Obama's Dead Letter Office

A downgrade of the US credit rating, unemployment stuck at 9.1%, and now this -- the pending failure of the Post Office. Imagine what it will mean for Obama's election hopes if 120,000 mailmen are laid off before November of 2012.

Postal Service Is Nearing Default as Losses Mount

Sunday September 4, 2011, 6:00 pm EDT

The United States Postal Service has long lived on the financial edge, but it has never been as close to the precipice as it is today: the agency is so low on cash that it will not be able to make a $5.5 billion payment due this month and may have to shut down entirely this winter unless Congress takes emergency action to stabilize its finances.

“Our situation is extremely serious,” the postmaster general, Patrick R. Donahoe, said in an interview. “If Congress doesn’t act, we will default.”

In recent weeks, Mr. Donahoe has been pushing a series of painful cost-cutting measures to erase the agency’s deficit, which will reach $9.2 billion this fiscal year. They include eliminating Saturday mail delivery, closing up to 3,700 postal locations and laying off 120,000 workers — nearly one-fifth of the agency’s work force — despite a no-layoffs clause in the unions’ contracts.

The post office’s problems stem from one hard reality: it is being squeezed on both revenue and costs.

As any computer user knows, the Internet revolution has led to people and businesses sending far less conventional mail.

At the same time, decades of contractual promises made to unionized workers, including no-layoff clauses, are increasing the post office’s costs. 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. Postal workers also receive more generous health benefits than most other federal employees.

The Senate Homeland Security and Governmental Affairs Committee will hold a hearing on the agency’s predicament on Tuesday. So far, feuding Democrats and Republicans in Congress, still smarting from the brawl over the federal debt ceiling, have failed to agree on any solutions. It doesn’t help that many of the options for saving the postal service are politically unpalatable.

“The situation is dire,” said Thomas R. Carper, the Delaware Democrat who is chairman of the Senate subcommittee that oversees the postal service. “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.”

Missing the $5.5 billion payment due on Sept. 30, intended to finance retirees’ future health care, won’t cause immediate disaster. But sometime early next year, the agency will run out of money 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.

The causes of the crisis are well known and immensely difficult to overcome.

Mail volume has plummeted with the rise of e-mail, electronic bill-paying and a Web that makes everything from fashion catalogs to news instantly available. The system will handle an estimated 167 billion pieces of mail this fiscal year, down 22 percent from five years ago.

It’s difficult to imagine that trend reversing, and pessimistic projections suggest that volume could plunge to 118 billion pieces by 2020. The law also prevents the post office from raising postage fees faster than inflation.

Meanwhile, the agency has had a tough time cutting its costs to match the revenue drop, with a history of labor contracts offering good health and pension benefits, underused post offices, and laws that restrict its ability to make basic business decisions, like reducing the frequency of deliveries.

Congress is considering numerous emergency proposals — most notably, allowing the post office to recover billions of dollars that management says it overpaid to its employees’ pension funds. That fix would help the agency get through the short-term crisis, but would delay the day of reckoning on bigger issues.

Postal service officials say one reason for their high costs is that they are legally required to provide universal service, making deliveries to 150 million addresses nationwide each week. They add that a major factor for the post office’s $20 billion in losses over the past four years is a 2006 law requiring the postal service to pay an average of $5.5 billion annually for 10 years to finance retiree health costs for the next 75 years.

But the agency’s leaders acknowledge that they must find a way to increase revenue, something that will prove far harder than simply slicing costs.

In some countries, post offices double as banks or sell insurance or cellphones. In the United States, the postal service is barred from entering many areas. Still, the agency is considering ideas, like gaining the right to deliver wine and beer, allowing commercial advertisements on postal trucks and in post offices, doing more “last-mile” deliveries for FedEx and U.P.S. and offering special hand-delivery services for correspondence and transactions for which e-mail is not considered secure enough.

Mr. Donahoe’s hope is to cut $20 billion of the $75 billion in annual costs by 2015. To do that, he wants to close many post offices and slash the number of sorting facilities to 200 from 500 and trim the agency’s work force by 220,000 people, from its current 653,000. (A decade ago, the agency employed nearly 900,000.)

The postal service has the legal authority to close facilities, although community opposition can make the process difficult. To placate critics and cut costs, officials say they would seek to run some postal operations out of stores like Wal-Mart or to share space with other government offices.

Cutting the work force is more difficult. The agency’s labor contracts have long guaranteed no layoffs to the vast majority of its workers, and management agreed to a new no layoff-clause in a major union contract last May.

But now, faced with what postal officials call “the equivalent of Chapter 11 bankruptcy,” the agency is asking Congress to enact legislation that would overturn the job protections and let it lay off 120,000 workers in addition to trimming 100,000 jobs through attrition.

The postal service is also asking Congress for permission to end Saturday delivery.

Given the vast range of stakeholders, getting consensus on a rescue plan will be difficult.

Senator Susan Collins of Maine, like many lawmakers from rural states, vigorously opposes ending Saturday delivery, which would trim only 2 percent from the agency’s budget. Ms. Collins, the ranking Republican on the committee overseeing the postal service, said the cutback would be tough on people in small towns who receive prescriptions and newspapers by mail.

“The postmaster general has focused on several approaches that I believe will be counterproductive,” she said. “They risk producing a death spiral where the postal service reduces service and drives away more customers.”

The post office’s powerful unions are angry and alarmed about the planned layoffs. “We’re going to fight this and we’re going to fight it hard,” said Cliff Guffey, president of the American Postal Workers Union, which represents 207,000 mail sorters and post office clerks. “It’s illegal for them to abrogate our contract.”

Senators Carper and Collins do back several of the postal service’s main ideas to avoid default, including recovering around $60 billion that some actuaries say the agency has overpaid into two pension funds. Although the Obama administration is working closely with the senators to find a solution, it has signaled discomfort with the pension proposals, questioning whether the postal service really overpaid.

Meanwhile, Representative Darrell Issa, the California Republican who is chairman of the House Oversight Committee, says the pension proposals would amount to an unjustifiable bailout that would not solve the agency’s underlying problems. He is pushing a bill that would create an emergency oversight board that could order huge cost-cutting and void the postal service’s contracts — a proposal that not just the unions, but Senators Carper and Collins oppose.

Fredric V. Rolando, president of the National Association of Letter Carriers, warned of disaster if partisanship keeps Congress from acting.

“This is about one of America’s oldest institutions,” he said. “It survived the telegraph, it survived the telephone, and we have to do everything we can to preserve it and adapt.”

Post Office Follies

For reasons that defy logic and renounce sanity, the government cannot keeps its hands of the business world. Most recently Washingtton became the largest shareholder of General (Government) Motors and believes, against all odds, that investors will buy the government's share of GM for a premium.

Why bother? The money's in getting the government to maintain its hold on the businesses it's in. The Post Office, for example. There's no doubt delivering the mail is profitable -- in the right hands. FedEx, UPS, DHL, Airborne Express and others have proven the point many times. But the government loses a bundle running the Post Office.

Is anyone happy about that? At least one company is: Pitney Bowes. In addition to Pitney Bowes there are many other businesses that profit in less obvious ways. The Post Office rents some of its facilities. Landlords know the P.O is good for the rent. Moreover, the postal service buys a lot of vehicles and those vehicles use a lot of fuel.

As they say, Neither Rain Nor Sleet Nor Gloom of Night Will Keep the Postal Service From Losing Billions. Meanwhile Obama says pumping money into the economy is the way to stimulate it and modernize it. Through the Post Office taxpayers are pumping billions of dollars into the economy. Paying more and getting less. Isn't the lesson of the Post Office enough to convince him that money is not the answer. Is he too blind to see that competition is the force that's needed?

Yes. He's too blind to see.

Post Office Shows Where U.S. Is Headed

To understand where the advocates of big government will take this country, look at the U.S. Postal Service.

Start with the fact the Postal Service is a great jobs machine, employing 712,000 people at an average annual compensation, including wages and benefits, of $83,000.

Those hefty pay checks are a great source of political contributions for Democrats. In 2010, almost 90 percent of the approximately $4 million contributed to campaigns by postal unions went to Democrats. Take a guess where much of the opposition to reform comes from.

But high-priced labor, which accounts each year for about 80 percent of costs, leads to high-priced mail services, and even higher costs for taxpayers. Over the past 10 years, the price of a stamp has risen from 33 cents to 44 cents, exceeding the inflation rate at a time when computerization should have been leading to big cost savings. Even so the Postal Service lost about $6 billion this year and by its own projections it will drop a cool $238 billion over the next decade.

By 2020, the last year in the projections, the Postal Service will be losing $33 billion annually.

If its losses level off and it continues to lose that much each year, the Postal Service will lose $550 billion from 2010 to 2030. If the growth rate of losses projected over the next decade continues until 2030, it will lose more than $1 trillion in that span. The fiscal black hole that the Postal Service has become is no small potatoes, even in government terms.

Broken Model

In April 2010, the Government Accountability Office released a report that analyzed the operations of the Postal Service and concluded that, “USPS’s business model is not viable due to USPS’s inability to reduce costs sufficiently.”

A 2007 GAO study looked at the Postal Service’s use of facilities, and concluded that, “A 2005 contractor assessment of 651 randomly selected postal facilities revealed that two-thirds of these facilities were in less than “acceptable” condition, including 22 percent that were rated “poor.” Inspection of one facility in Dallas led the inspector to recommend that the building be immediately evacuated.

The decaying buildings provide a handy visual clue to the quality of service. Unfortunately, we don’t know how bad the service is, because the Postal Service collects data on its own service quality, but it refuses to make the data public. Isn’t it nice that your tax dollars pay for data that you’re not allowed to see?

It’s in the Mail

The Postal Service’s ability to lose mail is, of course, legendary. Here is an example of how bad it has become: last week the American Postal Workers Union had to postpone their national election of officers because so many of the ballots were lost in the mail.

The Postal Service is able to survive because U.S. law protects it with not one but two monopolies.

First, it is the only entity that is allowed to deliver many types of mail. There are a few exceptions that have allowed FedEx Corp., United Parcel Service Inc. and bicycle carriers to flourish, but low- cost, high-volume letters are walled off from competition from other providers.

Second, the Postal Service actually has a legal monopoly over your privately owned mailbox. You bought it, but if another company starts to use it as a receptacle for letters, they are violating federal law.

Legal Cover

This organization has withstood political pressure for some time, in part because Postal Service advocates have argued that the monopoly is necessary because of the national objective of providing universal service. If we want to have everyone on the postal grid, they say, then the grid will be impossible to support with private markets.

This argument, of course, is specious. It would be trivial to fully privatize postal delivery with guaranteed universal service. We need only write regulations that require firms that compete for postal business to provide universal service.

The Democrats will never let us do that, of course. The political might of the public employee unions is just too great.

As with the stimulus, the American left finds itself far to the left of even the statist Europeans. Countless other nations have recognized the possible large benefits from privatizing the postal business. In 2005, Cornell University economist R. Richard Geddes reviewed the academic literature on postal reform for the distinguished Journal of Economic Perspectives, and reported that “comprehensive postal reform has been ongoing in other countries for decades.” Countries that have introduced major reforms include Germany and Sweden.

A U.S. Gain

Reforms tended to have, he reported, three characteristics. First, they would “corporatize” or privatize postal operations. Second, reforms have tended to reduce delivery monopolies. And third, regulators have guaranteed the continuation of universal service.

The possibility for real gain in the U.S. is enormous. The Postal Service owns or operates 33,000 facilities nationwide, and owns 219,000 vehicles. If we were to auction it off to private investors, the bids would likely be enormous. FedEx and UPS, for example, have a combined market capitalization of almost $100 billion. Given that, how much might a private bidder offer for the right to start a business with the Postal Service’s footprint? The $100 billion mark might be a good first guess.

Which means we have two paths to chose between. On one, we continue to operate the Postal Service, and watch it lose hundreds of billions of dollars. Along the other, we sell it to a private contractor, avoid those losses while cashing a nice big check.

If the Tea Party activists want to fix the country, they should start by privatizing the Postal Service. If we can’t fix that, then it is hard to imagine how we will ever fix anything.

As the Post Office goes, so will go ObamaCare

The government runs the mail business in ways similar to the ways it will run more and more of the healthcare business. We can see where the encroaching government management will take us. The future of healthcare is unaffordable if we follow the path set by Obama and his spendthrift idealists. However, the news about the Post Office is good news for those who own stock in Pitney Bowes.

GAO: Postal Service business 'not viable'

Happy Monday! The U.S. Postal Service's current business model "is not viable" and the mail agency should make deeper job and wage cuts, hire more part-time staff and consider outsourcing operations, according to a draft of a government audit acquired by The Federal Eye.

Auditors also urge Congress to remove restrictions on the Postal Service's ability to cut Saturday mail delivery and close post offices, according to the report, which offers recommendations similar to the USPS's own proposed 10-year business plan.

Lawmakers requested the Government Accountability Office report, set for a Monday release, as they prepare to consider the USPS plan, which was introduced last month. The proposals call for an end to six-day delivery and ask Congress to give the mail agency the ability to raise prices beyond the rate of inflation and close post offices if necessary.

The report's conclusions pleased top postal officials who are gathered this week in Nashville for the annual National Postal Forum, a convention for the mail agency's largest customers.

Postmaster General John E. Potter said Sunday he was pleased with the GAO's general conclusions, but concerned with suggestions in the report that further study of the issue is required.

"We've studied this significantly, the time for study is over, now's the time for action," he said.

Potter and his colleagues estimate the Postal Service will lose a record $7 billion in the fiscal year that ends in September and could lose at least $238 billion in the next decade if Congress fails to act.

Auditors appeared to push beyond the USPS proposal. "If no action is taken, risks of larger USPS losses, rate increases and taxpayer subsides will increase," GAO said.

The Postal Service should provide more lucrative incentive packages to potential retirees to try to accelerate attrition, auditors said. They also recommended USPS consider outsourcing more delivery routes and mail services to contractors and seek concessions on wage and benefits from its labor unions during negotiations later this year.

Lawmakers also should consider establishing a panel similar to the Base Realignment and Closure Commission to independently recommend changes, the report said. Auditors suggested that more details are needed about potential delivery cuts and post office closures.

Most lawmakers and regulators have reacted tepidly to proposed changes. Potter's meetings in Nashville will be mostly with customers who could suffer from proposed cuts and price increases.

GAO concluded that the recession served as the "tipping point" that accelerated a shift away from traditional snail mail for most of the Postal Service's biggest customers, including insurance and banking companies.

Sen. Tom Carper (D-Del.), who will lead postal reform efforts in the Senate, said that if GAO's conclusions are correct, "it is imperative that Congress, postal management, postal employees, customers and other stakeholders give up on old fights and biases and work together to cut the Postal Service's costs and adjust its operations to meet a changing environment."