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And Now a Bailout for the U.S. Postal Service?

Monday December 27th, 2010   •   Posted by David Theroux at 6:16pm PST   •  

Angela Greiling Keane reports in a recent article at Bloomberg Businessweek, “A Bailout for the U.S. Postal Service?”, that the U.S. Postal Service’s costs “will exceed revenue by $2.7 billion, even after borrowing $3 billion from the U.S. Treasury, the annual legal limit. Total debt, now $12 billion, by law can’t exceed $15 billion. Revenues in fiscal 2010 were $67 billion.”

Imagine a company that reported losses in 14 of the past 16 quarters, has too many retail outlets by its own admission, and relies heavily on work done for its two biggest competitors for revenue. Any management consultant would recommend the obvious: Close unnecessary offices, lay off workers, expand into new lines of business, and raise prices.

But this is the U.S. Postal Service. It’s expected to show a profit without a government subsidy, yet Congress, powerful labor unions, and even its own regulators are preventing it from making hard-nosed business decisions. The result could be a painful restructuring or a government bailout before the fiscal year ends next Sept. 30. . . .

The USPS now faces the prospect of tougher scrutiny when Republicans take control of the House in January. Representative Jason Chaffetz (R-Utah), in line to chair the House subcommittee that oversees the service, could try to impose a restructuring by shutting some of the 32,000 post offices. “We have too many post offices,” he says. He suggests bypassing congressional opposition by using a federal commission, similar to the kind used to close military bases, to identify which post offices to shut.

The USPS’s problems are well known: More customers are paying bills online and choosing FedEx (FDX) and United Parcel Service (UPS) to send overnight packages. Labor and retiree health-care costs are exploding: The service has a $50 billion obligation to its retiree health fund and is in a dispute with Congress about who should pay that balance. When the USPS reported a record annual loss of $8.5 billion last month, Representative Darrell Issa (R-Calif.), who will chair the House Oversight and Government Reform Committee, warned that the Postal Service must trim costs to match revenues so “taxpayers don’t get stuck paying for a bailout.”

. . . .

The service spends 78 percent of its budget on salaries and benefits, higher than either FedEx’s 43 percent or UPS’s 61 percent. . . .

Click here to read the full article…

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December 2010