May 23, 2011
Summary
The Postal Service is near insolvency. Caused by diminished business, strong, but insufficient costcutting, and statutory financial obligations, by next year it may not be able to keep functioning. This article addresses why, what can be done, and concludes with where USPS will be in the absence of, in particular, congressional relief.
Analysis
An arm of the US Government may be unable to pay its employees and come “grinding to a halt” sometime in 2012. That's what the Postmaster General told the Senate last week. Unless Congress acts, Postal Service cash flow will not meet payroll. The Internet and the recession will have succeeded where “neither snow nor rain . . . nor gloom of night” ever has: staying “couriers from the swift completion of their appointed rounds.”
Mail volume has dropped precipitously, overwhelming admirable costcutting, and obligations to “prefund” pensions and retiree health care load $billions onto USPS costs. The Service receives next to no taxpayer funds. More than 99% of its funding comes from postage. A $1.1 trillion industry, with eight million workers, depends upon it.
Mail for many has become optional. Any increase in prices causes a spike in an already steady diversion to the Internet. In the past, the Service would react to a shortfall by raising prices. Today, it cannot. It has made great efforts with its employees to cut costs, but remains heavily overbuilt. With an obligation for “universal service,” while confronting opposition to closing facilities, it has been nearly impossible to reduce its infrastructure.
USPS also must prefund health care for its retirees by $5.5 billion annually. Hardly any other entity prefunds at all. Moreover, USPS has overpaid its pension funds by at least $57 billion, according to independent experts.
USPS must receive relief from its retiree obligations. One way would be to return overpaid pension funding to cover prefunding retirees health care. Legislative reforms must also permit easier revamping of a network built for a different era. The Service must have latitude to close underperforming buildings and streamline its system.
Personnel constitute 80% of USPS costs. Any cost savings effort cannot ignore that. Yet, in negotiations with unions this year, one resulted in little immediate savings and the other is at impasse. An organization in financial extremis requires an extraordinary joint effort not evident in the results to save the institution and jobs.
Without change, USPS will, as soon as September 30, be technically insolvent. Real insolvency, though, will occur next year. USPS was charged to act like a business. It would be grim and ironic if the way it ended up being most like a business was in need of Chapter 11.
Summary
The Postal Service is near insolvency. Caused by diminished business, strong, but insufficient costcutting, and statutory financial obligations, by next year it may not be able to keep functioning. This article addresses why, what can be done, and concludes with where USPS will be in the absence of, in particular, congressional relief.
Analysis
An arm of the US Government may be unable to pay its employees and come “grinding to a halt” sometime in 2012. That's what the Postmaster General told the Senate last week. Unless Congress acts, Postal Service cash flow will not meet payroll. The Internet and the recession will have succeeded where “neither snow nor rain . . . nor gloom of night” ever has: staying “couriers from the swift completion of their appointed rounds.”
Mail volume has dropped precipitously, overwhelming admirable costcutting, and obligations to “prefund” pensions and retiree health care load $billions onto USPS costs. The Service receives next to no taxpayer funds. More than 99% of its funding comes from postage. A $1.1 trillion industry, with eight million workers, depends upon it.
Mail for many has become optional. Any increase in prices causes a spike in an already steady diversion to the Internet. In the past, the Service would react to a shortfall by raising prices. Today, it cannot. It has made great efforts with its employees to cut costs, but remains heavily overbuilt. With an obligation for “universal service,” while confronting opposition to closing facilities, it has been nearly impossible to reduce its infrastructure.
USPS also must prefund health care for its retirees by $5.5 billion annually. Hardly any other entity prefunds at all. Moreover, USPS has overpaid its pension funds by at least $57 billion, according to independent experts.
USPS must receive relief from its retiree obligations. One way would be to return overpaid pension funding to cover prefunding retirees health care. Legislative reforms must also permit easier revamping of a network built for a different era. The Service must have latitude to close underperforming buildings and streamline its system.
Personnel constitute 80% of USPS costs. Any cost savings effort cannot ignore that. Yet, in negotiations with unions this year, one resulted in little immediate savings and the other is at impasse. An organization in financial extremis requires an extraordinary joint effort not evident in the results to save the institution and jobs.
Without change, USPS will, as soon as September 30, be technically insolvent. Real insolvency, though, will occur next year. USPS was charged to act like a business. It would be grim and ironic if the way it ended up being most like a business was in need of Chapter 11.
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