In a recent article for Deliver magazine, Postmaster General Pat Donahoe provided an excellent rebuttal to claims of some ignorant Congressmen and commentators that the U.S. Postal Service is seeking a bailout. (But also see 6 Points Donahoe Left Out of His Bailout Rebuttal for the truths he was too polite to mention.)
The article, "The Postal Service Needs Relief from Congressional Mandates", notes that the Postal Service would have been profitable the past few years if not for an unusual financial burden placed on it by Congress. And he calls on Congress "to reform the unfair and onerous mandates that hinder us from competing in today’s environment".
Last year, the United States Postal Service® delivered 171 billion pieces of mail. That’s 563 million pieces processed each day. Those numbers, however, are not the figures some of our critics like to talk about. The number they like to cite is $20 billion — the Postal Service’s total net financial losses from 2007 through 2010.
Twenty billion dollars is a staggering sum. But you might be surprised to learn that those losses are due to an unusual requirement in the 2006 Postal Accountability and Enhancement law. The impact of this requirement is significant: The Postal Service paid $21 billion in the past four fiscal years to fund retiree health benefits for future retirees. Were it not for this provision of law, the Postal Service would not be operating in the red; it would have turned a profit of $1 billion from 2007 to 2010, a period when mail volume declined 20 percent due to the recession.
Unlike other American businesses, the Postal Service must pay cash today for health benefits that will not be paid out until a date far in the future. Other federal agencies and most private sector companies use a “pay-as-you-go” system, paying premiums as they are billed.
Consider that the Postal Service had to borrow $12 billion from the U.S. Treasury so that it could make the $21 billion prepayment to the Retiree Health Benefit fund over the past four fiscal years. This is capital that would have allowed us to invest in new products and innovation, lower postage rates and remain profitable.
We are resolutely committed to paying our fair share for our employees’ and retirees’ health care costs and have set aside more than $42 billion for such future costs. But these accelerated payments constitute a hidden tax that is neither fair nor responsible. It’s time for Congress to act to eliminate this burdensome mandate.
If action is not taken to address this situation immediately, the Postal Service will default on payments to the Retiree Health Benefit fund — and possibly on other government payments — on or before Sept. 30 of this year.
In the meantime, we are doing our part. Over the last four years, Postal management has eliminated more than $12 billion in costs and has committed to cut another $16 billion over the next several years. We are working diligently to dramatically improve our internal processes, including how we manage our workforce. Our recently ratified contract with the American Postal Workers Union is a good example of this. The contract gives the Postal Service much greater flexibility to manage work hours — where and when we need them — rather than bind us to static work shifts and significant overtime costs. The provisions of this agreement will provide the Postal Service with future cost savings of $3.8 billion.
The Postal Service is the heart of a $1 trillion mailing industry and is essential to the American economy. And we are committed to cutting costs within our statutory authority. But Congress must act to reform the unfair and onerous mandates that hinder us from competing in today’s environment.
With Congressional action to address retiree health benefit pre-funding and other legislative and regulatory constraints, the Postal Service can more nimbly adapt to meet customer needs and better fulfill its mission: to deliver value, convenience and innovation to the American people and our nation’s businesses.
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