The Postal Service fiscal cliff: It’s real and may be unavoidable

Lost in the commotion over Washington’s budget debate is the dire situation of the United States Postal Service, which could face a possible October shutdown if Congress can’t act.

Source: Alexander Marks (Wikimedia Commons).

The Postal Service got a small bit of good news this week: Disgraced cyclist Lance Armstrong might return up to $30 million he got in United States Postal Service sponsorship money in the last decade. Unfortunately, it would cover the Postal Service’s current losses for about one day.

The story of how the Postal Service, with 546,000 employees and $66 billion in annual revenue, got in such a financial mess is long, complicated one.

There are estimates that based on its steep losses, the Postal Service will run out of cash in about nine months. The agency hit its $15 billion borrowing limit last September, so it needs to survive on the cash it can bring in.

The Postal Service made the same prediction last year, but The New York Times says a huge influx of cash from political campaign mailings—to the tune of $500 million—kept an October 2011 shutdown from happening.

The agency was kept in business by the cash, but it also defaulted on two retirement fund payments.

This time, there’s no windfall from campaigns, and many of the same Congress members who indirectly aided the Postal Service as customers could play a big role in a Postal Service shutdown or in passing landmark legislation to streamline the mail service.

“The service says it will run out of money in October even after ignoring this year’s retiree health obligation. If it can’t pay employees or buy fuel for trucks, Americans looking for their bills, magazines and catalogs could find empty mailboxes,” the Bloomberg news service said recently.

Senator Tom Carper of Delaware, one of the two key players in Congress about the Postal Service issue, said in a recent statement that the agency faces serious problems staying in business.

“Without action by Congress and the Administration, the Postal Service — and the trillion dollar mailing industry that it supports along with over 8 million jobs — is at risk for failure later this year,” Carper said on Tuesday.

Carper and Representative Darrell Issa of California are overseeing efforts in the Senate and the House to come up with bipartisan postal legislation, an effort that failed in the 112th Congress.

“While our approaches have differed in the past, we made significant progress in narrowing our differences in recent months, and our commitment to restoring this American institution to long-term solvency is unwavering,” the two congressmen said in a recent statement.

The buck literally stops at Congress for the Postal Service because of its unique position as a quasi-governmental agency.

The power to establish the original postal office was established in Article I, Section 8, of the Constitution, and the department was set up in 1792. It was a direct part of the federal government; the postmaster general even became a cabinet member under President Andrew Jackson.

It was under President Richard Nixon in 1970 that the department became a quasi-governmental agency. The newly christened self-financing United States Postal Service brought in and managed its own revenue, but it was subject to congressional oversight, including budgetary regulation. The president appoints Postal Service board members, who are then approved by the Senate.

In 2006, Congress passed a law that required the Postal Service to fund retirement health benefits in advance.

The Postal Service says the pre-funding requirement, along with the growth of email, have kept it from being a profitable business.

“If the Postal Service were a private company, we would be engaged in Chapter 11 bankruptcy proceedings,” Postmaster General Patrick Donohoe said last March in congressional testimony.

Representative Issa has publicly disputed that the pre-funding requirement is a financial albatross for the Postal Service. He says the great danger is that taxpayers will wind up having to rescue the Postal Service, in some form.

“If Congress was to eliminate the requirement for USPS to pay down its unfunded liability on retiree health care, taxpayers would almost certainly pick up the bill,” Issa said in a December statement after the General Accounting Office issued a report on the Postal Service. “USPS needs to cut costs, not cheat taxpayers or its own employees.”

How the Postal Service cuts costs was the subject of rival bills introduced last year by Carper and Issa. Carper’s bill was passed in the Senate and had an independent and two Republicans as co-sponsors. Issa’s bill made it out of committee but not onto the floor for a vote, right before a general election.

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A third big player in the Postal Service drama are the four unions that represent workers. The unions donate to political campaigns, and they have fought against layoffs and reduced services for consumers.

In a December editorial, National Association of Letter Carriers president Fredric Rolando pointed his finger at Congress and specifically blamed pre-funding as a problem.

“The oft-cited multibillion sea of red ink has little to do with the mail; much to do with politics.” Rolando said. “This artificial crisis has exhausted the agency’s savings, borrowing authority and periodic profits.”

On Monday, the Postal Service announced it would start making cuts in advance of the battle over postal reform in Congress.

In a statement, it said the measures were taken due to “an unprecedented set of financial challenges, heightened by the inability of Congress to pass comprehensive postal legislation. “

“The Postal Service continues to seek legislation to provide it with greater flexibility to control costs and generate new revenue, and encourages the 113th Congress to make postal reform legislation an urgent priority. “

The short-term cuts haven’t been confirmed by the Postal Service, but consumers should expect fewer distribution centers, and fewer post offices open for fewer hours. The end of Saturday mail service is also possible, but that will likely be part of the broader debate in Congress.

Scott Bomboy is the editor-in-chief of the National Constitution Center.

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