Many of you have read recent press reports about the worsening financial health of the U.S. Postal Service (USPS). You also know that we are actively engaged with the Postal Service in trying to bring their costs, particularly for Periodicals, under control. And much is happening on the legislative front. Here is a brief overview of the current situation. MPA continues to be in the forefront of ongoing efforts to deal with these critical issues at the White House, in Congress and at USPS Headquarters. Please feel free to contact Jim Cregan or Rita Cohen in our Washington office if you have any questions or concerns.
Current USPS Financial Situation
- As has been widely reported, the Postal Service lost $2.6 billion in the first half of its Fiscal Year 2011, which runs from October 2010 to September 2011. This is even worse than last year, when USPS lost $1.9 billion over the same time frame.
- With the higher volume part of the fiscal year now over, the Postal Service losses will continue to grow. The Postmaster General announced just this morning in Congressional testimony that the Service expects to lose more than $8 billion for the fiscal year as a whole.
- Even with the recently implemented 1.7% rate increase, it is clear that the Postal Service will lack sufficient cash to make its legislatively mandated $5.5 billion payment to the Treasury (due on September 30th) to prefund health benefits for retired USPS employees.
- The Postmaster General has announced that he does not plan to make the $5.5 billion payment. Despite this “default”, the Postal Service projects that it will hit its statutory $15 billion debt limit and experience a $100 million cash shortfall in October 2011 -- with a much larger cash shortfall projected by summer of 2012.
Status of Labor Contracts
Despite decades of automation, approximately 80 percent of USPS costs continue to be labor-related. After a long negotiation process, USPS recently entered into a multi-year collective bargaining agreement with one of its major unions – the American Postal Workers Union. Unfortunately, the contract – which was just ratified by the APWU membership – is unlikely to do much to improve the Postal Service’s longstanding problems of excess facilities and employees and higher rates of compensation than comparable workers receive in the private sector. While the new contract establishes a lower pay schedule and new work rules for future hires, the agreement will give existing employees increased pay, layoff protection, and grandfather provisions. The Postal Service and PMG are strongly defending the new contract as good for the Postal Service, but press coverage and reaction on the Hill has been much less favorable. The Postmaster General was questioned extensively about the labor agreement at a hearing of the House of Representatives Oversight and Government Reform Committee on April 5.
The Postal Service recently reported that negotiations are continuing with the other employee group whose contract ended in 2010 – the National Rural Letter Carriers’ Association.
Efforts to Reduce Costs and Increase Revenue
As you will recall, one of the main themes during the exigency case was that the Postal Service has not reduced costs as much as needed to offset volume losses of over 20 percent. The problem is particularly acute for flat-shaped mail, including Periodicals, for which, according to Postal Service measurements, revenues only cover 75 percent of costs. We continue to work cooperatively with the Postal Service to develop workable cost-saving strategies. Most recently, we have been engaged in intense negotiations with USPS operations executives to find a way to significantly reduce manual processing of magazines, while still allowing us to enter our time-sensitive publications at postal facilities as late as possible to accommodate tight production schedules. We are hopeful we are close to a solution that will accomplish both objectives.
Not surprisingly, the Postal Service is also looking for sources of new volume and revenue. As a result of a meeting between the Postmaster General and several members of the MPA Board in January, we have established a joint workgroup to explore ways to grow magazine circulation through the mail. The workgroup met with their USPS counterparts on May 9, and the CEOs will meet with the PMG again on June 1 to discuss progress and possible experimental initiatives.
After losing its exigency case before the Postal Regulatory Commission in 2010, in April the Postal Service raised rates in accordance with its statutory cap, increasing rates for all the market dominant products, including Periodicals, by 1.7%. The Postal Service’s appeal of its loss in the exigency case is still pending before the US Court of Appeals in the District of Columbia, with a decision expected this month or next. Unless the Service prevails in its appeal, rates will most likely not increase again until early 2012.
Legislative Activity/White House Involvement
A solution to the Postal Service’s financial problems will most likely require legislation. Multiple postal bills have already been introduced in Congress this year, and more are likely. Among other provisions, the bills that have been introduced thus far would allow the Postal Service to use a substantial overfunding of its pension plans (estimated by several actuarial experts at $50 to $75 billion) to make the annual $5+ billion retiree health benefit prefunding payments that are required through FY 2017. However, it is likely that such financial relief, if provided at all, would be conditioned on additional requirements designed to deal with excess labor and facility costs. As MPA argued in the exigency case, the Postal Service must confront its longstanding excess costs in order to secure its long-term viability. MPA continues to be actively engaged on Capitol Hill with respect to all legislative proposals, and is in constant communication with key Members of both the House and Senate, and their committee staffs. We also continue to urge the Obama Administration to take a leadership role and become actively involved in the increasingly urgent debate about the future of the nation’s postal system.