Financial Woes at Postal Service May Lead to Workforce, Delivery Changes

The U.S. Postal Service says it is looking at a loss of $6 billion or more in fiscal year 2009. The agency is freezing some salaries, reducing travel and construction, and accepting early retirements. The agency wants more flexibility in “workforce flexibility” and to deliver mail five days a week instead of six.

On January 28th, Postmaster General Jack Potter told a U.S. Senate subcommittee that worsening conditions in the economy now point to a further 12-15 billion mailpiece decline and a net financial loss of $6 billion or more in fiscal year 2009.

Potter also proposed changes in current law to give the USPS Board of Governors the flexibility to reduce the number of mail delivery days each week.

"We have stretched the limits of our system as they have never been stretched before," Potter said in his formal statement to the Senate panel. He pointed to a cumulative $20 billion in cost reductions since 2002 and the elimination of 120,000 jobs through attrition. He noted, however, that volume is outpacing the speed at which the Postal Service can adjust operations. "No one knows at what point mail volume will bottom out," he said.

Among further cost-cutting actions already taken or under way, Potter cited:

  • An indefinite suspension in the facilities construction.
  • Salary freezes for officers and executives at 2008 levels.
  • A reduction in staffing at Headquarters.
  • Reductions in staffing at the nine Area Offices.
  • Early retirements — USPS has accepted more than 14,000 to date.
  • Reduced travel budgets.
  • Consolidation of duplicative mail processing operations.

Potter also noted that USPS continues to pursue revenue growth by vigorously enhancing its shipping services, delivering record on-time performance with its mailing services and investing in modern technology and web services. Nevertheless, he said structural changes in customer mailing behavior, robust competition in all markets and the worsening economy have placed USPS in a grave financial situation. "If current trends continue," Potter said, "USPS could experience a net loss of $6 billion or more this fiscal year." The maximum loss the Postal Service can absorb under current law is $5 billion.

Potter said it was now time to consider options that have not been on the table up to now. He said he would work with union leadership to "create needed levels of workforce flexibility" to ensure USPS viability and to protect jobs. He also said worsening economic conditions may make it necessary to "temporarily reduce mail delivery to only five days a week."

Potter called for legislative change to reduce the crippling cost burden imposed by the Postal Act of 2006 that requires USPS to prefund future retiree health benefits in addition to paying for current benefits. Last year, the combined $7.4 billion cost accounted for nearly 10 percent of the USPS operating budget. Without this requirement, USPS would have posted positive net income in 2008 instead of a $2.8 billion loss.

Potter said the intent of the law is sound, but that the aggressive payment schedule was unsustainable in light of the growing deterioration in the U.S. economy and the mail. He noted that the change would not diminish USPS responsibility for funding employee health benefits, and it would not increase health benefit premiums for current and future retirees. He also said the change would not affect benefits.