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  • Postal Service in Default: The Beginning of the End?

    Today the U.S. Postal Service (USPS) will default on $5.5 billion in payments to the Treasury for future retiree health benefits.

    That is no small sum, to be sure. But much to the dismay of the USPS—and the ire of taxpayers—it marks the first of several anticipated and potentially larger defaults in the months to come.

    Next month the USPS will owe the Treasury $5.6 billion, again for future retiree health benefits, that it cannot pay. Soon after, a $1.5 billion payment for workers’ compensation to the Labor Department will come due.

    Despite these defaults, the USPS’s day-to-day activities will continue. It will be business as usual for its employees, and customers will still receive mail. But, if present trends continue, it won’t be long before show-stopping defaults occur, which will involve missed payments to suppliers or even missed payroll. Even the USPS recognizes its grim financial situation and projects that without fundamental reform, the enterprise will be unsustainable.

    While the focus right now centers on the pre-funded pension benefits, the real reason for the USPS’s dire financial straits is the steady decline in mail volume as customers increasingly use electronic communications. Times and technology have changed; the USPS has not.

    Several potential alternatives for the USPS’s future remain to be played out. Strictly in the rhetorical sense, the USPS could fail completely, leading to the shuttering of post office doors everywhere. An alternative is that taxpayers could wind up subsidizing its existence and pre-funded benefit obligations to the tune of $15 billion to $20 billion a year. Today’s default suddenly pales in comparison to those massive sums and, potentially, future bailouts.

    Or Congress could allow the USPS to change its business model and innovate, giving it a fighting chance of surviving in an economy and technological environment in which it is woefully behind.

    The first scenario is beyond unpalatable to Washington politicians or many USPS customers, while the second would be irresponsible to impose upon taxpayers. The third, however, is the only solution that will give the USPS the opportunity to stay afloat without saddling taxpayers with billions in debt they cannot afford to pay.

    But current law shackles the USPS’s ability to change at every turn. Meaningful reform requires Congress to remove the restrictions dictating the USPS’s operations. For example, congressional mandates require mail delivery six days a week and make it exceedingly difficult to close small, unprofitable offices. A bill pending in Congress by Representative Darrell Issa (R–CA) would take the first steps toward such reform.

    Right now, the USPS is akin to a car driving toward the edge of a cliff, except the steering wheel is locked and a brick is depressing the accelerator. Technology has changed, but the USPS has not been allowed to adapt its business model and services accordingly. Before a default with tangible consequences occurs, Congress should remove that brick. And, well before Congress becomes desensitized to annual bailouts, it should unlock the steering wheel and give the USPS the flexibility it needs to operate in the 21st century.

    Posted in Economics [slideshow_deploy]

    9 Responses to Postal Service in Default: The Beginning of the End?

    1. Haven Pell says:

      Ms Goff, your runaway vehicle navigates the Land of Muddle where spinners and obfuscators abound. The default might be without fault but the divorce from the control freak ex spouse was not. http://www.libertypell.com/?p=1774

    2. Grannybunny says:

      Goff is wrong. She says "[W]hile the focus right now centers on the pre-funded pension benefits, the real reason for the USPS’s dire financial straits is the steady decline in mail volume as customers increasingly use electronic communications. Times and technology have changed; the USPS has not." Yet, more than 80% of USPS's losses are due to the prefunding, prior to which USPS was debt-free and profitable. Nor has USPS failed to change. It's downsized by 110,000 positions, decreased its share of employee insurance premiums, negotiated new jobs with lower compensation/fewer benefits, eliminated alot of overtime, increasingly automated mail processing, explored digital mail options, etc.

    3. Clive Munson says:

      Actually, Ms. Goff got it right. Since 2009, the USPS' losses have exceeded the prefunding requirement to the tune of more than $2B per year. For this year, the USPS loss is projected to be $14.1B. Eliminating the $5.5B prefunding requirement would still leave the USPS with a deficit of more than $8B! What Ms. Goff did not mention in her article is the real reason for the current USPS crisis. Over the last 10 years, the USPS has downsized its workforce by 250,000 employees, yet their labor costs have remained steady at 80% of their overall budget. In addition, in spite of the fact that first class mail volume has been plummeting since 2006, the USPS still maintains the same number of mail processing centers it had during its heyday.

    4. Clive Munson says:

      The answer is pretty clear – downsize the postal workforce (150,000 postal employees can retire right now with full benefits with another 100,000 becoming retirement eligible over the next 3 years), renegotiate labor contracts (postal workers receive higher pay and more generous benefits than their private sector peers) and shutter excess mail processing facilities (there are currently more USPS facilities in the US than there are Starbucks, McDonalds, UPS and FedEx retail locations, combined). Crisis averted.

    5. Ken Marx says:

      Here's an idea that no one ever mentions. Many existing post offices are in rural communities where customer traffic is slow. Also, rural delivery routes cover many miles and long distances between boxes. There are local businesses in every community that could set up "a counter in the corner" to handle the mail. Rural residents have to "go to town" for groceries, supplies, and about everything else. Why not the mail? Any mail that was of an emergent nature could be delivered directly at a premium rate. This would enable the USPS to contract out their rural services. It would save the USPS money and be an additional source of income for small businesses. I realize this wouldn't solve all of USPS's problems, but it would be a step in the right direction.

    6. southc0ast says:

      The more the USPS baits legislators into debating this, the more likely the prospect another bail out of some obsolete institution with the confiscated income of Americans. Let the USPS know it is responsible for its future. With millions of dollars in unused real estate, that is a good place to start. Maybe the operators of the USPS can take a tour of a FedEx or UPS facility to get an idea how to.operate in the 21st century.

    7. Tammy says:

      They were required by Congress to pre-fund 75 years of retirement in 3 years. What type of business does that? That is ridiculous. Congress set them up to fail. What I do not understand is why?

    8. Art says:

      Investigate the rental charges they pay on a monthly basis for occupancy. I'll bet it's absurd!!!

    9. Great post. I used to be checking continuously this weblog and I’m inspired! Extremely useful info specifically the closing part :) I take care of such info much. I used to be looking for this certain information for a very long time. Thanks and good luck.

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