Postal Service Financial Problems: 10 Things They Don't Want You To Know

FILE - This May 9, 2012 file photo shows a customer entering a post office in Websterville, Vt. The nearly bankrupt U.S. Postal Service on Thursday reported losses of $57 million per day in the last quarter and warned it will miss another payment due to the U.S. Treasury, just one week after its first-ever default on a payment for future retiree health benefits. (AP Photo/Toby Talbot)
FILE - This May 9, 2012 file photo shows a customer entering a post office in Websterville, Vt. The nearly bankrupt U.S. Postal Service on Thursday reported losses of $57 million per day in the last quarter and warned it will miss another payment due to the U.S. Treasury, just one week after its first-ever default on a payment for future retiree health benefits. (AP Photo/Toby Talbot)

1. Your failure to send your Mother a proper birthday card is the least of our problems.

For four days at the end of June, retired letter carrier Jamie Partridge and nine other current and former postal workers didn't eat. They were on a hunger strike to protest what the group saw as the biggest threat to the U.S. Postal Service's continued existence: Not e-mail's steady encroachment on snail mail's territory, not a prolonged economic downturn or the growing popularity of corporate shipping services, but government-mandated payments to pre-fund health care benefits for postal retirees -- 75 years into the future. "To call out that Congress was starving the postal service, we were starving ourselves," Partridge says. Private-sector companies -- and even most other branches of the federal government, like, say, the Army -- aren't required to fund their health benefits so far in advance. It's an albatross of a financial burden on the Postal Service, hidden beneath the more striking headlines about shrinking mail volume -- down more than 21 percent since its 2006 peak -- and plummeting revenue. Indeed, in the first three quarters of 2012, the Postal Service lost $11.6 billion, more than twice what it lost during the same period in 2011.

Publicly, the Postal Service has blamed its financial woes on a waning interest in old-fashioned mail (exacerbated by the financial crisis). And it has cited that reason when it announced staff reductions -- about a quarter of its workforce, or 150,000 postal jobs, will be eliminated by 2016 -- as well as when it talked about closing post offices and when it proposed ending Saturday mail delivery, a measure currently pending in Congress. But some in the postal industry say that declining mail is just an excuse: "There is red ink -- but the overwhelming share has nothing to do with mail volume, the Internet, or other factors related to the mail," says Fredric Rolando, president of the National Association of Letter Carriers. The retiree health payments account for nearly 80 percent, or $9.2 billion, of the first three quarters' losses, and they "not only have exhausted the Postal Service's profits, savings and borrowing authority, they also have distracted the USPS from addressing the structural issues that do indeed exist as society changes," says Rolando, adding that there are "plenty of opportunities" in mail, including e-commerce shipping. "The prefunding of retiree health benefits for future retirees is a major cause of our financial crisis -- but not the only cause," says a USPS spokesman, citing decline in first-class mail as another major cause.

While many industry groups, including the Postal Regulatory Commission, have recommended that the health care payments -- the result of a congressional mandate passed in 2006, before the Postal Service's problems started -- be reduced to alleviate the burden, there is one massive roadblock: the federal budget. Because the retiree health prefunding payments are counted in federal funds, they are tied into the nation's budget, which some experts say amounts to the USPS subsidizing government operations. "So the Postal Service has been a kind of cash cow for the federal government for the last 40 years," says Postal Regulatory Commission chairman Ruth Goldway.

2. Our retirees are just fine, thanks.

On Aug. 1, for the first time since the 2006 mandate, the Postal Service did not pay its $5.5 billion annual retiree health benefits bill, and announced that it's likely to default on the next payment too, due Sept. 30. While the announcement raised red flags of concern for the welfare of retiring postal workers, experts, including postal employee unions, contend that the retirees will be fine -- or may even be better off -- if the USPS doesn't pay another cent into the fund for a long time. Indeed, Postal Service inspector general David Williams wrote a letter to the Senate earlier this year recommending just that -- eliminating the annual payments and letting the $44 billion fund grow with interest. Despite the Postal Service's debt, its retiree benefit coffers are beyond full. Its pension funds are more than 100% funded, compared with 42% for all federal pension funds and 80% for the average Fortune 1000 pension plan. That "astonishingly high figure," according to Williams, amounts to a "war chest" of resources that will take care of older workers for decades to come.

"The irony," says the NALC's Rolando, is that "today's postal retirees, and future retirees, are well protected," while the Postal Service's financial status is in jeopardy. If it continues to struggle financially, it will likely cut back on post office locations and hours as well as delivery service -- which some experts say could disadvantage retirees and other Americans who rely on the Postal Service for efficient correspondence.

3. Anybody want to buy an ailing government agency?

As a federal agency, the Postal Service is something of a platypus: It is bound by law to perform certain functions -- the old postman's motto goes, "Neither snow or rain nor heat nor gloom of night will stay these couriers from their swift completion of their appointed rounds" -- but it also has to report financial results like a business. Some economists say turning the postal service into a corporation with a board of directors and a fiduciary duty to shareholders would allow it to make sound financial decisions based on market conditions, rather than falling prey to political motivations and bureaucratic red tape. Under the current system, "managers are hamstrung," says Richard Geddes, Cornell University professor of policy analysis and management and a visiting scholar at the American Enterprise Institute for Public Policy Research.

But closing unprofitable post offices and stopping delivery on low-volume days would undermine the original equality-minded mission of the Postal Service to keep the country connected through the mail and to enable efficient communication to the most remote corners of the nation. "It would do things beneficial to the bottom line but not to the country," says Steve Hutkins, a New York University professor who advocates for the protection of the Postal Service through his site Even proponents of privatization admit that it would be difficult. "Any change is like shifting the direction of a battleship," Geddes says. When the idea was first floated in the 1990s, "the comment that I got was, Who would buy it?" says PRC chairman Goldway. "I don't think the market realities are there now."

A USPS spokesman says privatization isn't the answer, adding that it would be hard for even a private company to profit serving rural areas, and that the Postal Service has a business plan to become "financially sound and continue universal service to all Americans."

4. We're hiring our competitors to do our jobs for us.

The Postal Service increasingly relies on outside corporations for everything from sorting mail and transporting it by air and ground to advertising and I.T. consulting: Last year, the agency spent more than $12 billion on such contracts, according to Husch Blackwell, a law firm that represents Postal Service contractors. The USPS even hires some of its competitors to help it do its job, including the United Parcel Service and FedEx, which was the Postal Service's highest-paid supplier in 2011. "The postal service essentially has privatized everything but the last mile of delivery," Goldway says. The number of mail delivery routes served by outsourced carriers increased 84 percent to nearly 10,000 between 1998 and 2012, according to a recent report by the Congressional Research Service. There is now a thriving industry of third-party companies contracting with the USPS, including large publicly traded corporations such as presorting mail firm Pitney Bowes.

Postal worker unions generally oppose the practice of contracting, which dates back to the 18th century, saying that outsourcing Postal Service functions is less reliable and takes jobs away from postal employees who are already being laid off in droves. The National Association of Letter Carriers has referred to the practice as a "cancer" that must be stopped before it spreads. Still, contractors deliver mail on just 4.4% of routes, up from 2.3% in 1998, according to an analysis by the Congressional Research Service. The Postal Service, for its part, says it will continue to use contractors, as long as doing so is cost-effective and consistent with their contractual obligations.

5. We're addicted to junk mail.

Like Big Oil and Big Pharma, the Big Mailers -- including banks and catalog publishers as well as presort mail companies -- are a powerful force on Capitol Hill, and the Postal Service courts their business because the vast breadth of envelopes buoys mail volume. Through its workshare discounting program, the Postal Service offers reduced postage rates to companies with large stakes in the mail -- from mass mailers like AT&T and Bank of America to mail-handling specialists like Pitney Bowes -- that presort mail or deliver it part of the way.

In theory, the benefits should be mutual: Working with outside service providers increases efficiency and saves money, as contractors are often cheaper to hire than unionized postal employees. But the postage discounts the Postal Service offers contractors occasionally exceed the amount it saves in the deal; last year, 35 of these workshare arrangements were under water, according to the Postal Regulatory Commission's annual compliance report. (A spokesman for the USPS says the wokshare arrangements comply with the law.)

Some experts believe the pricing mismatch is partially a result of politics. Bulk junkmailers like ValPak lobby forcefully against moves that would increase their postage rates. The National Association of Pre-Sort Mailers acknowledges that its members do a lot of the same tasks as the Postal Service -- just better, providing a higher profit margin and faster service. "When the Postal Service is doing it themselves, it doesn't perform as well as the mail that's already prepared," says the association's executive director Bob Galaher.

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