With Fewer Customers and Fixed Labor Costs, U.S. Postal Service Faces $7 Billion Net Loss in 2009
August 11, 2009The U.S Postal Service faces a net loss of $7 billion in fiscal year 2009 even if it succeeds in cutting its costs by $6 billion, according to testimony provided to a Senate subcommittee last week by the Government Accountability Office.
The Postal Service is expected to end the year with $10.2 billion in outstanding debt.
Meanwhile, USPS faces continuing high overhead in the form of employee wages and benefits fixed by collective bargaining agreements, as well as declining use of the service by its customers.
“It is safer to say that they are bordering on insolvency,” Kate Siggerud, Managing Director of Fiscal Infrastructure at the GAO told CNSNews.com.
GAO’s written testimony also said that the USPS does not expect to generate enough cash to make a mandated fiscal year 2009 payment of $5.4 billion for future retiree health benefits. The payment is due by September 30, 2009.
“Essentially they are going to have to make some very tough choices at the end of this fiscal year--on paying payroll versus paying the retiree health benefits cost benefit payment that is due,” Siggerud said.
One factor behind USPS fiscal woes is that use of the service is dwindling.
“USPS currently projects fiscal year 2009 mail volumes of about 175 billion, which would be 28 billion fewer pieces than fiscal year 2008,” said the GAO testimony. “This 13.7 percent decline, triple the 4.5 percent decline for fiscal year 2008, would be the largest percentage decline since the Great Depression.”
In a press release earlier this month, the USPS applauded itself for achieving “comprehensive, organization-wide cost reductions.”
“Thanks to extraordinary efforts across the entire organization, we are well on track to achieve our 2009 target of more than $6 billion in total cost reductions,” stated Postmaster General John Potter.
Some of the cost-cutting steps USPS has taken, according to the release, include initiatives to match work hours to reduced mail volume, realigning carrier routes, halting construction of new postal facilities, freezing Postal Service officer and executive salaries at 2008 pay levels, and reducing travel budgets.
Nonetheless, the GAO testified that USPS cost-cutting is countered by cost of living increases to employees based on collective bargaining agreements, and noted that 80 percent of USPS costs go to wages and benefits.
“USPS has had difficulty reducing costs in two areas because of limited flexibility,” said the GAO testimony. “First, as we have testified, USPS needs to make changes to its compensation and benefits, which compose about 80 percent of its costs. To do so, USPS will need to negotiate with its four largest unions on collective bargaining agreements that will expire in 2010 and 2011. These agreements cover about 85 percent of postal employees and include items such as cost-of-living adjustments, work rules, and layoff protections.”
“However, USPS projects cash shortfalls because cost cutting and rate increases will not
fully offset the impact of mail volume declines and other factors that increase costs—notably semiannual cost-of-living allowances (COLA) for employees covered by collective bargaining agreements,” said the testimony.
Siggerud told CNSNews.com that there are currently bills before Congress that would relieve the Postal Service from the mandated schedule of payments into the Postal Service Retiree Health Benefits Fund.
“The Postal Service is seeking an eight-year waiver that would allow it to make those current Health Benefit costs out of the existing fund.”
“What the Postal Service is proposing is to pay its current health benefits costs for its current employees out of that fund,” continued Siggerud. “That would essentially have the effect of reducing the overall amount that the Postal Service has to pay into that fund this year.”
According to Siggerud, another bill would allow the Postal Service to increase its borrowing authority. According to current statute, the USPS can only borrow up to $3 billion a year.
“Before it was the Postal Service, when it was the Post Office Department prior to 1971, there was taxpayer money that went to the Postal service,” Siggerud said. “That is largely now no longer true. It has been a self financing organization now since 1971, but naturally that is the big decision now that is facing us.”