on Mar 30th, 2009 in Finances: Cost & Revenue | 15 comments
As Pushing the Envelope noted 8 weeks ago, the Postal Service is facing a severe financial challenge. There are concerns the Postal Service could end this year without enough cash to pay all of its bills. The Postal Service attributes its problems to two major factors: (1) the long-term erosion of high-margin First-Class Mail volume because of electronic diversion and (2) drastic volume losses due to the current recession. The Postal Service has asked Congress to
- Allow for a slower rate of funding of its retiree health benefits.
- Give the Board of Governors the flexibility to move from 6-day to 5-day delivery.
Other options for the Postal Service include
- Raising the Postal Service’s debt limits — The law currently prevents the Postal Service from ending the year with more than $3 billion in additional debt. Moreover, the Postal Service’s total borrowing is limited to $15 billion. These debt limits were last raised in the early 1990s. If they were raised, the Postal Service could borrow additional money at very low interest rates from the Federal Financing Bank. If volumes continue to fall, however, would the Postal Service be able to pay back its debt in the future?
- Raising rates — The Postal Accountability and Enhancement Act capped rates for most mail classes at inflation as measured by the Consumer Price Index. The Postal Service could file a special “exigency” rate case at the Postal Regulatory Commission to permit additional rate increases beyond the cap. Can the Postal Service raise sufficient additional revenue by raising rates or would higher rates simply accelerate volume loss and cause total revenue to decline even further?
- Cutting costs — The Postal Service has undertaken to cut $5.9 billion in costs in FY 2009, yet some cost cutting measures such as closing post offices or consolidating facilities face political opposition. To what degree can the Postal Service cut costs without reducing service? Some private sector companies have started laying off workers, but many Postal Service employees are protected from layoffs under collective bargaining agreements.
- Appropriations — Congress could provide the Postal Service with additional revenue to carry it through this difficult period, yet the federal budget deficit is rapidly expanding. There may be limited public appetite for providing the Postal Service with additional funds.
What do you think? What are the best options for the Postal Service to meet its current financial challenge?