The U.S. Postal Service may lose $10 billion this fiscal year ending Sept. 30, and the agency is nearing default. It even has the potential to close, if Congress doesn't step in with help.
The USPS is trying to downsize by attempting to reduce one-fifth of its workforce, closing 3,700 branches across the U.S. and taking over its employee benefits now run through the federal government.
Postmaster General Patrick Donahoe appeared by before a Congressional committee Tuesday to talk about the problems and ask for help from Congress so the agency can avoid default and perhaps even a shutdown.
But the agency is facing so many issues suddenly that fixing them all through Congress may prove a difficult task.
Here's what's wrong the the United States Postal Service:
1. Faster-than-expected sales declines due to evaporation of First Class mail. Many argued years ago that the computer as we first knew it would kill our need for paper. But they were wrong. If anything, the first computer increased our reliance upon paper.
But then came the smartphone and tablets, social media and the sophistication of online bill pay. Fewer people need First Class mail. They send e-mail letters, connect with Facebook, and pay bills online. And the trend is growing fast, leaving the USPS with a bloated structure trying to downsize -- but the agency can't do it fast enough.
2. Price increase limitations. In September 2010, postal regulators denied requests by the USPS to increase postage rates in January 2011. The reason given was this: The postal service's financial woes are caused by a flawed business model and not the recession. Thus, a request by the USPS to raise postage rates on First Class mail, periodicals and other services beyond the rate of inflation was denied.
So while the postage stamp remains one of America's best bargains, it comes at a significant cost to the postal service. With First Class mail volume in decline, a price hike is needed to get business in order while the system is restructured. But in a period of low inflation following the recession, the postal service cannot raise the price of stamps and other services.
3. Too many costly retail units. The postal service is in the midst of a retraction plan, shedding retail units across the country and eliminating jobs. But it isn't happening fast enough. The postal service has found that contract retail units, with core operational costs managed by an independent proprietor, work well.
That's why the agency wants to close 3,700 branches throughout the U.S. But by the time that happens, that number will already be much larger.
But such contract postal outlets, while cost-efficient, also come under fire when the post office tries to close them. It is politically incorrect to close down community post offices and postal workers don't like the move, since it eliminates jobs. Still, it's the path the post office has taken in recent years. The only problem is that federal bureaucracy makes the process far too slow to keep up with slowing business due to fast-moving technology.
4. A federal law forcing the USPS to pre-fund its retiree health benefits. This is perhaps the most pressing issue facing the postal service. Expected to post a deficit this year nearing $10 billion, the postal service, which doesn't receive a dime of federal taxpayer subsidy, must pay the government roughly $5.5 billion annually. A payment is due Sept. 30.
The payment began in 2006 due to a law passed at that time -- when the postal service was profitable -- which requires the postal service to prepay benefits costs to the federal government since many of its employees are within the government's retirement system.
The USPS doesn't have that money this year, and a payment is due at the end of September. The postal service wants help from Congress to change the law, allowing the USPS to take over its pension and health care benefits directly for its 480,000 retirees and 600,000 active workers.
But Congress is under pressure from postal service worker unions to avoid such a move, making it a political hot potato. One union spokesman representing the American Postal Workers has said crushing postal workers and slashing service will not solve [the USPS'] financial crisis.
Still, something must be done. Either Congress must take over the payment or allow the postal service to manage benefits, or else the USPS will default.
5. Bureaucratic struggle. The USPS is a standalone agency. Many think the postal service is a direct function of the federal government; it's not. Because the postal service does not receive federal subsidies, it is an independent agency -- or a pseudo-government agency, if you will.
Still, the postal service is plagued by bureaucratic inefficiencies because it relies upon a direct tie to the federal government. Therefore, while the agency seems to understands the problems with its business model, fixing those problems meets bureaucratic resistance. Congress thrashed about during debt ceiling negotiations, for instance, and postal cuts and solutions are a similar hot potato since union jobs are involved, and postal units slated for closing in legislative districts.