Cash-Starved Postal Service May Buy Time With Obama Quick Fix

By Angela Greiling Keane

The following article provides a clear discussion as to why the provisions in President Obama's budget relating to the Postal Service matter to the business comunity and web-based comerce.   It was published on Bloomberg Government and was only available to subcribers.   It is published here with the gracious permission of the author.

Feb. 22 (Bloomberg) -- The U.S. Postal Service, which predicts it will run out of cash by the end of its fiscal year, may buy time to restructure under a plan laid out in President Barack Obama’s budget last week.

Obama proposed deferring $4 billion of a $5.5 billion congressionally mandated payment required in 2011 to cover health-benefit costs for future postal retirees, and refunding some surplus pension payments made by the service.

It was the first time Obama mentioned the Postal Service in a budget message in his three years of presidential budgeting.  Trade groups representing companies such as EBay Inc. that rely on mail and shipping services urged the administration to address the Postal Service’s uncertain future. 

“It’s beginning to sink in that this is not going to be a problem that’s going to go away in advance of the election” in 2012, said Gene Del Polito, president of the Association for Postal Commerce, an Alexandria, Virginia-based group that represents postal customers. “This is a start of coming to a ealization that it’s an issue that needs to be addressed.”

The Postal Service, which has a congressional mandate to be self-supporting, has said it will reach its $3 billion annual and $15 billion total borrowing limits at the Sept. 30 end of its fiscal year and run out of cash if it has to make the $5.5 billion retiree health care payment. The agency, unlike many businesses, must fund future retirees’ projected health-benefit costs out of current revenues.

An agency executive said he was pleased by the president’s plan. “There is momentum, and we’re certainly encouraged by the whole thing,” Postal Service Chief Financial Officer Joseph Corbett said in an interview.

Widening Losses

Obama weighed in with a fix for this year as the agency considers shuttering more facilities, cutting more employees and reducing the number of days mail is delivered across the U.S.  First-class mail volume continues to decline and overall mail volume fell 20 percent from 2006 to 2010 due to widening
use of e-mail and a weak economy. The agency lost $329 million in the three months ended Dec. 31, 11 percent more than the $297 million lost a year earlier.

Jerry Cerasale, senior vice president of government affairs for the New York-based Direct Marketing Association, called the White House’s budget proposal “a great first step.”

“The president’s budget helps for 2011,” he said in an interview. “But it doesn’t do a lot beyond 2011.”

The U.S. Government Accountability Office this week said it’s keeping the Postal Service on its “high-risk” list of government programs.  The Postal Service “cannot fund its current level of service and operations from its revenues and urgently needs to restructure to reflect changes in mail volume, revenue and use of the mail,” the GAO wrote in its report released Feb. 16.

Broader Fix Sought

The Postal Service would need congressional permission to cut Saturday delivery or to close post offices for financial reasons. Lawmakers have blocked those changes previously after Postal Service executives proposed them. “We hope that with the administration having this in focus and the oversight committees who deal with postal matters also having it in focus and some potential new bills coming into the Congress in the near term we’ll really bring this to a head and make some fundamental changes,” Corbett said.

The Association of Postal Commerce is working with the Direct Marketing Association, which has representatives from EBay and Google Inc. on its board, and other postal customer groups whose members send 85 percent of U.S. bulk mail. They and postal labor groups this year asked Obama to change the payment schedule for retiree health benefits, one of the things the president proposed in the budget.

EBay Reliance

EBay sellers are, collectively, the Postal Service’s single largest package customer, accounting for about a quarter of their package shipments, 13 percent of media mail and 9 percent of Priority and Express mail, EBay spokeswoman Alina Piacentino said. Postal Service revenue related to EBay commerce is about $1.7 billion as of last year, she said, or about 2.5 percent of the service’s fiscal 2010 revenue.
“EBay sellers rely on efficient, affordable shipping services to serve their customers and grow their businesses,” Brian Bieron, senior director of federal affairs for EBay, based in San Jose, California, said in an e-mail. “Federal initiatives that enable the U.S. Postal Service to focus more of its resources on providing affordable shipping services to small business retailers are a win-win for consumers and job creation.”

Jake Parrillo, a spokesman for Mountain View, California-based Google, referred comment to the Direct Marketing Association.

Pension Refunds

“As customers of the Postal Service, we recognize our delivery partner will ultimately have the obligation to pay for the benefits established by law and in collective bargaining,” the mail customer groups, which also included the Alliance of Nonprofit Mailers, Magazine Publishers of America and the
National Newspaper Association, wrote in a Feb. 7 letter to Obama.  (Bloomberg LP, the parent of Bloomberg News, publishes Bloomberg Businessweek and Bloomberg Markets magazines. Bloomberg Businessweek’s president is on the board of the Magazine Publishers Association.)

Cerasale said the Direct Marketing Association will push for more federal relief. Customers would like the U.S. to refund overpayments the Postal Service made to a federal retirement fund used for employees hired before 1987, he said. In his budget, Obama proposed refunding $6.9 billion over 30 years in overpayments to the current federal retiree pension fund.

Until the Postal Service’s future is more certain, business customers may shy away from using it, exacerbating the downward spiral, Del Polito said. “Businesses do not like uncertainty and if you tell them there’s this world of uncertainty about using the Postal Service, people stop using the mail,” he said.

--Editors: Bernard Kohn, Joe Winski

To contact the editor responsible for this story:

Bernard Kohn at +1-202-654-7361 or

bkohn2@bloomberg.net