US Postal Service Finances Bleak

There is trouble at the post office.

The U.S. Postal Service's financial outlook is bleak and getting bleaker, according to members of Congress, a presidential commission, the General Accounting Office and postal officials themselves. It is bad enough that some federal officials are warning of a huge taxpayer bailout — or dramatic increases in postal rates — if Congress does not reorganize the $67 billion-a-year entity soon to help it operate more efficiently.
"[T]he Postal Service as an institution probably cannot survive without fundamental reform," Sen. Susan Collins (R-Maine), chairman of the Senate Governmental Affairs Committee, said at a Capitol Hill hearing this month.

A nine-member presidential commission that spent seven months last year studying the future of the Postal Service sounded a similar alarm. The panel concluded in a 181-page report that the institution is in "significant jeopardy" and may not be able to continue delivering mail to every address six days a week.

The fate of the independent federal agency, which was last reorganized in 1970, has been the subject of more than a half-dozen congressional hearings over the past three months. A joint House-Senate hearing is scheduled for today, after which several key lawmakers are expected to introduce legislation to change the way the Postal Service sets rates, manages its workforce and handles its products, services and finances.

"Our Postal Service is in trouble, and requires reform legislation to prevent a meltdown," said Rep. John M. McHugh (R-N.Y.), chairman of a special House panel on postal reform and oversight, who unsuccessfully sponsored a bill two years ago. "Universal service as we know it is at risk."

Similar efforts in recent years have fallen short. But several lawmakers said dire warnings about the Postal Service's problems from analysts, industry leaders and even the White House have provided a new sense of urgency. After years of losses, the Postal Service finished fiscal 2003 in the black only because of a one-time change in its pension payment requirements, officials say.

"We have the best opportunity we've had in years to address some of these issues," Rep. Henry A. Waxman (Calif.), the top Democrat on the House Government Reform Committee, said in a hearing last month.

But William Burrus, president of the American Postal Workers Union, which has more than 300,000 members and has been critical of prospective labor changes, says he does not accept the notion that the Postal Service is failing. He told a Senate panel last month that lobbying by major corporate mailers is driving the push for change.

"It is extremely important that Congress look beyond the interests of large mailers and examine the public interest," Burrus testified.

The Postal Service has about 738,000 employees, relies on revenue from operations rather than taxpayer funding and is one of few federal bureaucracies with which most Americans have regular contact. It is at the center of a $900 billion mailing industry, which employs 9 million people in such businesses as direct mail, paper manufacturers and printers.

The organization has been plagued by three consecutive years of declining mail volumes, stagnant revenue and rising costs — a combination that has triggered billions of dollars in cumulative losses.

In part, the troubles stem from service disruptions after the Sept. 11, 2001, terrorist attacks and the anthrax mailings that fall. But a bigger culprit is the accelerating decline in letters and other first-class mail, a lucrative line of business that traditionally has covered two-thirds of the Postal Service's costs. Last year, for the first time, first-class mail represented less than half of the 202 billion pieces of mail the Postal Service handled. Officials predict a further erosion as Americans increasingly turn to the Internet, e-mail and cell phones to pay bills and stay connected.

"Raising postal rates to offset this trend may provide an immediate boost to the service's revenues, but over the longer term will likely accelerate the transition of mailed communications and payments to electronic alternatives," Comptroller General David M. Walker of the GAO told a House panel in January.

Despite declining mail volume, carriers must deliver to more homes and businesses than ever; addresses increase by more than 1.5 million a year. Also, Federal Express, United Parcel Service and others have made deep inroads into parcel delivery, once a growth area for the Postal Service. Meanwhile, the Postal Service has trimmed billions of dollars in capital spending on maintaining post offices and other physical assets, and is pondering how to cope with as much as $57 billion in future retiree health benefits that it may not be able to meet.

Postmaster General John E. Potter says the Postal Service has taken steps to transform itself into a leaner, more efficient organization. Officials have increased productivity and trimmed the payroll by more than 70,000 employees through attrition over the past five years. And they successfully lobbied Congress last year to restructure the agency's pension fund payments, a move that helped the organization finish fiscal 2003 $3.9 billion in the black after three consecutive years of losses.

But it is still not enough, Potter said. "The need for change may not become apparent to everyday mail users until the inflexibilities of our dated business model begin to affect service and the price of postage," he testified before a House panel in January. "We cannot afford to let this happen."

The presidential commission recommended several changes, including making it easier to close unneeded postal facilities, limiting to 180 days labor arbitrations that now take as long as 17 months, and including pension and health benefits in collective bargaining talks.

The commission recommended simplifying a postal rate-setting process that now takes more than a year to complete, and further shrinking the workforce through attrition and buyouts. Panelists also said the Postal Service should allow customers to buy, at a premium, personalized stamps bearing their photograph or other image, and should create a new pay-for-performance system for managers and workers.

Several of the recommendations are expected to be included in legislation to be introduced soon in the House and Senate. Collins and Sen. Thomas R. Carper (D-Del.) are likely to be chief sponsors in the Senate, while in the House McHugh, Waxman, House Government Reform panel Chairman Thomas M. Davis III (R-Va.) and Rep. Danny K. Davis (D-Ill.) are expected to be the lead advocates.

One challenge to passing a bill this year, congressional aides say, is a technical but important dispute over whether the Treasury Department or the Postal Service should pay about $27 billion in retirement benefits to some workers related to their military service. Historically, Treasury has paid such costs, but the responsibility was shifted to postal officials last year as part of the postal pension legislation. Postal officials want to switch the burden back, but the White House opposes such a move.

Another key challenge is whether Congress will repeal a provision in the pension legislation requiring postal officials to win approval from lawmakers before spending more than $3 billion in pension savings starting in fiscal 2006. Postal officials argue that uncertainty over access to the money impedes planning on mailing rates, but some lawmakers see the requirement as a check on wasteful spending.

Businesses from magazine publishers to credit card companies, whose representatives have spent weeks testifying in hearings and lobbying lawmakers, have a lot riding on the outcome of the legislative debate.

H. Robert Wientzen, president of the Direct Marketing Association, which represents 4,700 companies, told a Senate panel this month that direct mail generated $634.4 billion in revenue in 2002.

"In short, a viable Postal Service is vital to the future of the DMA's members and our industry," he said.