USPS Is Going Broke

USPS and Unions

In March, 2011, the U.S. Postal Service (USPS) and the American Postal Workers Union (APWU) reached a contract agreement that preserves jobs and provides a 3.5 percent pay raise for three years. Labor costs represent 80% of USPS expenses, a very high percentage in this day of automation. The agreement protects APWU employees against layoffs and provide a 3.5 percent wage increase over the life of the contract. There will be no changes to health care benefits in 2012. From 2013 to 2016, there will be a slight increase in employees’ share of the health care contribution. The USPS spent $4.3 million on employees who did nothing, called “standby time,” because of union requirements. The amount paid for so-called standby time has “significantly decreased.” In fiscal 2009, USPS employees logged over 1.2 million hours in standby time, costing the agency more than $30 million. This declined to around $20 million in 2010 and is on track to be less than $10 million this year.

However… The USPS, which expects to lose $7 billion this year (2011), is so low on cash that it will not be able to make a $5.5 billion payment due this month (September, 2011) and may have to shut down entirely this winter unless Congress takes emergency action to stabilize its finances. The problem is that the USPS relies on first-class mail to fund most of its operations, but first-class mail volume is steadily declining. In fact, in 2005 it fell below junk, or advertising, mail for the first time, and continues to lag behind junk mail. Projections are that advertising mail pieces will decline an additional 12%-30% by 2020.

“I really believe that the USPS is going to get to a point where, regardless of what it does with the prefunding [of retiree health care], it is going to implode,” says R. Richard Geddes, an associate professor of policy analysis and management at Cornell University. “It is either going to default on those obligations to its retirees or we are going to have to give it a direct bailout from the United States taxpayers.”

Union Reaction to USPS Downsizing

The USPS is planning to reduce payroll by 20 percent, citing increasing costs from employees and declining mail volume. Among the costs cited were retirement and healthcare. It was in 2007 that Congress mandated it pay over $ 5 billion a year into its retiree funds.
Unions reacted angrily Friday (August 12, 2011) to a proposal by the USPS to lay off 120,000 workers by breaking labor contracts, and to shift workers out of the federal employee health and retirement plans into cheaper alternatives. Labor experts and other unions also sounded the alarm that any move by Congress to break postal contracts would further wound an already ailing labor movement. “When you break a contract, basically what you’re saying is that we have left the era of good-faith bargaining and negotiation and entered into employer unilateralism,” said Bill Fletcher of the American Federation of Government Employees. USPS remains in negotiations with the National Rural Letter Carriers Association on a similar long-term deal and is set to begin talks with the National Association of Letter Carriers in August, 2011.

The GAO Has Its Say

Phillip Herr is Director of Physical Infrastructure Issues, where he examines federal spending for the U.S. Government Accountability Office (GAO). Herr and his team concluded that the current USPS business model is so badly broken that collapse is imminent. His report to the GAO was delivered in April, 2010. The more he tried to figure out the USPS and its financial agonies last year, the more he was puzzled. He asked USPS officials, “What’s your 10-year plan?” Herr recalls. “They didn’t have one.”

Many countries closed as many post offices as possible, moving these services into gas stations and convenience stores, just as the USPS is trying to do now. Today, Sweden’s Posten runs only 12 percent of its post offices. The rest are in the hands of third parties. Deutsche Post is now a private company and runs just 2 percent of the post offices in Germany. In contrast, the USPS operates all of its post offices.

USPS a Wondrous Creation

The USPS is a wondrous creation. But… Since 2007 the USPS has been unable to cover its annual budget, 80 percent of which goes to salaries and benefits. The USPS has stayed afloat by borrowing $12 billion from the U.S. Treasury. This year (2011) it will reach its statutory debt limit. After that, insolvency looms. On March 2, 2011, Postmaster General Patrick R. Donahoe warned Congress that his agency would default on $5.5 billion of health-care costs set aside for its future retirees scheduled for payment on September 30, 2011, unless the government comes to the rescue.

Donahoe promises that if the USPS is excused from its annual health-care prepayment of $5.5 billion, he will wring enough costs out of the system to turn a profit on its remaining mail stream. He wants to close post offices and move some of their operations into convenience stores and supermarkets, where nonunion workers can staff them.

To see just how far the USPS has fallen, watch the motion picture, “Miracle on 34th Street,” starring John Payne (not a typo), Maureen O’Hara, and (a very young) Natalie Wood.

But that’s just my opinion.