Diary

What sort of bailout does USPS want?

Through a combination of consumer shifts away from using snail mail and engrained unions/pensions, the USPS is bleeding about $1B/month. They are on the verge of defaulting on an upcoming pension payment. The NY Times takes a peek at the situation, but the second paragraph may send chills up your spine.

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

Are they looking for money? Maybe. But it sounds more like they are looking for help from Washington in battling the hole they are in due to their current union contracts and pension liabilities, as well as other restrictions imposed by Congress. I wrote a recent diary with quotes from some of the unions who want to maintain the untenable status quo. Check that out if you want to see the union side; here I’ll focus on the Times article.

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.

So there’s not enough work to cover costs of 20% of the union workers, yet they can’t be laid off. How much of the problem is due to this? The answer comes a few paragraphs later.

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.

Meanwhile Congress can’t agree on anything and the clock is ticking.

Missing the $5.5 billion payment due on Sept. 30, intended to finance retirees’ future health care, won’t cause immediate disaster. But sometime early next year, the agency will run out of money to pay its employees and gas up its trucks, officials warn, forcing it to stop delivering the roughly three billion pieces of mail it handles weekly.

USPS’s position as a quasi-governmental agency puts it in an impossible position. It isn’t allowed to control its own business, though it’s supposed to be running on its own dime. Legacy costs and restrictions under control of Washington means their hands are tied.

Meanwhile, the agency has had a tough time cutting its costs to match the revenue drop, with a history of labor contracts offering good health and pension benefits, underused post offices, and laws that restrict its ability to make basic business decisions, like reducing the frequency of deliveries.

Congress is considering numerous emergency proposals — most notably, allowing the post office to recover billions of dollars that management says it overpaid to its employees’ pension funds. That fix would help the agency get through the short-term crisis, but would delay the day of reckoning on bigger issues.

By the way, the moves they are trying to make now are only the tip of the iceberg. Long term they want to eliminate 1/3 of the employees.

Mr. Donahoe’s hope is to cut $20 billion of the $75 billion in annual costs by 2015. To do that, he wants to close many post offices and slash the number of sorting facilities to 200 from 500 and trim the agency’s work force by 220,000 people, from its current 653,000. (A decade ago, the agency employed nearly 900,000.)

The postal service has the legal authority to close facilities, although community opposition can make the process difficult. To placate critics and cut costs, officials say they would seek to run some postal operations out of stores like Wal-Mart or to share space with other government offices.

Cutting the work force is more difficult. The agency’s labor contracts have long guaranteed no layoffs to the vast majority of its workers, and management agreed to a new no layoff-clause in a major union contract last May.

But now, faced with what postal officials call “the equivalent of Chapter 11 bankruptcy,” the agency is asking Congress to enact legislation that would overturn the job protections and let it lay off 120,000 workers in addition to trimming 100,000 jobs through attrition.

The postal service is also asking Congress for permission to end Saturday delivery.

So who are the key players in Congress? Take a look at the Senate side and red flags go up. The Senate Homeland Security and Governmental Affairs Committee is meeting Tuesday – the heads of the subcommittee that oversees USPS are Tom Carper and Susan Collins. Carper says Congress needs to do “something”; Collins is opposed to ending Saturday delivery since she thinks it will hurt her rural constituents. Why they can’t wait until Monday to get their junk mail is beyond me. But I digress; there does appear to be at least one area of agreement, but with Obama deeply in union pockets even that might be dead.

Senators Carper and Collins do back several of the postal service’s main ideas to avoid default, including recovering around $60 billion that some actuaries say the agency has overpaid into two pension funds. Although the Obama administration is working closely with the senators to find a solution, it has signaled discomfort with the pension proposals, questioning whether the postal service really overpaid.

On the House side, Darryl Issa thinks that pension move amounts to a bailout. He wants to give USPS what it needs to really cut costs, but that is DOA in the Senate and at the WH.

Meanwhile, Representative Darrell Issa, the California Republican who is chairman of the House Oversight Committee, says the pension proposals would amount to an unjustifiable bailout that would not solve the agency’s underlying problems. He is pushing a bill that would create an emergency oversight board that could order huge cost-cutting and void the postal service’s contracts — a proposal that not just the unions, but Senators Carper and Collins oppose.

Where does it end? No doubt hundreds of thousands of mostly idle postal union “workers” will have plenty of free time to besiege members of Congress. They will demand taxpayer bailouts no doubt.