By JEN WIECZNER
1. Your failure to send your Mother a proper birthday card is the least of our problems.
For four days at the end of June, retired letter carrier Jamie Partridge and nine other current and former postal workers didn't eat. They were on a hunger strike to protest what the group saw as the biggest threat to the U.S. Postal Service's continued existence: Not e-mail's steady encroachment on snail mail's territory, not a prolonged economic downturn or the growing popularity of corporate shipping services, but government-mandated payments to pre-fund health care benefits for postal retirees -- 75 years into the future. "To call out that Congress was starving the postal service, we were starving ourselves," Partridge says. Private-sector companies -- and even most other branches of the federal government, like, say, the Army -- aren't required to fund their health benefits so far in advance. It's an albatross of a financial burden on the Postal Service, hidden beneath the more striking headlines about shrinking mail volume -- down more than 21 percent since its 2006 peak -- and plummeting revenue. Indeed, in the first three quarters of 2012, the Postal Service lost $11.6 billion, more than twice what it lost during the same period in 2011.
Publicly, the Postal Service has blamed its financial woes on a waning interest in old-fashioned mail (exacerbated by the financial crisis). And it has cited that reason when it announced staff reductions -- about a quarter of its workforce, or 150,000 postal jobs, will be eliminated by 2016 -- as well as when it talked about closing post offices and when it proposed ending Saturday mail delivery, a measure currently pending in Congress. But some in the postal industry say that declining mail is just an excuse: "There is red ink -- but the overwhelming share has nothing to do with mail volume, the Internet, or other factors related to the mail," says Fredric Rolando, president of the National Association of Letter Carriers. The retiree health payments account for nearly 80 percent, or $9.2 billion, of the first three quarters' losses, and they "not only have exhausted the Postal Service's profits, savings and borrowing authority, they also have distracted the USPS from addressing the structural issues that do indeed exist as society changes," says Rolando, adding that there are "plenty of opportunities" in mail, including e-commerce shipping. "The prefunding of retiree health benefits for future retirees is a major cause of our financial crisis -- but not the only cause," says a USPS spokesman, citing decline in first-class mail as another major cause.
While many industry groups, including the Postal Regulatory Commission, have recommended that the health care payments -- the result of a congressional mandate passed in 2006, before the Postal Service's problems started -- be reduced to alleviate the burden, there is one massive roadblock: the federal budget. Because the retiree health prefunding payments are counted in federal funds, they are tied into the nation's budget, which some experts say amounts to the USPS subsidizing government operations. "So the Postal Service has been a kind of cash cow for the federal government for the last 40 years," says Postal Regulatory Commission chairman Ruth Goldway.
2. Our retirees are just fine, thanks.
On Aug. 1, for the first time since the 2006 mandate, the Postal Service did not pay its $5.5 billion annual retiree health benefits bill, and announced that it's likely to default on the next payment too, due Sept. 30. While the announcement raised red flags of concern for the welfare of retiring postal workers, experts, including postal employee unions, contend that the retirees will be fine -- or may even be better off -- if the USPS doesn't pay another cent into the fund for a long time. Indeed, Postal Service inspector general David Williams wrote a letter to the Senate earlier this year recommending just that -- eliminating the annual payments and letting the $44 billion fund grow with interest. Despite the Postal Service's debt, its retiree benefit coffers are beyond full. Its pension funds are more than 100% funded, compared with 42% for all federal pension funds and 80% for the average Fortune 1000 pension plan. That "astonishingly high figure," according to Williams, amounts to a "war chest" of resources that will take care of older workers for decades to come.
"The irony," says the NALC's Rolando, is that "today's postal retirees, and future retirees, are well protected," while the Postal Service's financial status is in jeopardy. If it continues to struggle financially, it will likely cut back on post office locations and hours as well as delivery service -- which some experts say could disadvantage retirees and other Americans who rely on the Postal Service for efficient correspondence.
3. Anybody want to buy an ailing government agency?
As a federal agency, the Postal Service is something of a platypus: It is bound by law to perform certain functions -- the old postman's motto goes, "Neither snow or rain nor heat nor gloom of night will stay these couriers from their swift completion of their appointed rounds" -- but it also has to report financial results like a business. Some economists say turning the postal service into a corporation with a board of directors and a fiduciary duty to shareholders would allow it to make sound financial decisions based on market conditions, rather than falling prey to political motivations and bureaucratic red tape. Under the current system, "managers are hamstrung," says Richard Geddes, Cornell University professor of policy analysis and management and a visiting scholar at the American Enterprise Institute for Public Policy Research.
But closing unprofitable post offices and stopping delivery on low-volume days would undermine the original equality-minded mission of the Postal Service to keep the country connected through the mail and to enable efficient communication to the most remote corners of the nation. "It would do things beneficial to the bottom line but not to the country," says Steve Hutkins, a New York University professor who advocates for the protection of the Postal Service through his site SaveThePostOffice.com. Even proponents of privatization admit that it would be difficult. "Any change is like shifting the direction of a battleship," Geddes says. When the idea was first floated in the 1990s, "the comment that I got was, Who would buy it?" says PRC chairman Goldway. "I don't think the market realities are there now."
A USPS spokesman says privatization isn't the answer, adding that it would be hard for even a private company to profit serving rural areas, and that the Postal Service has a business plan to become "financially sound and continue universal service to all Americans."
4. We're hiring our competitors to do our jobs for us.
The Postal Service increasingly relies on outside corporations for everything from sorting mail and transporting it by air and ground to advertising and I.T. consulting: Last year, the agency spent more than $12 billion on such contracts, according to Husch Blackwell, a law firm that represents Postal Service contractors. The USPS even hires some of its competitors to help it do its job, including the United Parcel Service and FedEx, which was the Postal Service's highest-paid supplier in 2011. "The postal service essentially has privatized everything but the last mile of delivery," Goldway says. The number of mail delivery routes served by outsourced carriers increased 84 percent to nearly 10,000 between 1998 and 2012, according to a recent report by the Congressional Research Service. There is now a thriving industry of third-party companies contracting with the USPS, including large publicly traded corporations such as presorting mail firm Pitney Bowes.
Postal worker unions generally oppose the practice of contracting, which dates back to the 18th century, saying that outsourcing Postal Service functions is less reliable and takes jobs away from postal employees who are already being laid off in droves. The National Association of Letter Carriers has referred to the practice as a "cancer" that must be stopped before it spreads. Still, contractors deliver mail on just 4.4% of routes, up from 2.3% in 1998, according to an analysis by the Congressional Research Service. The Postal Service, for its part, says it will continue to use contractors, as long as doing so is cost-effective and consistent with their contractual obligations.
5. We're addicted to junk mail.
Like Big Oil and Big Pharma, the Big Mailers -- including banks and catalog publishers as well as presort mail companies -- are a powerful force on Capitol Hill, and the Postal Service courts their business because the vast breadth of envelopes buoys mail volume. Through its workshare discounting program, the Postal Service offers reduced postage rates to companies with large stakes in the mail -- from mass mailers like AT&T and Bank of America to mail-handling specialists like Pitney Bowes -- that presort mail or deliver it part of the way.
In theory, the benefits should be mutual: Working with outside service providers increases efficiency and saves money, as contractors are often cheaper to hire than unionized postal employees. But the postage discounts the Postal Service offers contractors occasionally exceed the amount it saves in the deal; last year, 35 of these workshare arrangements were under water, according to the Postal Regulatory Commission's annual compliance report. (A spokesman for the USPS says the wokshare arrangements comply with the law.)
Some experts believe the pricing mismatch is partially a result of politics. Bulk junkmailers like ValPak lobby forcefully against moves that would increase their postage rates. The National Association of Pre-Sort Mailers acknowledges that its members do a lot of the same tasks as the Postal Service -- just better, providing a higher profit margin and faster service. "When the Postal Service is doing it themselves, it doesn't perform as well as the mail that's already prepared," says the association's executive director Bob Galaher.
6. Next thing you know, we'll be asking you to trust us with your money.
When the USPS issued a special line of Simpsons stamps in 2009 and 2010, the commemorative postage bearing Bart's and other characters' yellow faces might have looked cute, but they didn't sell: More than 68 percent of the inventory went to waste, an expense of $1.2 million. Last year, 10 Postal Service products and services failed to pull in enough revenue to cover their costs, amounting to a loss of $1.6 billion, according to the PRC's compliance report.
The failure of postal products as well as declining mail volume has led some industry insiders to recommend that the Postal Service diversify its offerings beyond the mail. A July report from the Postal Service's Office of the Inspector General recommended that the USPS assess the viability of nonpostal offerings ranging from public Internet access to greeting cards to financial products. (The law currently limits the Postal Service's ability to sell nonpostal products.)
Experts note that postal services in countries like Japan and Germany double as banks, offering products ranging from checking accounts to mutual funds, and that the U.S. Postal Service is uniquely structured to reach low-income and other populations underserved by banks. "Postal savings could actually kill two birds with one stone in this country -- save the post office and provide an alternative way for small saving," says Sheldon Garon, a Princeton professor who has studied savings systems across the world. The Postal Service could start by offering very basic savings accounts and partner with local banks to actually deposit the funds, says Ben Jackson, a senior analyst at Mercator Advisory Group who has looked at the USPS's experiments with selling gift and prepaid cards. "You don't want the post office making home mortgages," Jackson adds. A spokesman for the USPS says the agency doesn't believe banking will work well in the U.S., but that it should be "given more freedom" to diversify beyond postal products.
7. We're sitting on a national treasure...
In the 2004 movie "National Treasure," a map on the back of the Declaration of Independence leads readers to riches buried beneath Manhattan's Trinity Church. And just like that church, one of the biggest landowners in New York City, the Postal Service is sitting on a valuable real estate portfolio in its edifices across the country, many of which are in prime downtown locations.
In light of its recent financial problems, the Postal Service has begun eyeing its facilities as a means of generating cash through leverage or property sales. The total value of its properties has never been officially appraised, but a 2011 report on the leveraging opportunity by the Postal Service Office of Inspector General estimated their value at well over $27 billion. (One post office on upscale summer-vacation destination Martha's Vineyard, for example, has an assessed value of more than $3 million, nearly twice its purchase price.)
Last year, the Postal Service hired real estate firm CB Richard Ellis Group to advise it on putting postal real estate on the market and to represent the USPS in those sales. The available buildings and land parcels are listed on USPSPropertiesForSale.com, with sticker prices as high as $17 million (some large buildings, such as a 17-story, 700,000-square-foot facility, do not list asking prices). A USPS spokesman said it has raised $120 million since the beginning of October through the sale of 30 properties, and currently has nearly 100 more, worth a total of about $252 million that it plans to sell in the next year and a half.
8. ...And we'll sell you a piece of it.
It may sound crazy to invest in an organization that loses millions of dollars an hour, but some intrepid investors say they've made millions off the Postal Service -- by becoming its landlords. Currently 75% of post offices, or more than 26,000 properties, are privately owned, and the Postal Service pays rent to people like Marvin Bakalar, a Rhinebeck, N.Y., resident who has been buying, selling and brokering post office properties (from the USPS and private owners) for more than three decades. The $20,000 or $40,000 the Postal Service often pays in annual rental fees amounts to government-backed returns exceeding 10 percent, according to Bakalar, who says he's made millions of dollars in the post office business. "Owning post offices was probably, in my opinion, one of the safest, most secure and best investments anyone could have," says the 68-year-old Bakalar, adding that post office owners are often average investors who own just one postal property.
But the market suddenly changed last year when the Postal Service announced it was evaluating more than 3,600 post offices for potential closure, scaring off buyers; past post office shutterings have left some investors like Bakalar in the lurch when the Postal Service moved out and stopped paying rent. New post office leases often have termination clauses allowing the USPS to vacate on short notice. "That's increased the risk tremendously," Bakalar says. A few days ago, he looked into buying an Alabama post office, but after calling the postmaster, learned that she was quitting after her hours were reduced -- a warning sign not to invest, he says. But he's still made money in what he calls a buyer's market for post offices, getting higher returns of up to 15%. He advises potential post office investors through his American Postal Owners Association. The USPS declined to comment on the risk of investing in postal real estate, but says that it continues to lease only a few of the properties it sells, and in most cases those leases are temporary.
9. We're a hotbed for crime.
Alongside your friendly mailman is a dark history of the Postal Service: It has long been a target -- or a medium -- for swaths of crime ranging from mail theft to Anthrax attacks to murder. For that reason, the USPS has its own police force that has been charged with safeguarding and ensuring confidence in the postal system for more than 200 years -- the U.S. Postal Inspection Service. Postal officials contend the threat is real: Postal inspectors arrested more than 5,500 suspects for mail- and postal-related crimes last year -- everything from using homeless people to cash stolen checks to sending suspicious powders and substances in the mail, including more than 200 improvised explosive devices. The Postal Inspection Service even played a role in the recent conviction of R. Allen Stanford for running a ponzi scheme, since the organization investigated fraudulent documents that went through the mail.
The biggest problems facing the postal system are mail fraud and mail theft, which accounted for half of last year's arrests. But a spokesman for the Postal Inspection Service says its activities deter and catch criminals who "want to threaten the American public through the mail system," and that post offices are safe: "There is no reason to be concerned." If consumers are ever worried that the person delivering their mail poses a danger, the Inspection Service advises, "Don't open the door."
10. Our greatest strength is supernatural.
Last year, at the direction of the Postal Regulatory Commission, a host of consulting firms measured what the PRC calls the "social benefit of the mail." It's a nearly intangible quality of the Postal Service -- its aura of Rockwellian nostalgia -- that many experts point to as a reason it should be preserved, despite its financial struggles. It's the factor that might lead people to bank at their post office instead of at the local Chase branch; that explains why putting a post office in a shopping center attracts and boosts small businesses that locate there; and that makes Congressional representatives reluctant to cut post office locations and hours (along with their fear of striking a nerve among voters who are passionately attached to old-fashioned mail, that is).
Because of its on-the-ground local infrastructure and its veritable army of couriers, the reports commissioned by the PRC noted the Postal Service's unique ability to deliver disaster relief provisions in an emergency such as a hurricane or bioterrorist attack. The Urban Institute hypothesized that crime rates in neighborhoods were lower during mail-delivery periods, though the study was suspended. "There is evidence that the presence of visible uniformed personnel who are well-recognized by the public play an important role in the social control of neighborhoods," the researchers wrote.
In his days as a letter carrier, Partridge says, he both lent a hand to a senior who fell down and helped a toddler find his way home. "When you have people going to people's houses five or six days a week, they put out fires, they see people who are sick," says PRC chairman Goldway. "They're sort of an extra police force."