U.S. Postal Service hemorrhaging money, running out of options

This week, the U.S. Postal Service issued a new price hike. The change doesn’t affect the price of a basic first-class stamp, so it’s gone unnoticed by most consumers, but it’s the latest desperate volley from the Postal Service to stem the coming tide of insolvency.

Postal Service officials have blamed the recession for the agency’s financial woes, but the economy is simply exacerbating lost postal revenue from the greater trend of paperless communication. According to internal estimates, lost revenue will skyrocket over the next decade, putting the Post Office a staggering quarter-trillion dollars ($238 billion to be exact) in the red by 2021 if current trends continue.

For several years, the Postal Service has been considering cutting Saturday delivery in order to slow down some of its losses. Polls have shown that the public is in support of cutting Saturday service, and the Postmaster General has strongly advocated doing so. However, last month, the U.S. Postal Regulatory Commission (PRC), an independent government body, released a report (PDF) concluding that the Postal Service has vastly overestimated the savings that a five-day delivery schedule would provide and that any savings would be undercut by the diminished quality of service stemming from such a reduced schedule.

The PRC says that dropping Saturday service would result in annual overall savings of $1.7 billion, compared to the Postal Service estimate of $3.1 billion — no small number, but a drop in the bucket compared to what the Postal Service stands to lose.

The USPS has stood by its own estimates. The Postal Service and the PRC have dueling requests to Congress to take their side of the issue, but given the USPS is almost 100 percent privately-funded, an overhaul is unlikely to be a top priority for lawmakers during the current budget crunch.

The Postal Service’s own budget crisis means that it will run out of money to remain fully operational by September 30. “We will pay employees and deliver mail,” Postmaster General Patrick Donahoe told a House subcommittee last month. “The thing we will not do is be able to pay the federal government.”

The greatest impact of defaulting on its obligations would be an inability to continue funding retiree health benefits. To fix the situation, the USPS and the American Postal Workers Union are renegotiating their labor contract to up employee contributions to pensions and increase “noncareer” flexible jobs, but the estimated $3.8 billion saved over four years is still not enough to make up for the Postal Service’s losses, both immediate and long-term.

Some Republicans in Congress have seized the opportunity to continue their party’s national push against unions. Rep. Darrell Issa (R-Calif.), chairman of the House Committee on Oversight and Government Reform and no friend of labor, has pledged to review the new labor contract.

“The real issue facing the Postal Service right now is labor costs, which make up 80 cents of every dollar they spend,” committee member Rep. Dennis Ross (R-Fla.) said in a statement.

Still, with many deriding internal and Democrat-offered solutions to the Postal Service’s seemingly intractable revenue problem for being unrealistically optimistic, the USPS will have to find a solution somewhere, somehow that’s acceptable to its 670,000 employees (down from a high of more than 900,000 in 1999) without putting itself in danger of total collapse. The future of the mail depends on it.