For fiscal year 2011, the USPS is predicting a net loss of “up to” $10 billion, depending on interest rates (the New York Times cites a net loss of $9.2 billion).
In the meantime, the NYT offers this doomsday scenario: “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.”
According to a USPS spokesperson, there will be no shutdown in early 2012. But the insolvency projection for the summer 2012 time frame still stands absent any action from Congress. “We will continue to pay employees and suppliers as long as possible to keep the mail moving in the absence of legislative change,” says the spokesperson. “Our projection continues to be we can continue to do that until the end of next summer (August/September 2012 timeframe) by not making a required $5.5 billion required annual payment to pre-fund retiree health benefits, continued cost cutting and other actions within our control.”
A full-blown shutdown with no government intervention is an unlikely scenario, says one publishing executive who requested not to be named. Yet Congress won’t have enough time to act before the end of the fiscal year, so the USPS will be forced to default. “We met with the USPS’ CFO [Joe Corbett] and the current projection is that they will run out of cash in July/August 2012. The reason the dates are changing is that first class volume continues to drop faster than they expected. No one in D.C. will let them stop delivery and we both know that Congress will not do anything in the absence of a crisis. We now have a full blown crisis on our hands, so they will take action before the USPS runs out of cash. I can guarantee that it won’t be before 9/30, so they will default on the $5.5 billion payment.”
Nevertheless, Postmaster General Patrick Donahoe says that the USPS needs to reduce annual costs by more than $20 billion to reach profitability by 2015. In the last four years, it has cut $12 billion out of costs.
“I cannot emphasize enough the importance of action this year to help the Postal Service avoid default and insolvency,” said Donahoe in testimony before the Committee on Homeland Security and Governmental Affairs in September.
Obama Deficit Reduction Plan Backs Postage Increase
One month after the United States Postal Service dropped its request for an exigent rate increase in August, the Obama administration’s newly released deficit reduction plan says it will “permit USPS to seek the modest one-time increase in postage it proposed a year ago.”
However, publishers could bear the brunt of any additional increases. Last year, the USPS proposed rate hikes of 8 percent to 9 percent for periodicals mailers and 5.8 percent for other classes of mail (the Postal Regulatory Commission rejected that proposal). More recently, the USPS had sought to bump rates more than 4 percent in January 2012.
The new plan reverses some previous Obama administration stances on the USPS and would now allow the elimination of Saturday delivery and the closing of smaller post offices. The postal service would also be allowed to start selling “non-postal” products.
The new Obama claims to give USPS the chance to align the costs of postage with the costs of mail delivery while remaining within the current price cap.
USPS needs to cut $20 billion in order to reach profitability by 2015. To get to that $20 billion, proposed eliminations include:
- $3 billion from sortation and transport (508 processing locations to 200; eliminating 35,000 positions)
- $1.5 billion out of retail (closing 15,000 offices)
- $2 billion from delivery (eliminating 20,000 city routes out of 144,000; eliminating 22,000 positions)
- $5.5 billion from RHB Pre-Funding
- $3 billion saved with 5-day delivery
Compensation and Benefits:
- $5 billion from flexibility, benefits and wages