Quoted Text

The claim:

The U.S. Postal Service is broke, and its poor financial performance — largely due to the Internet — is to blame for its insolvency.

The background:

The Postal Service, which doesn't take federal money and operates using income from postage and other sales, has a $5.5 billion bill due at month's end and doesn't have the money to pay it.

Postmaster General Patrick Donahoe told Congress that to avoid default, layoffs of 120,000 workers are possible, along with branch closings and service cutbacks to end at least Saturday delivery.

Probably the most cited reason for these bad finances is the Internet.

A typical news headline this week appeared on WebProNews: "Can the post office survive the digital age? Email and web contribute to serious financial troubles for the USPS."

And yet, from 2003 to 2006 — well into the digital age — the Postal Service reported a cumulative net income of $9.3 billion.

Not only that, its three busiest years on record were 2005, 2006 and 2007.

But then two big things happened.

1. The recession.

"The Postal Service, like every other business, has suffered during this great recession," said Sally Davidow, spokeswoman for the American Postal Workers Union. "When the economy is good, businesses send mail. When not, they cut back."

2. The Postal Accountability Enhancement Act.

The act passed in 2006 mandated that health coverage for postal retirees be paid 75 years into the future. To do this, Congress required the Postal Service pay $5.5 billion a year for 10 straight years.

"No other government agency or private company is required to do that. So, naturally, any business that starts off the year with a $5.5 billion bill, there's going to be a crisis," Davidow said. "It wasn't having financial problems until this bill passed. The crisis was caused by this unique requirement."

She said there would have been a $611 million surplus during the past four years if not for the new requirement.

Postal Service spokesman Dave Partenheimer agreed, saying there "would have been about a $1 billion profit over that period."

But even with this Congress-imposed handicap, the Postal Service could cover its bills if it weren't for another added twist, both Davidow and Partenheimer said.

The Postal Service has been overpaying into worker pension funds.

Two audits have been done. One by the Office of Inspector General pegged these overpayments at $75 billion, and an independent analysis by the Postal Regulatory Commission put them at $50 billion.

If the Postal Service were given credit for these overpayments, meaning it didn't have to contribute into the plans until the payments were corrected, then it could handle its current fiscal problems, Davidow said.

Partenheimer said that if the Postal Service were a private sector business, it would've been able to scale back or stop such payments before reaching this point. But it is bound by unique laws and congressional mandates that restrict it from managing its finances like a regular business.

As for the Internet's impact, Partenheimer said, "First-class mail volume continues to decline due to electronic diversion to other forms of communications — emails, online banking, etc."

But he said the Internet is also a help.

"When people order products online, the Postal Service is one of the main delivery companies to get those products to homes and businesses," he said. "Also, research has shown many people prefer to receive a hard-copy catalog in the mail to make decisions about online purchases before they go online."

The verdict:

Yes, the internet has hurt the Postal Service, but it has helped, too. The internet cannot be blamed as the driver for the Postal Service's current fiscal problems — especially not if one remembers that USPS' biggest years for mail volume were recent.

Congress shackled the Postal Service with a burden expected of no other business: paying retiree health benefits now for employees who haven't even been born yet.

And if the Postal Service got credit for overpaying into its retirement funds — something only Congress can authorize — that would mitigate current fiscal problems.

There are bills in Congress that would solve these bureaucratic problems. And there are also proposals to block the solutions, demonstrating that the Postal Service's insolvency is more a political one than a financial one, perhaps done as an excuse to put its multibillion-dollar business in private hands.

Even though its insolvency is partly, if not largely, manufactured, it very well could have real-world consequences that will affect the communication and commerce of every citizen as well as swell the ranks of the unemployed.

But the problems are beyond the power of the Postal Service to handle itself. It is at the mercy of Congress.

Quoted Text

Digital Currency: An Opportunity for the Postal Service?

Posted by rarc host pp on Oct 3, 2011 in Finances: Cost & Revenue | 7 comments











X
Hello there Bing decision maker! If you find this page interesting, you might want to subscribe to the RSS feed for updates on this topic.

When you buy your groceries, how do you pay for them? What about when you go to the gas station or neighborhood restaurant? How do you buy items online?

Cash may still be king, but in everyday life, it is being eclipsed by newer digital payment methods such as credit cards, debit cards, and electronic transfers.

These payment methods are often more convenient than carrying around lots of cash, but they are not equally available to everyone. People who don’t have bank accounts or credit cards cannot access the full-range of digital currency products.






Should the Postal Service explore offering prepaid cards?

Yes
No



View Results








What payment method do you use most often?

Cash
Debit/Credit Cards
Prepaid Cards
Electric Funds Transfer
Mobile
Check



View Results




One option that is available is prepaid payment cards. Prepaid cards are preloaded with funds and then can be used like a credit or debit card. They are the fastest growing form of digital currency. More and more people are receiving their pay through prepaid cards. Unfortunately, customers sometimes must pay predatory fees to redeem the cards for cash or reload them.

Is this an opportunity for the Postal Service? The Postal Service has the trusted brand and a vast retail network to ensure national coverage. It has experience helping the unbanked and the underbanked. It has sold postal money orders for about 150 years. In certain areas, the Postal Service offers wire transfer service. Should the Postal Service look into upgrading its payment offerings for the digital age?

A new OIG white paper Digital Currency: Opportunity for the Postal Service examines whether there is a role for the Postal Service in the world of digital payments. The paper finds that the Postal Service is well positioned to expand into new digital currency products such as prepaid cards because of its widespread network, trustworthy reputation, and longstanding experience in providing payment services. The paper also provides some suggestions for an implementation strategy.

Click here to read the Digital Currency: Opportunity for the Postal Service white paper.

What do you think? Are prepaid cards a good opportunity for the Postal Service?

This blog is hosted by the OIG’s Risk Analysis Research Center.