives.

Ending overnight delivery services in certain areas has been proposed. Shipping beer and wine would make the post office more profitable and is on the table for discussion.

When communities are confronted with closing post offices, they resist. Carper also hopes to offer communities options for preserving the mail system. For example, they could vote to keep the post office open three days a week. They could move it into a kiosk in a store as they do in Canada.

The truth is that privatization would eliminate the excessive union abuses and streamline the management of the service to connect its services to profitability. All other solutions are band-aids, many of which amount to a bailout on the backs of taxpayers without addressing the real problem.

When a bureaucracy such as the post office is in charge, it is despotic and does not conform to market changes. It does not have free choice over anything. They are not working for monetary gain and normal accounting procedures cannot be used to make them profitable. The money coming in and the money they spend are unrelated.

Given the economy, Congressional inaction, and unsustainable union benefits and job rules, the post office seems doomed or the taxpayer is doomed to bailing them out. Privatization is appealing to those of us who believe in the free market but it’s not likely to happen during this administration.

Read more: Businessweek