US Postal Service on brink of financial collapse, chief tells Congress

Postal Service will be out of cash and unable to deliver mail, and pay vendors and employees, in less than 12 months unless Congress lifts the carrier’s statutory debt limit of $15 billion and eliminate mandates that handcuff its ability to make money and burden it with uncontrollable expenses, Postmaster General David Steiner told Congress on Tuesday.

After 20 years of losses tied to a drastic decline in mail volume, Steiner is forcing a policy debate on how to finance a universal service obligation in a fast-changing digitized world where communication has moved online.

In prepared testimony for a hearing by the House Oversight and Government Reform subcommittee on government operations, the Postal Service chief said lawmakers need to pick a strategic direction: drastically cut postal operations, including post offices and delivery days per week; raise delivery prices or provide subsidies; or change the statutory and regulatory constraints that limit the self-sustaining agency from balancing its books and having pricing flexibility to preserve universal service.

“If you want the same level of services that we have today — six-day-a-week delivery and 33,000 plus post offices, we can do that, and we are glad to do that. But someone has to pay for it, and the only options are postal ratepayers or taxpayers.

If we want to have a discussion about reducing the level of service to both meet the needs of the American public but also make the Postal Service self-sustaining, we are glad to have that discussion,” said Steiner. “But there is one thing we can’t do, and that is maintain the status quo.

I am confident that we can grow revenue, reduce costs, and solve our financial predicament. But that takes time, and we don’t have a lot of time. One small and easy action, increasing the borrowing limit, buys us that time — time that we can use to determine what the Postal Service should do to best serve the American public.”

Under the universal service obligation, 71% of delivery routes lose money and 58% of post offices don’t cover the cost of operations, the postmaster general said. “Transporting cargo to the most remote parts of the U. S. costs about $150 million per year.

Not being able to ship alcohol like our competitors costs us hundreds of millions of dollars in missed revenue. Keeping all post offices open and not being allowed to consider financial losses as a reason to replace them with alternative means of accessing our services costs another $840 million,” the postmaster general said.

20-year erosion Mail volume has plunged 49% since 2007, with First-class mail down 56% and marketing mail down 45% since then, according to USPS figures. In 2006, the Postal Service handled 213 billion pieces of mail compared to 109 billion last year.

Despite the collapse in demand, the Postal Service is required by law to deliver mail to 170 million addresses six-days-a-week at uniform and affordable prices. The financing model designed to support nationwide delivery depends on stable, monopoly-protected letter-mail revenue.

Although the growth of package shipping has stabilized revenues — operating revenues are actually slightly higher than in 2007 — it hasn’t solved the profitability problem, noted Elena Patel, a senior fellow at the Brookings Institute, in an essay last week.

The parcel share of revenue has increased from 14% to 40% while First-class mail’s share fell from nearly 49% to 32% in nearly 20 years.

But because the parcel business functions in a competitive market with private carriers, the Postal Service can’t command the higher margins necessary to offset operating expenses in a network designed for nationwide mail delivery, she said. Most USPS costs are dominated by compensation and retiree costs.

Unlike other federal agencies, the USPS must fund retiree obligations from operating revenue rather than from congressional appropriations. Instead of rule changes that would have made it easier for the Postal Service to adapt to changing economic forces, legislators and regulators threw the agency an anchor, Steiner complained.

He slammed the Postal Regulatory Commission for still treating the agency as a monopoly. “There are electronic or private competitor alternatives to every piece of volume in our system. In fact, we are regulated worse than a monopoly, because even a monopoly is allowed to make money,” Steiner said.

Think about that: our regulator ensures that we won’t make money or break even — out of fear of a non-existent mail monopoly. The regulator puts pricing restrictions on us, requires we give ‘work share’ dollars back to our [large] customers, and places a number of other unreasonable burdens on us that cost us billions of dollars every year.

Moreover, they recently enacted an order that, among other things, limits us to one price increase per year for our mailing services, a change that by their own math could cost us up to $700 million in lost revenue in a year.” Other structural burdens