$20 Billion in Cuts by 2015 Needed to Save Postal Service

Postmaster General Patrick Donahoe told attendees at a National Press Club lunch that cuts and union concessions are needed to make the agency profitable. Recent rate hikes may also help fend off bankruptcy.
by | November 23, 2011

Postmaster General Patrick Donahoe said Monday that the U.S. Postal Service would need to slash $20 billion in costs and obtain concessions from the unions to revamp the retirement and pension plans to make the century-old agency profitable by 2015.

"We're in a deep financial crisis today because we have a business model that's tied to the past," Donahoe said. "We are expected to operate like a business but don't have the flexibility to do so."

Speaking at the National Press Club in Washington, Donahoe said those cost reductions could come through implementing a a new employee health benefit program under private providers; consolidating or closing thousands of post offices throughout the country; and ending Saturday delivery service.

He urged to pass legislation that would give him the freedom to implement some of the proposed cuts.

"The Postal Service can have a very bright future … we can be profitable and be self-sustaining," he said. "It will only happen if Congress develops a single, simple, straightforward piece of legislation that provides key areas of flexibility."

On the table are two proposals. A Senate measure co-sponsored by Sens. Joe Lieberman, I-Conn., and Susan Collins, R-Maine, would allow the Postal Service to offer buyouts to 100,000 employees over the next three years, saving a total of $8 billion annually.

On the House side, Reps. Darrell Issa, R-Calif., and Dennis Ross, R-Fla., sponsored legislation that would allow the Postal Service to eliminate Saturday deliveries. And after two years, if other cost-saving measures are not enough to put the servce back in the black, the agency would be able to consolidate thousands of post offices nationwide.

"If Congress gave us everything we needed right now, we'd be out of debt by 2013," he said.

Donahoe was mostly supportive of the measures, but said they do not allow him to act quickly enough. The House bill's two-year waiting period on ending Saturday deliveries, for example, only delays the inevitable, he said. The Postal Service can get back on track quickly if Congress makes the right moves, he added.

Competing with private carriers such as FedEx and UPS, and instant communication, such as email, mail volume declined by 1.7 percent in 2011. The Postal Service is also weighed down by a mandate, passed by Congress in 2006, that requires it to pay more than $5 billion a year toward future retiree benefits. The legislation was enacted just before the economic crash, and is now seen by virtually all sides in the debate over postal reform as an unnecessary cost.

At the Bargaining Table

The Postal Service has also been in contentious talks with the National Association of Letter Carriers, which represents more than 500,000 postal workers at the bargaining table. The NALC's contract was set to expire Sunday night, but negotiations were extended to Dec. 7.

"Their agenda seems to be to dismantle the Postal Service. And if that's your goal, then obviously you have too many employees," says Fredric Rolando, president of the National Association of Letter Carriers, the biggest of the four postal unions, told NPR on Tuesday. "We're not the auto industry. We're not competing with Japanese stamps. In fact, we deliver 40 percent of the world's mail, we're the cheapest mail system in the world. I think it's really just a matter of restructuring what we need to do to replace the revenue. I don't see us on par with the auto industry at all."

The National Association of Letter Carriers is staunchly opposed to any proposal that would end Saturday delivery. Rolando found another way to cut $20 billion -- by restructuring employee health benefit plans. The proposal is being discussed as part of the contract negotiations with the Postal Service, so NALC was hesitant to give specifics, but part of the plan involves merging members' health insurance plans with Medicare benefits. Savings would be spread out over 10 years, as opposed to the five-year timeline set aside by Donahoe.

"We know the Postal Service faces very serious problems," Rolando said at a press conference in Washington on Monday. "But, we also know that the Postal Service, if properly restructured, can be as relevant for the 21st century as it was for the 18th, 19th and 20th."

Rate Hikes To Hold Off Bankruptcy

The Postal Service said Tuesday that it is raising rates for its more profitable express mail and priority mail shipping next year, part of its efforts to stave off bankruptcy.

The new prices, which take effect Jan. 22, include the introduction of a new flat rate of $39.95 for overnight express mail boxes weighing up to 70 pounds that are sent domestically; the flat rate for express letters is being increased separately to $18.95. Previously, prices for the overnight service were $13.25 or higher based on package weight and distance.

The prices for priority mail, which promises two-to-three-day delivery, also will increase by an average of 3.1 percent.

The post office said the rate hikes were partly aimed at keeping the ailing agency afloat while maintaining its pricing advantage in the shipping business. Private companies such as UPS and FedEx, which offer similar express shipping services, regularly adjust their prices and have posted modest profits in the sluggish economy.

In the past year, the post office lost $5.1 billion, mostly due to a 5.8 percent decline in revenue for first-class mail. Priority mail and express mail posted a 6.3 percent increase.

Still, the rate increase will make only a small dent in the Postal Service's losses, caused by the recession, movement of mail to the Internet and a requirement that the agency fund future retiree medical benefits years in advance.

The new prices amount to an across-the-board increase of roughly 5 percent in postal shipping services. They are in addition to a previously announced 1-cent increase in first-class mail to 45 cents, also planned for Jan. 22. The independent Postal Regulatory Commission will review the proposed increases before they take effect.

The Associated Press contributed to this report.

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