TOPICS > Politics

How Should U.S. Postal Service’s Financial Problems Be Fixed?

September 6, 2011 at 12:00 AM EDT
The head of the U.S. Postal Service told lawmakers Tuesday that radical changes are needed to avert a financial collapse. Gwen Ifill leads a debate over what can be done to stave off a shutdown with Postmaster General Patrick Donahoe and Fredric Rolando, president of the National Association of Letter Carriers.

GWEN IFILL: The U.S. postmaster general, Patrick Donahoe, warned today that his agency is now on the brink of default. It was the latest in a series of increasingly dire assessments about the fate of an American institution.

Snow and rain may not be able to stop postal carriers from their appointed rounds, but deep financial problems may. The U.S. Postal Service, weakened by a public turning to e-commerce, says it’s dangerously low on cash. Without some sort of infusion, officials warn, they won’t have the money needed to make a $5.5 billion health care payment due this month — the worst-case scenario, a complete shutdown this winter, unless Congress steps in.

The Postal Service turned 200 years old in July, but conventional mail use has dropped precipitously in recent years. Volume is down 22 percent from just five years ago, a decline which is expected to continue, driven in part by stiff competition from carriers such as FedEx and UPS.

That’s left the agency facing losses of more than $8 billion for the second year in a row. Postmaster General Patrick Donahoe has responded with a series of cost-cutting proposals, among them, eliminating Saturday delivery and closing up to 3,700 local post offices, most of them in small towns, replacing them with automated centers operating out of local businesses.

Donahoe has also proposed laying off as many as 120,000 workers, nearly one-fifth of the agency’s work force, and pulling workers out of more expensive federal pension plans. Pre-funding retiree benefits has cost the Postal Service $21 billion in the last three years.

All those moves would require congressional approval.

For more now on what’s at stake for the Postal Service and on whether your mail will keep coming, we turn to Postmaster General Patrick Donahoe and Fredric Rolando, the president of the National Association of Letter Carriers.

Mr. Donahoe, you have described this proposal and your critics have described this proposal, your proposal, as being radical. Is it?

PATRICK DONAHOE, U.S. Postmaster General: Well, it’s what we have to do in order to get our business moving in the right direction, Gwen.

Here’s the situation we face. When you look at what’s happened in the world from an electronics standpoint, more and more people every day pay bills, get bills through the Internet. And that’s really taken a toll on our volume.

We do have to make some radical changes in order to get our finances back on an even keel, so that we can provide service to the American public.

GWEN IFILL: Is that what’s happening here, Mr. Rolando?

FREDRIC ROLANDO, National Association of Letter Carriers: Good evening, Gwen. Thank you for the opportunity to set the record straight.

I was listening to the lead-in dialogue to the show. And that’s an example of the type of misinformation that the American public is hearing on the news every day. I’m here to tell you that the Postal Service is not broke. The Postal Service just needs access to its own money. And Congress needs to get busy and give them that access.

GWEN IFILL: Did we say that the Postal Service was broke, or did we say that the Congress didn’t give them access?

FREDRIC ROLANDO: Well, the — both. The Postal Service is not broke because they need access to their own funds.

During the last four fiscal years, the Postal Service, with the recession that we have been through, the worst recession in 80 year, and the Internet diversion, still showed an operational profit of almost $700 million during that period of time. The $20 billion-plus dollars that you read about in losses is nothing more than a congressional mandate that requires the Postal Service, required the Postal Service to take all of their cash and put it into a pre-funding account.

The Postal Service actually has somewhere between $50 billion and $125 billion in their other funds that is not taxpayer money. They haven’t used a dime of taxpayer money in over 30 years. And the Congress just needs to act responsibly and quickly to give them access to that — those funds.

GWEN IFILL: What do you think about that, Mr. Donahoe? Is the money there, but they’re not — but you’re just not being allowed to spend it?

PATRICK DONAHOE: Fred is exactly right around the issues that we have faced in the last few years.

What’s happened is, our revenues have gone down in the last four years from $75 billion to $65 billion. So we have lost substantial revenue. In that same time, we have been required to prepay employee retirement funding.

What — our people have done a great job. They have been very productive. They have made up that difference. In fact, until this past year, we had shown a profit. The problem is, when you start to look forward, even with the funding, the pre-funding money given back to us, which there’s not a lot of people coming forward telling us that they’re going to give us that money, the problem is, when you start to go forward, the volume and revenues continue to go down.

We are losing first-class mail at the rate of 7.5 percent a year. That’s not going to change. That is not going to change. We have lost 26 percent of our volume in the last four years. We have made it up by productivity improvements.

What we’re saying is, going forward, we have to make some changes, like limiting Saturday delivery, saves up $3 billion.

GWEN IFILL: What does Congress have to do with that? When you say that Congress needs to make changes to get you access to this cash, what can Congress do?

PATRICK DONAHOE: Here’s what Congress has to do. Congress has got to pass legislation that does a number of things, number one, resolves retiree health benefits. We prepay. We still owe about $46 billion into that fund.

There are two proposals on the table, the one Fred referred to, where we would get money back. The other proposal is the Postal Service taking over our own retirement system, operate it just like a private business. And we would no longer need that pre-funding. We’d make some changes. We would be able to pull the costs down. And we wouldn’t need that pre-funding. That’s the one thing.

The second thing we need Congress to do is give us the authorization to eliminate Saturday delivery. Post offices would remain open. You could get your mail in — through a post office box, but we would eliminate Saturday delivery.

The third thing is, we have overpaid into our other retirement fund $6.9 billion. We want all that money back right now. And we have also got some proposals around retirements going forward. We can’t promise people an annuity going forward. So what we’re saying is anybody hired now, that we would ask them to — we would have them under a program that they would get a defined contribution vs. defined benefit.

GWEN IFILL: Let me ask Mr. Rolando about some of those.

Because this would affect the people you represent. Letter carriers would basically be laid off under this plan. They would have to not agree to guaranteed pensions in the past. And they would have to suffer from — or some of the money that’s been prepaid to cover their retirement in the future would have to be basically go away.

Is this something that you think is necessary and acceptable…

FREDRIC ROLANDO: No. I respectfully disagree with what Congress needs to do.

We certainly don’t need to dismantle the Postal Service or take away services to the American people or eliminate hundreds of thousands of jobs. What Congress needs to do is give the Postal Service access to, like I said, between $50 billion and $125 billion, so that they can look to the future and adapt to the services of the American people and come up with — have time to come up with the proper business model for the future and grow the business.

GWEN IFILL: Where does this money come from?

FREDRIC ROLANDO: This is all in postal accounts.

GWEN IFILL: It’s just lying there and Congress is sitting on it and won’t give it to you?

FREDRIC ROLANDO: There’s $50 billion to $75 billion in surplus pension funds. There’s about $42 billion in the future retiree health benefit funds, again, all postal funds, no taxpayer money involved.

GWEN IFILL: But this would mean that postal employees, in order to keep their jobs, would have to give something up, right?

FREDRIC ROLANDO: All they — no, I don’t know where — what you mean. That’s…

GWEN IFILL: Well, you’re talking about dipping into their retirement savings in order to balance…

FREDRIC ROLANDO: Oh, this is just cash money that the Postal Service needs access to. We’re not looking to in any way diminish what needs to be done for future pensions or future retirees.

It’s just that you don’t have to do 75 years worth of pre-funding in a 10-year period. You could re-amortize what needs to be done.

GWEN IFILL: And what about eliminating Saturday delivery? Do you think that’s necessary?

FREDRIC ROLANDO: No, I think it would be bad for the business. It’s one of the things that gives the Postal Service a competitive edge. You would be giving up about 17 percent of your service for somewhere about 3 percent of a return.

GWEN IFILL: Mr. Donahoe, do you agree with Mr. Rolando that no layoffs are necessary in order for the Postal Service to dig itself out of this hole?

PATRICK DONAHOE: No. The problem is this, Gwen.

In the last 10 years, we have had to reduce the head count in this organization by about 250,000 people. Like I said, our employees do a great job. They’re very productive. When you look ahead, our revenues will go down at least a billion dollars every year for the foreseeable future.

Any business that has any kind of game plan or any kind of future look understands that you must make change. What we’re proposing to do now is get a few of these changes made around the six-day to five-day delivery around our networks in order to get ahead of the costs.

The Postal Service this year, even if we had the pre-funding issue resolved, we would still lose somewhere around $4.5 billion. You can’t sustain losses like that. You have got to make the changes, like any other business going forward. Get profitable. Get stable. If it’s five days, that’s fine. It’s a profitable, dependable five days. And we will be strong going into the future.

We — our business models change. We have to stay up with the times and understand that people are mailing electronically. We are still strong on the advertising market, still strong on the package market. Providing a good, stable, predictable day of delivery five days a week keeps Americans in the mail.

GWEN IFILL: Could you both ask — answer this question for me relatively briefly, which is, what are we talking about? We’re talking about imminent — if Congress doesn’t act, are we talking about imminent shutdown? Are we talking about insolvency, where money needs to be moved around?

Mr. Rolando.

FREDRIC ROLANDO: Let me just say that I disagree, because any business wouldn’t put $20 billion of cash into future pre-funding, nor would they leave $50 billion to $75 billion of pension surplus in that account, when they’re going through the transition that the Postal Service is going through right now.

GWEN IFILL: If Congress doesn’t act?

FREDRIC ROLANDO: If Congress doesn’t act, the postal industry, about nine million jobs are in danger, and I believe the Congress will act a little bit more responsibly than that.

GWEN IFILL: Mr. Donahoe?

PATRICK DONAHOE: We will be out of cash next August. That’s the issue.

We have made some changes in some investments we make. We have suspended some payments into one of the over-funded retiree plans to keep the cash flowing and to keep the mail being delivered. And we will continue to do that.

The issue going ahead for us is, again, to work with Congress to get the laws changed that we need to have a stable business model going forward.

GWEN IFILL: Patrick Donahoe, U.S. postmaster general, and Fredric Rolando of the letter carriers of America, thank you both very much.