Financial Clock Ticking For USPS

Aug 17, 2011 9:39 PM  By

Sinking mail volume, massive annual payments for retiree health benefits, and an entirely unhealthy fiscal situation have put the U.S. Postal Service in a precarious position.

The Postal Service incurred an $8.5 billion net loss in fiscal 2010, compared to a loss of $3.8 billion the previous year. If the cash-strapped USPS can’t make its annual $5.5 billion payment for retiree health benefits on Sept. 30, it will default on its financial obligation.

Postmaster General Patrick Donahoe has asked Congress to approve 120,000 staff layoffs by 2015. The USPS has requested an amendment to the legislation by which postal workers receive retirement and health care benefits.
Postal employees now participate in three programs – Federal Employees Retirement System, Civil Service Retirement System and the Federal Employees Health Benefit Program. Instead, the USPS would develop a benefits plan of its own.
What’s more, Donahoe wants to close nearly 3,700 post offices by 2015 to help close a $20 billion revenue gap. And, the USPS still hopes to move to five-day mail delivery.
“The Postal Service’s request reflects the severity of its financial problem,” says Tony Conway, executive director for the Alliance of Nonprofit Mailers. “The Postal Service’s infrastructure is far too big and costly. Facing the equivalent of bankruptcy on Sept. 30, it must take aggressive measures to remain solvent. The elimination of unnecessary cost would benefit the Postal Service and its customers.”

Jerry Cerasale, senior vice president of government affairs for the Direct Marketing Association, says the DMA agrees that the USPS must downsize. “We cannot afford to fund excess capacity through our postage

The mail processing, transportation and delivery network and its corresponding employee complement must be adjusted in light of declining mail volume, he notes. “The time for significant action is now.”

Cerasale believes there will be a fight in Congress over many of these seemingly drastic proposals–particularly regarding health and retiree benefits. That’s a big one, “as this would abrogate some of the provisions in union contracts,” he says. “With 80% of USPS costs tied to employees, the savings would be significant.”

The USPS Office of Inspector General released a self-initiated audit to review nodes of delivery and concluded that the USPS could save $4.5 billion per year by moving from door-to-door delivery to curbside delivery.

While the USPS looks to cut costs as it continues to lose money at an alarming rate, what are the chances of any of these proposals moving forward?

“Passing is unlikely, but this moves the dialogue toward more significant law changes due to the dire financial straits the USPS is facing,” Cerasale says.

And if the USPS defaults on the retiree health benefits payment Sept. 30, “that will set off a minor financial shake, since a U.S. government entity is defaulting even if money is owed the government.” This will result in even more pressure for the USPS to change, Cerasale says.