The famous motto goes, neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds. But now, a financial storm could shut down Postal Service this winter. Earlier this month, Postmaster General Patrick Donahoe testified before Congress that the USPS needs emergency action to stabilize its finances.
Pre-funding Health Care Benefits
The postal service is forced to pre-fund its employees’ health benefits up to about 50 percent, which is one of the reasons for its current financial problems. “We floated the idea of taking over our own health benefits because if the first solution doesn’t happen, we have to get out from underneath this pre-funding,” Donahoe said. “We don’t know of any other private companies that pre-fund anywhere to the rate that we do.”
Getting the Post Office Back on its Feet
If nothing changes over the next few years, Donahoe estimates that the system will be in the hole by about $18 billion. He proposes taking the organization’s expense line down by about $20 billion between now and 2014. If that happens, the system will become profitable. But it would also involve laying off about 120,000 workers. Since 2000, the postal service has reduced its staff by about 250,000.
Where the Losses Are
“We are losing first-class mail at the rate of 7 to 8 perecent a year. First-class mail pays freight. The contribution we get from that product keeps the 33,000 post offices open. It keeps our 200,000-plus routes delivering six days a week,” Donahoe said. There is no substitution for first-class in terms of revenue generation, according to Donahoe.
Raising Prices on First-Class Mail
The problem with raising stamp prices is that this may cause more people to turn to online bill-pay and similar Internet services rather than mail. “The single piece where you and I would put a stamp on a bill, that’s probably less price sensitive. But when you change prices like advertising mail, people will either reduce the number of pieces they mail or go to the Internet. We can’t afford that,” Donahoe said.
“The postal service plays a very important role in American economy and society today, as we have for 200 years. There’s nothing in the near future that, I think will threaten that,” Donahoe said.
You can read the full transcript here.