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article imageUS Postal Service nears default, losses mount

By Lynn Herrmann     Sep 5, 2011 in Business
Washington - The US Postal Service (USPS), faced with a looming $9.2 billion deficit, is so short of funds it cannot make a $5.5 billion payment due this month, and unless Congress implements emergency action, could face a complete shutdown by winter.
“Our situation is extremely serious,” said Patrick Donahoe, postmaster general, the New York Times reports. “If Congress doesn’t act, we will default.”
Although mail volume has plummeted due to the Internet, e-mail and electronic bill-paying, the USPS still handles around three billion pieces of mail each week. Its estimated 167 billion pieces of mail for the fiscal year is a 22 percent drop in the last five years.
Additional revenue-depletion issues the agency faces include rising workforce costs, most notably a 2006 law which requires it to pay, on average, $5.5 billion annually for 10 years toward financing retiree health costs over the next 75 years.
According to the USPS (pdf), first-class mail covers 71 percent of the agency’s total margin available for covering fixed costs. In 2009, it handled 84 billion pieces of first class mail. By 2020, projections indicate the number will drop to 53 billion.
“The situation is dire,” said Sen. Tom Carper (D-DE), according to the Times. “If we do nothing, if we don’t react in a smart, appropriate way, the postal service could literally close later this year. That’s not the kind of development we need to inject into a weak, uneven economic recovery.”
In an attempt to cut $20 billion from the $75 billion in annual costs by 2015, Donahoe wants to cut its sorting facilities from 500 to 200 and lay off 220,000 of its current 653,000 employees. Another cost-cutting measure Donohe seeks is the closing of as many as 3,700 post offices nation-wide.
Trimming the workforce could be the agency’s biggest obstacle, as labor contracts guarantee no layoffs to the majority of workers, and a new no-layoff clause was agreed upon last May in the union contract.
The postal service is seeking Congressional legislation allowing it to overturn those job protections so it can let go 120,000 employees and, through attrition, trim another 100,000 jobs. It is also requesting Congressional approval to end Saturday deliveries.
Ending Saturday deliveries is opposed by many in rural area of the country, a move which would only cut two percent from the postal service budget. Sen. Susan Collins (R-MA) noted: “The postmaster general has focused on several approaches that I believe will be counterproductive,” the Times reports. “They risk producing a death spiral where the postal service reduces service and drives away more customers.”
Among the solutions being considered by the postal service is allowing commercial ads on postal trucks and in post offices, obtaining the right to deliver beer and wine, and doing “last-mile” deliveries for UPS and FedEx.
More about Losses, Default, Post office, Close, postal service budget
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