Tradition holds that: “Neither snow nor rain nor heat nor gloom of night” will keep the United States mail from getting through; but in the end it may be simple economics that dooms one of the oldest and most trusted government agencies in America.
That, and good old-fashioned politics.
Last week Postmaster General Patrick R. Donahoe announced that come spring the U.S. Postal Service will shutter 3,700 retail facilities, and more than half of its 500 mail processing centers, in an effort to address a $5.1 billion deficit in 2011. Also gone will be next day mail service; half of first class mail will now take up to three days to reach its destination, while the other half will get there in two.
It’s estimated that more than 100,000 employees will lose their jobs as a result of the cuts. Donahoe is also seeking congressional approval to cut out Saturday delivery, which he says will save the agency some $3 billion annually.
The operational efficiencies — as the Postal Service refers to them — are aimed at reducing costs by $20 billion by 2015 in order to return the agency to profitability, according to David Williams, vice president of USPS Network Operations. That would be a noble accomplishment, except for the fact that — on paper at least — the USPS already turns a profit every year. But a mandate contained in the Postal Service Accountability and Enhancement Act — a 2006 reform bill that was signed by President George W. Bush — created a highly unusual burden on the agency that within a single year helped turn it from an operation that pulled in $1.4 billion in profits in 2005 to one that now bleeds cash like a sieve.
Embedded in the law is a requirement that the Postal Service put 80 percent of its retiree health benefits for the next 75 years into a newly created Postal Service Retiree Health Benefits Fund. The payments are to be made at a highly accelerated rate that amounts to a total cost to the USPS of more than $5 billion each year through 2016. According to Fredric Rolando, president of the National Association of Letter Carriers, the Postal Service is essentially being asked to pay the future health benefits of employees that don’t even work for it yet.
By contrast, most private sector companies pre-fund just 30 percent of future retiree health care costs, if they do so at all, and no government agency is required to pony up as much as the USPS for future benefits.
“Nobody else is required to do this. No government agency, no private company, nobody. And that’s what’s pushing the Postal Service towards the edge of bankruptcy,” said Sally Davidow, a spokesperson for the American Postal Workers Union, which represents more than 360,000 postal workers.
According to Davidow, the pre-funding caveat was inserted by the Bush administration at the last minute into what had been a widely popular reform bill, though she points out that the APWU opposed it from the start.
“The Postal Service is not part of the federal government, but the [Postal Service Retiree Health Benefits] Fund is, so it made the federal deficit look smaller,” she explained. “But the big overarching reason [for the mandate] is that there are people who hate government and don't want to see government succeed.”
Nonetheless the bill received broad support at the time. Then-Postmaster General John Potter testified in favor of the bill, and it was co-sponsored by two Democrats, including Henry Waxman of California — who chaired the House Oversight and Government Reform Committee from 2007 to 2009. It was ultimately passed with bi-partisan support, but within a year it was evident that the new funding requirement was untenable. In 2009, Potter was back on Capitol Hill telling lawmakers that the USPS would end the year $700 million in the hole.
Since then the USPS has struggled to come up with the payment every year, and it has already pumped $47 billion into the fund. Meanwhile it has been falling deeper and deeper into debt.
The installment for 2012 was due at the end of September, but the USPS received an extension — it now has until December 16 to come up with the cash or face default. If that happens the Postal Service will end 2011 with a net loss of some $10 billion.
The Post Office as social service
The Associated Press reports that the Postal Service is considering closing up to 11 mail processing centers in Pennsylvania — as well as six in New Jersey and one in Delaware — under the proposed cuts.
According to Cathy Yarosky, the spokesperson for the USPS Philadelphia District, four area facilities are among those being studied for closure, including retail post offices at 30th Street Train Station and in the Montgomery County towns of Salford and Woxall, and the Southeastern PA Processing and Distribution Center near King of Prussia. She says an early plan to close down the B Free Franklin Post Office in Olde City, the nation’s first, has since been abandoned.
When asked how the pending cuts would impact consumers, Yarosky said: “In all likelihood, this change is expected to have minimal impact on the average postal customer.”
But exactly who is the average postal customer? It’s hard to say; but one group that will almost certainly be impacted are those living near or below the poverty line, many of whom lack access to the Internet and depend more heavily on the U.S. mail and retail post offices for a number services. These are the same people who are more likely to have a family member that is incarcerated or serving overseas in the military (circumstances where mail often serves as the only link) and to live in a neighborhood where there are few banks (many low income consumers get their money orders at the post office, which often costs them less than going to a check cashing business).
And for people who live check to check, next day delivery is often the only option for getting a bill in on time. Private services like FedEx and UPS represent a costly alternative to the U.S. mail, and they are not required by law to offer universal access.
A government agency in name only
Contrary to popular belief, the U.S. Postal Service is not a federal agency, at least not in the traditional sense. Since 1971, when President Richard Nixon signed the Postal Reorganization Act, the USPS has operated as a quasi-private entity that receives no taxpayer support. Revenues are generated the way a private business would: through the sale of products and services. Its health benefits, however, are still provided through the Federal Employees Health Benefits (FEHB) Program and it its pension fund is managed under the Federal Employees Retirement System, into which it pays a stipend. In October, the Government Accountability Office confirmed that the Postal Service has overpaid nearly $7 billion into its FERS account, money the USPS would like back to offset its losses.
There are currently four bills in Congress that would seek to address the Postal Service’s financial crisis, two of which would release the pension overpayment funds to the USPS to pay down debt.
H.R. 1351, sponsored by Rep. Stephen Lynch, D-Mass., would allow the Postal Service to apply the money directly to its unfunded health care obligations for 2012, putting it back in the black. But that bill is being held up by Republicans on the House Oversight Committee who are proposing their own legislation, which would institute even deeper cuts.
A separate bill introduced in the Senate in November by Vermont Independent Bernie Sanders would also allow the Postal Service to apply its overpayment to current liabilities, and it would end the pre-funding mandate created by the Postal Service Accountability and Enhancement Act.
“Congress has to do the right thing,” said Davidow. “Congress has to address this fundamental underlying cause of the postal service financial crisis through legislation and solve the problem so the Postal Service will have the money to evolve and make the technological changes in needs to stay relevant.”
The rise of the Internet has, indeed, taken a toll on traditional mail services; mail volume has been steadily declining since 2006, when the Postal Service moved a record 213 billion pieces of mail. In September the GAO issued a report that showed mail volume down almost 20 percent since then to about 170 billion pieces by the end of fiscal year 2010, with first class mail volume down 6.5 percent so far this year. “USPS has said that mail volume declines and changes in the mail mix have outpaced even its most pessimistic forecasts,” GAO said.
In 2008, the Postal Service launched Vision 2013, a five-year plan aimed at applying new technologies and services to offset the decline. Among other things, the USPS is looking at new mobile applications that offer customers immediate access to postal information and services, and a plan to create an email address to correspond with every physical address.