(Corrects by removing mention of Carper bill in penultimate paragraph.)
Aug. 3 (Bloomberg) -- Here are three remarkable facts about the United States Postal Service: Its union workers have no-layoff contracts; no post office branches can be closed solely because they lose money; and, as revealed in an investigation by Bloomberg Businessweek, the service is so dependent on low-profit junk mail for revenue that it has a marketing officer tasked with lobbying banks not to switch to electronic statements.
All of which leads to an unsurprising reality: The USPS lost $8 billion last year, and has been kept on life support with $15 billion from the Treasury. Postmaster General Patrick Donahoe warns that it could default on those loans in October.
The USPS, which is supposed to be self-financing, faces a dismal future. Total mail volume fell by 20 percent between 2006 and 2010, with the biggest drop-off in first-class mail, the most profitable type.
Donahoe has proposed shuttering 3,700 of the nearly 32,000 post offices across the U.S. and having mom-and-pop stores, pharmacies and possibly large retailers take over local postal services. This is a sensible plan -- European agencies have done the same with great success -- but it would save only about $200 million, a drop in the bucket. And even this timid step has lawmakers waxing nostalgic over the mail: Senator Susan Collins of Maine insists that closing branches “simply is not an option in many rural and remote areas.”
In the long run, closing branches doesn’t get to the root of the fiscal problem: Eighty percent of the USPS budget goes to salaries and benefits. By contrast, United Parcel Service Inc. spends 61 percent on those costs, and FedEx only 43 percent. Postal employees pay a smaller share of their salary for health care than most other federal workers, and, as reported by the Washington Post, more than 850 senior managers get their health care absolutely free.
Yet the USPS continues to plant the seeds of its own destruction. This year it reached a new contract with the union representing its mail clerks, drivers, mechanics and custodians that included a continuation of the no-layoffs clause for current workers, a 3.5 percent raise over 4 1/2 years, and regular cost of living increases. (The postal service claims that it was trying to avoid arbitration that might have resulted in an even more costly package, and it may have a point.)
The service’s management and unions are living in denial -- both want the service to be freed from having to finance its health-care plan for retirees in advance to the tune of $5.5 billion a year. They also push a sketchy claim that the USPS has overpaid the Civil Service Retirement System by as much as $75 billion since the 1970s and deserves the money back from Congress.
A number of bills kicking around Congress would attempt to bring some fiscal sanity. A leading proposal, sponsored by Senator Tom Carper, Democrat of Delaware, would give the postmaster general the authority to save money by closing branches and reducing service to five days, which would save $3 billion a year. It would also force labor arbitrators to take the fiscal condition of the USPS into consideration in contract disputes.
Another bill, sponsored by Republican Representatives Dennis Ross of Florida and Darrell Issa of California, would go further. It would create a commission charged with finding more than $2 billion in savings through closing post offices and processing facilities, and would require postal employees to pay more for their health care and life insurance.
Most important, it would not allow the service to stop advance contributions to its retiree health-care program or to use money it claims it is owed by Congress to make them. They persuasively argue that exempting the service from this obligation would result in an unfunded liability of almost $100 billion by 2017 -- for which taxpayers would likely be on the hook.
All of these ideas deserve support, and together could help the service out of the immediate crisis. Postmaster General Donahoe seems intent on changing the mindset of the USPS’s stultified bureaucracy, but until he finds a way to rein in worker costs, a storied and vital American institution remains on the brink of insolvency.
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