By Julia Ziegler
Federal News Radio

Postmaster General Patrick Donahoe says his agency’s losses for fiscal 2012 will be somewhere near $15 billion when Q4 numbers are released in November — close to where the Postal Service projected they would be. The news comes a month after USPS hit its $15-billion borrowing limit from the Department of the Treasury, which means it’s now relying completely on its own cash flow to support operations.

“In the short term, from a cash standpoint, we’ll be OK, but it’s critical that Congress moves on this legislation to get us out from behind this situation we’re in right now,” Donahoe told Federal News Radio’s Agency of the Month show.

Donahoe has appeared at least six times before Congress since taking over as Postmaster General in December 2010. But, Congress has yet to pass any type of comprehensive legislation to help the agency. The Senate passed its version of a bill in April while the House has yet to bring a bill to a full vote. In September, House Oversight and Government Reform Committee Chairman Darrell Issa (R-Calif.), suggested the post-election lame duck session would “provide a much greater window of opportunity” to pass postal reform.

Whether that will happen is still unclear. Donahoe said he has not heard anything specific from Congress about when it might act on the legislation or where postal reform falls as a priority on Congress’ to-do list.

“The Senate has actually passed legislation and the House has introduced legislation so the framework is there,” Donahoe said. “It would be our goal and our hope that the House is able to push through its legislation in lame duck, get to the conference with the Senate and hammer out a good postal bill, and get it over to the President to sign and get into effect this year.”

For Donahoe, there are three main issues the legislation must address:

• restructuring the Postal Service’s payments for retiree health care benefits;
• receiving a refund on the agency’s $11-billion overpayment into one of its pension funds; and
• reducing mail delivery to five days a week.

The Postal Accountability and Enhancement Act of 2006 requires USPS to pre-fund future retirees’ health care benefits. So far, USPS has paid $45 billion of the approximately $90 billion it owes. However, twice this year, USPS defaulted on payments worth a total of $11.1 billion.

“We are required to pay health benefits for employees, prepay into a fund at a rate of about $5.6 billion a year. Now, back whenever we were delivering 213 billion pieces of mail that was a daunting challenge but we thought we’d be able to do it. But now that our volume is down to about 165 billion, a lot less, we are not able to make those payments anymore.”

Donahoe said changing the payment structure will fix this problem.

“We’re not shirking our responsibility. We think we should pay that bill. However, it needs to be on reasonable terms,” Donahoe said.

USPS’ next payment into the fund is due Sept. 30, 2013.

Donahoe also supports pulling out of the Federal Employees Health Benefits Program and setting up a health care plan specific for Postal Service employees. However, that idea has been met with skepticism from some lawmakers and outside experts.

“The Postal Service is currently the second largest employer in the United States from a single entity perspective. Walmart has more people than us. … We think that the Postal Service should be free, like any other company, to go out into the public market and compete the health care costs that we pay for our employees and our retirees,” Donahoe said. “This year, with the pre-funding, we will spend $13 billion for health care. We think by resolving the law and competing the health care we can take about $6.5 billion worth of costs off. That is substantial. It is the one, largest spend that we have that we know can really turn the tide as far as the costs go.”

In addition to the money saved from health care costs, Donahoe also would like to see the Postal Service get back the $11.4 billion it has overpaid into the Federal Employees’ Retirement System.

In October, a Postal Service Inspector General report determined the overpayment was due to the way the Office of Personnel Management is required to calculate the payment owed by the Postal Service. Payment amounts are based partly on government-wide estimates of salary increases. From January 2002 to January 2011, OPM assumed an annual pay increase of 4.11 percent for postal employees. However, actual increases ranged from 2.77 to 3.41 percent. Lower than expected cost-of-living adjustments and the two-year pay freeze also contributed to the surplus.

The problem is that current law does not offer a way for USPS to get the money back. Both the Senate and House bills currently on the table would change this. Both contain provisions that return the funds to USPS.

If and when the money is refunded, Donahoe said he plans to use it to help pay back the $15 billion USPS has borrowed from Treasury.

“Bottom line, that legislation is worth a change in our profit/loss statement of $10 billion per year. It would put us back on good financial footing,” Donahoe said.

The third part of Donahoe’s plan — moving to five-day delivery — is estimated to save the agency $2.7 billion per year. Part of that would come from a reduction in staff of about 35,000 to 40,000 employees.

If Congress were to give the Postal Service the go-ahead for five-day delivery during the lame duck session, Donahoe said he would aim to implement it by Memorial Day 2013, as mail volume begins to decrease over the summer months.

“The key for us is to allow our customers to set schedules up within their framework,” Donahoe said. “We’ve talked to our mailing customers. They have schedules for advertising campaigns and whatnot. They’ve asked us to give them about a six-month window to make the changes that they need, transportation contracts, those types of things.”

In addition to the potential job cuts due to five-day delivery, the Postal Service has offered three different buyouts in 2012. Donahoe said he doesn’t expect anymore in the near future. With the current offers on the table, Donahoe expects the size of his workforce to shrink below 500,000. The agency currently has a career staff of about 526,000 and hopes to be closer to 400,000 employees by 2016.

Donahoe said he’s keeping the lines of communication open with employees about the reductions in the workforce.

“One of the things that our employees know is that the business is changing and they like to be kept in the loop and they like to be told exactly what’s going on. So, I have had the opportunity where I’ve gone out to talk to people where we are consolidating and I tell them, ‘Here’s what’s going to happen, here’s the timeframe, here’s the options.’ People appreciate that because they’re not any different than anybody else. If they need to get the news, they want the news because then they can plan and get on with the rest of their lives.”

Consolidation Efforts

While legislation is still up in the air, Donahoe said the Postal Service is doing everything in its current power to reduce costs.

In 2012, the agency announced a plan to consolidate its mail processing centers.

Donahoe said 46 of its 461 centers were eliminated this summer and the agency plans to close another 100 in 2013. By February 2014, the agency plans to have reduced its number of processing centers to 230. Donahoe said the consolidation will save the agency $3 billion per year and reduce the size of the workforce by another 25,000.

“We’ve got a buyout out there right now. … We think a number of people will select that option to leave. That makes a much smoother landing as far as how we take care of assignments for people in the facilities that we’re going to keep open,” Donahoe said.

The agency’s POSTPlan is expected to save another $0.5 billion per year. Under the plan, half of the agency’s 26,000 post offices will move to reduced window hours.

After sending close to 400,000 surveys to Postal Service customers, the agency is now holding town hall meetings in all 13,000 locations to discuss what happens next. Donahoe said 1,500 meetings have been held so far and the Postal Service plans to complete another 1,000 by the holiday season.

“The bottom line there is, we’re trying to match up the work hours that we have the window open with the demand. Many of these are small places, we may only have the window open four hours a day, but the doors will be open for customers to access mail in their boxes or pick packages up, 8-to-10 hours a day.”

Growing business

Donahoe said the Postal Service’s package business has grown 9 percent in 2012 and it’s one of the areas he believes will continue to grow.

“The fact we visit every house every day, 115 million addresses on a daily basis, it makes very good sense to a lot of people in the package business to use us for either the full-service or the last-mile delivery. So we think that’s going to be a real big growth for us,” Donahoe said.

The Postal Service’s new Metro Post same-day delivery pilot in San Francisco takes advantage of the agency’s unique ability to reach every address in the United States.

The idea — a customer orders a product online and it’s delivered to their home the same day. How it works — the Postal Service teams up with companies within a certain geographic region. When a product is ordered, the Postal Service gets a message to pick it up and drop it off at the customer’s home.

“The way our networks are set up with our post offices across the country, we have a matrix where you’ve got delivery routes that cover every square mile of this United States,” Donahoe said. “It’s not that hard for us, working with a company with today’s technology, to know when somebody’s got something that needs picked up, the ability to hand it off to another carrier, and within that same day get it delivered in the same geographic area. Now, the key thing is the geographical area, say a 10-mile radius. You certainly aren’t going to be able to pull something off like that in a 50-mile radius and make it affordable.”

Donahoe said the Postal Service is also in the process of developing package and mail-tracking systems and is diving into the secure digital messaging field, which he said the Postal Service will have more details on in early 2013.

“Like any other business we’re going through changes. And changes, of course, have to be done quickly and we have to have the customer in the back of mind all the time as we make those changes,” Donahoe said. “You’ll see us changing over the course of the next couple years to adapt to the environment we find ourselves in.”

But, Donahoe reiterated the need for legislation to help the Postal Service along the way.

“I think the Postal Service, given the law change, can be a very healthy organization in the short term and the long term. We’ve transitioned this organization over the history we’ve been in existence many, many times. If you go way back to the invention of the telegraph, that was the end of the Postal Service, then the telephone, then the television. All the technology changes have only enabled us to grow in different ways and I think we’ll be doing that in the future.”

As for if or when the Postal Service will run out of funds, Donahoe said, “Picking a date when one would run out of money is not the idea. That’s not what any business would ever want to talk about. It’s getting the ship righted, getting the legislation done the way we need it so we can get back on firm financial footing and so that we eliminate this whole crisis of confidence that’s going on with the Postal Service right now. Big companies do not want to be associated with a company that may not be able to deliver on its promise. We are committed to delivering on our promise.”

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