US Post Office on the brink of default

We seem to hear this story on an annual basis, but this time they sound like they mean it. The United States Postal Service is teetering on the brink of financial collapse, with a $5.5 billion payment to retirees coming due which they can’t cover and a grand total of $9.2B in red ink for the year.

“Our situation is extremely serious,” the postmaster general, Patrick R. Donahoe, said in an interview. “If Congress doesn’t act, we will default.”

In recent weeks, Mr. Donahoe has been pushing a series of painful cost-cutting measures to erase the agency’s deficit, which will reach $9.2 billion this fiscal year. They include eliminating Saturday mail delivery, closing up to 3,700 postal locations and laying off 120,000 workers — nearly one-fifth of the agency’s work force — despite a no-layoffs clause in the unions’ contracts…

At the same time, decades of contractual promises made to unionized workers, including no-layoff clauses, are increasing the post office’s costs. Labor represents 80 percent of the agency’s expenses, compared with 53 percent at United Parcel Service and 32 percent at FedEx, its two biggest private competitors. Postal workers also receive more generous health benefits than most other federal employees.

The Lonely Conservative thinks the real culprit is one we’ve seen many times before.

No layoff clauses?!?! No wonder they can’t adapt to the changing marketplace. There will always be a market for parcel delivery, but the union and politicians are keeping the Postal Service from doing what’s necessary to stay viable. I wonder how long it will be before we the taxpayers bail them out.

As an aside, note the difference between the labor costs of UPS and FedEx. UPS is unionized and FedEx is not. Here’s a video from a couple years ago explaining how the two companies are governed by different federal labor laws. UPS tried to have that changed so unions would have had an easier time unionizing FedEx.

The New York Post has an excellent rundown of the cost / revenue problems facing the USPS, as well as the factors complicating any possible solution. While the union issues are certainly a huge part of the problem, it’s important to remember that the Post Office is in something of a unique position. They aren’t technically part of the government, as they go to great pains to point out in their recent ad campaign. Their operation isn’t directly funded by tax dollars. But unlike a completely private company, they live with the federal government’s thumb pressing heavily on the scale.

They still report to the government and require its consent for many actions which most businesses take for granted. For example, they are looking at laying off 120,000 more workers and almost that many again being eliminated through attrition. But they’re going to have to get approval from Congress before they can do it. And their powerful union has a far fatter retirement package than private carriers in the same business space. Again, the USPS can’t even negotiate to change those agreements without getting the nod from Uncle Sam.

What happens if the post office goes under completely? While individual, point to point, single package delivery is handled fairly cheaply and efficiently by their competitors at UPS and FedEx, (for just two examples) those outfits are not set up to deliver the millions of tons of daily paper the USPS handles for the same bulk costs. Prices will go up, though many of us might see a benefit in having less junk mail show up at our doors. In the political arena, direct mail campaigns will become more expensive, putting further pressure on limited donor resources. And all of this ignores the additional quarter million people who will join the jobless roles.

It’s not a pretty picture. Unfortunately, you can probably guess where this is going. Expect to see a push in Washington to have us bail them out. And you can just imagine the response that’s going to receive even as we struggle to find trillions in additional cuts.

UPDATE: As several in the comments section point out, it was rather clumsy to say that the USPS isn’t “part of the government.” More correct would be to say that they aren’t funded the same way that the rest of the government is in terms of a drain on the general fund of taxpayer dollars.