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<DIV class=timestamp>September 4, 2011</DIV>
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<H1><NYT_HEADLINE version="1.0" type=" ">Postal Service Is Nearing Default as
Losses Mount</NYT_HEADLINE></H1><NYT_BYLINE>
<H6 class=byline>By <A class=meta-per title="More Articles by Steven Greenhouse"
href="http://topics.nytimes.com/top/reference/timestopics/people/g/steven_greenhouse/index.html?inline=nyt-per"
rel=author>STEVEN GREENHOUSE</A></H6></NYT_BYLINE><NYT_TEXT>
<DIV id=articleBody><NYT_CORRECTION_TOP></NYT_CORRECTION_TOP>
<P>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. </P>
<P>“Our situation is extremely serious,” the postmaster general, Patrick R.
Donahoe, said in an interview. “If Congress doesn’t act, we will default.” </P>
<P>In recent weeks, Mr. Donahoe has been pushing a series of painful
cost-cutting measures to erase the agency’s deficit, which will reach $9.2
billion this fiscal year. <A title="U.S.P.S. White paper on its situation."
href="http://about.usps.com/news/national-releases/2011/pr11_wp_workforce_0812.pdf">They
include</A> eliminating Saturday mail delivery, closing up to 3,700 postal
locations and laying off 120,000 workers — nearly one-fifth of the agency’s work
force — despite a no-layoffs clause in the unions’ contracts. </P>
<P>The post office’s problems stem from one hard reality: it is being squeezed
on both revenue and costs. </P>
<P>As any computer user knows, the Internet revolution has led to people and
businesses sending far less conventional mail. </P>
<P>At the same time, decades of contractual promises made to unionized workers,
including no-layoff clauses, are increasing the post office’s costs. Labor
represents 80 percent of the agency’s expenses, compared with 53 percent at
United Parcel Service and 32 percent at FedEx, its two biggest private
competitors. Postal workers also receive more generous health benefits than most
other federal employees. </P>
<P>The Senate Homeland Security and Governmental Affairs Committee will <A
title="The hearing agenda."
href="http://hsgac.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=a193192b-ca97-46ee-8f22-bc3db87df1f9">hold
a hearing</A> on the agency’s predicament on Tuesday. So far, feuding Democrats
and Republicans in Congress, still smarting from the brawl over the federal debt
ceiling, have failed to agree on any solutions. It doesn’t help that many of the
options for saving the postal service are politically unpalatable. </P>
<P>“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.” </P>
<P>Missing the $5.5 billion payment due on Sept. 30, intended to finance
retirees’ future health care, won’t cause immediate disaster. But sometime early
next year, the agency will run out of money to pay its employees and gas up its
trucks, officials warn, forcing it to stop delivering the roughly three billion
pieces of mail it handles weekly. </P>
<P>The causes of the crisis are well known and immensely difficult to overcome.
</P>
<P>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. </P>
<P>It’s difficult to imagine that trend reversing, and pessimistic projections
suggest that volume <A title="U.S.P.S. action plan, p.8. "
href="http://about.usps.com/future-postal-service/ensuring-viable-usps-presentation.pdf">could
plunge</A> to 118 billion pieces by 2020. The law also prevents the post office
from raising postage fees faster than inflation. </P>
<P>Meanwhile, the agency has had a tough time cutting its costs to match the
revenue drop, with a history of labor contracts offering good health and pension
benefits, underused post offices, and laws that restrict its ability to make
basic business decisions, like reducing the frequency of deliveries. </P>
<P>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. </P>
<P>Postal service officials say one reason for their high costs is that they are
legally required to provide universal service, making deliveries to 150 million
addresses nationwide each week. They add that a major factor for the post
office’s $20 billion in losses over the past four years is a 2006 law requiring
the postal service to pay an average of $5.5 billion annually for 10 years to
finance retiree health costs for the next 75 years. </P>
<P>But the agency’s leaders acknowledge that they must find a way to increase
revenue, something that will prove far harder than simply slicing costs. </P>
<P>In some countries, post offices double as banks or sell insurance or
cellphones. 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. </P>
<P>Mr. Donahoe’s hope is to cut $20 billion of the <A
title="Paper on U.S.P.S. costs, p.1."
href="http://www.uspsoig.gov/foia_files/RARC-WP-11-007.pdf">$75 billion in
annual costs</A> 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.) </P>
<P>The postal service has the legal authority to close facilities, although
community opposition can make the process difficult. To placate critics and cut
costs, officials say they would seek to run some postal operations out of stores
like Wal-Mart or to share space with other government offices. </P>
<P>Cutting the work force is more difficult. The agency’s labor contracts have
long guaranteed no layoffs to the vast majority of its workers, and management
agreed to a new no layoff-clause in a major union contract last May. </P>
<P>But now, 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. </P>
<P>The postal service is also asking Congress for permission to end Saturday
delivery. </P>
<P>Given the vast range of stakeholders, getting consensus on a rescue plan will
be difficult. </P>
<P>Senator Susan Collins of Maine, like many lawmakers from rural states,
vigorously opposes ending Saturday delivery, which would trim only 2 percent
from the agency’s budget. Ms. Collins, the ranking Republican on the committee
overseeing the postal service, said the cutback would be tough on people in
small towns who receive prescriptions and newspapers by mail. </P>
<P>“The postmaster general has focused on several approaches that I believe will
be counterproductive,” she said. “They risk producing a death spiral where the
postal service reduces service and drives away more customers.” </P>
<P>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.” </P>
<P>Senators Carper and Collins do back several of the postal service’s main
ideas to avoid default, including recovering around $60 billion that some
actuaries say the agency has overpaid into two pension funds. Although the Obama
administration is working closely with the senators to find a solution, it has
signaled discomfort with the pension proposals, questioning whether the postal
service really overpaid. </P>
<P>Meanwhile, Representative Darrell Issa, the California Republican who is
chairman of the House Oversight Committee, says the pension proposals would
amount to an unjustifiable bailout that would not solve the agency’s underlying
problems. He is pushing a bill that would create an emergency oversight board
that could order huge cost-cutting and void the postal service’s contracts — a
proposal that not just the unions, but Senators Carper and Collins oppose. </P>
<P>Fredric V. Rolando, president of the National Association of Letter Carriers,
warned of disaster if partisanship keeps Congress from acting. </P>
<P>“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.” </P><NYT_CORRECTION_BOTTOM>
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<DIV><FONT size=2 face=Verdana>___________________________________</FONT></DIV>
<DIV><FONT size=2 face=Verdana>Wayne A. Fox<BR><A
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