US Postal Service May Shut Down Due to the Default

The New York Times reports that unless the House and Senate take drastic action in the next few months, one of the nation’s oldest institutions – which employs 574,000 Americans – may be forced to shut down.

The United States Postal Service has long lived on the financial edge, but it has never been as close to the precipice as it is today: the agency is so low on cash that it will not be able to make a $5.5 billion payment due this month and may have to shut down entirely this winter unless Congress takes emergency action to stabilize its finances. Photo: WFIU Public Radio/Flickr

A combination of labor costs and a declining number of packages and letters has the United States Postal Service running short on cash. The independent government agency will be unable to make a $5.5 billion payment to its employee healthcare plan by the Sept. 30 due date.

“Our situation is extremely serious,” the postmaster general, Patrick R. Donahoe, told the Times. “If Congress doesn’t act, we will default.” The roots of the US Postal Service’s troubles lie in the fact that the Internet revolution has led to people and businesses sending far less conventional mail.

Mail volume has plummeted with the rise of e-mail, electronic bill-paying and a Web that makes everything from fashion catalogs to news instantly available. The system will handle an estimated 167 billion pieces of mail this fiscal year, down 22 percent from five years ago.

Pessimistic projections suggest that volume could plunge to 118 billion pieces by 2020. The law also prevents the post office from raising postage fees faster than inflation.

To avoid insolvency, Donahoe says needs Congress to approve the elimination of Saturday delivery and the undoing of the agency’s contract with its union to allow it to layoff up to 120,000 works. The Post Office is also planning to close 3,700 locations.

Mr. Donahoe’s hope is to cut $20 billion of the $75 billion in annual costs by 2015. To do that, he wants to close many post offices and slash the number of sorting facilities to 200 from 500 and trim the agency’s work force by 220,000 people, from its current 653,000. (A decade ago, the agency employed nearly 900,000.)

Faced with what postal officials call “the equivalent of Chapter 11 bankruptcy,” the agency is asking Congress to enact legislation that would overturn the job protections and let it lay off 120,000 workers in addition to trimming 100,000 jobs through attrition.

The post office’s powerful unions are angry and alarmed about the planned layoffs. “We’re going to fight this and we’re going to fight it hard,” said Cliff Guffey, president of the American Postal Workers Union, which represents 207,000 mail sorters and post office clerks. “It’s illegal for them to abrogate our contract.”

“The situation is dire,” said Thomas R. Carper, the Delaware Democrat who is chairman of the Senate subcommittee that oversees the postal service. “If we do nothing, if we don’t react in a smart, appropriate way, the postal service could literally close later this year. That’s not the kind of development we need to inject into a weak, uneven economic recovery.”

Ending Saturday delivery would only cut about two percent of the agency’s budget — and is vigorously opposed by many lawmakers from states with large rural populations. They would rather the agency recover the $60 billion it has overpaid into its employee pension plans and pursue less drastic restructuring.

The Senate Homeland Security and Governmental Affairs Committee will hold a hearing on the Post Office’s precarious financial position, though no politically palatable solution is in sight.

Congress is considering numerous emergency proposals — most notably, allowing the post office to recover billions of dollars that management says it overpaid to its employees’ pension funds. That fix would help the agency get through the short-term crisis, but would delay the day of reckoning on bigger issues.

In many countries, post offices double as banks or sell insurance or cellphones.

But in the United States, the postal service is barred from entering many areas. Still, the agency is considering ideas, like gaining the right to deliver wine and beer, allowing commercial advertisements on postal trucks and in post offices, doing more “last-mile” deliveries for FedEx and U.P.S. and offering special hand-delivery services for correspondence and transactions for which e-mail is not considered secure enough.

Fredric V. Rolando, president of the National Association of Letter Carriers, warned of disaster if partisanship keeps Congress from acting. “This is about one of America’s oldest institutions,” he said. “It survived the telegraph, it survived the telephone, and we have to do everything we can to preserve it and adapt.” [via The New York Times and Business Insider]

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