Another massive loss for the USPS

From the WSJ: 

The U.S. Postal Service on Thursday reported a $5.2 billion quarterly loss and said it was nearly out of cash and likely to exhaust its government credit line in coming months. . . .  

The Postal Service's loss for its third quarter ended June 30 compared with a $3.1 billion loss for the like period a year earlier. Charges taken in connection to a mandate to prefund retiree health care drove the loss in the latest quarter, but declining first-class and advertising mail volume were a drag on revenue. 

Mr. Donahoe said the Postal Service would pay its employees and critical vendors but might skip some payments to others. 

He said current retirees aren't at risk of losing insurance coverage. While the Postal Service may tap all its credit from the U.S. Treasury by October, finances should improve later in the year with election mail and holiday deliveries propping up revenue, the agency said. 

The Postal Service defaulted for the first time in its history on Aug. 1, failing to pay $5.5 billion for future retiree health benefits. A similar $5.6 billion payment is due at the end of next month. The agency said it wouldn't make that either, unless Congress acts. . . .

US Post Office about to declare bankruptcy

From the WSJ:

While lawmakers continue to fight over how to fix the ailing U.S. Postal Service, the agency's money problems are only growing worse. The Postal Service repeated on Wednesday that without congressional action, it will default—a first in its long history, a spokesman said—on a legally required annual $5.5 billion payment, due Aug. 1, into a health-benefits fund for future retirees. Action in Congress isn't likely, as the House prepares to leave for its August recess. The agency said a default on the payment, for 2011, wouldn't directly affect service or its ability to pay employees and suppliers. But "these ongoing liquidity issues unnecessarily undermine confidence in the viability of the Postal Service among our customers," said spokesman David Partenheimer. The agency says it will default on its 2012 retiree health payment as well—also roughly $5.5 billion, due Sept. 30—if there is no legislative action by then. . . .

Ever wonder why these guys are in politics and not business?

In order to rescue the massive money losing United States Postal Service, Democratic Senator Tom Carper (D-DE) proposes money losing wind farms built off the Atlantic Coast.

Price hikes, big operating deficits, and now even slower delivery

When a private company's products aren't selling does it raise prices and reduce quality? That is the way that government operates. Beyond ending Saturday delivery and raising prices, they are now saying that overnight delivery for even short differences is a thing of the past. From Fox News:

The Postal Service on Monday plans to formally propose eliminating "overnight standards" for first-class mail, as it makes sweeping changes in a bid to avoid insolvency.
Sue Brennan, Postal Service spokeswoman, confirmed to Fox News that the service is moving forward with the overnight standard change. If approved, it means first-class mail would generally take more than a day to reach its destination.
"For example, D.C. mail to Northern Virginia could take an additional day," she said. . . . .

USPS Hires Big Guns to Help Get More Government Protection

Hopefully, this bailout will cost something less than the $100 billion spent to bailout GM. From the WSJ:

The National Association of Letter Carriers said it retained Ron Bloom, the president's former "car czar" who orchestrated the bailout and restructuring of General Motors Co. and Chrysler LLC, and led the Treasury's oversight of the companies.

The union also has hired investment bank Lazard Ltd., assembling a restructuring team experienced in analyzing large, complex, financially troubled institutions and proposing solutions.

The hiring of Lazard and Mr. Bloom indicates that rather than absorbing the massive job and infrastructure cuts being proposed by the postal service, the union is aiming instead for a role in the public-policy debate over how to prevent the collapse of the age-old institution and remake its business model for modern America.

The letter carriers say they have no choice but to go on the offensive. As part of its strategy to right itself, the postal service is aiming to slash $20 billion in expenses by 2015 by closing many post offices and mail-sorting centers, dropping Saturday delivery and eliminating 220,000 jobs, despite collective-bargaining agreements limiting layoffs. The agency is appealing to Congress to change laws so it can rapidly make these cuts. . . .

The Unknown Gov't Bank that is Giving Away many Billions of Your Money

Today the Obama administration rushed through two more big loans before the deadline the end of this month to solar energy companies. The total came to $1 billion: "a $737 million loan guarantee to Tonopah Solar Energy for a 110 megawatt solar tower on federal land near Tonopah, Nev. [a privately held company SolarReserve LLC owns Tonopah], and a $337 million guarantee for Mesquite Solar 1 to develop a 150 megawatt solar plant near Phoenix [it is owned by a publicly held company, Sempra Energy]." It turns out that the privately held SolarReserve LLC is partially owned by "Ronald Pelosi, a San Francisco political insider and financial industry polymath who happens to be the brother-in-law of Nancy Pelosi, the Minority Leader of the United States House of Representatives."

It has also come to light that an essentially unknown government bank is holding $61 billion in loans (of course, they have obviously given out much more than that). So the Post Office is getting a direct government subsidy. The Postal Workers' Union has been claiming in ads that they haven't been getting money. Elizabeth MacDonald has this excellent article at Fox News (it is much longer than the excerpt and should be read):

Sitting at the center of the Solyndra scandal is an off-balance-sheet bank at the Treasury Department that dates back to 1973.
This little-known government bank, the Federal Financing Bank [FFB], had a zero balance in 2008 for green energy projects, but now, with little Congressional oversight, it is giving out billions of dollars in loans to White House pet projects often at dirt-cheap interest rates below 1%.
In July alone, the government bank, which had $61 billion in assets, lent nearly three quarters of a billion dollars in taxpayer funds with no Congressional checks and balances.
Plus the bank is funding the insolvent U.S. Post Office; the White House’s expensive green car projects at Ford Motor, Nissan and Tesla Motors; a $485 million loan to an expensive solar project that’s lost $160 million over the last three years that’s backed by Google . . . ; plus the FFB is funding the teetering HOPE housing bailout program, which gives delinquent mortgage borrowers breaks on their loans.
And according to KPMG’s audit report of the bank, the FFB is losing billions of dollars in taxpayer money because it is forgoing collecting interest costs on already inexpensive loans that are financing projects at agencies like the Agriculture Dept.
What’s scary for taxpayers is this: The FFB can borrow unlimited amounts of taxpayer money from the Treasury for these kinds of political pet projects. Under the 1973 “FFB Act, the bank may, with the approval of the Secretary, borrow without limit from the Treasury,” says the bank’s audited statements from KPMG.
The Treasury Department’s inspector general is now investigating the bank over its $528 million loan to Solyndra. FFB’s chairman of the board is Treasury Secretary Tim Geithner, and the bank’s board executives are Treasury officials.
Who is getting the FFB’s green energy money? . . .
. . . Solyndra was still getting loans from the FFB up until it filed for bankruptcy. It got $3 million in loans at a 0.89% rate just a month and a half before it filed for bankruptcy protection.
The FFB is also giving loans to risky solar companies as well as to a money-losing solar energy outfit backed by companies such as Google . . . that has spilled $160 million in red ink for the last three years.
In the month of July alone, the FFB gave a $12.5 million loan to Abound Solar; 60% of Abound's balance sheet will come from federal taxpayers, or $400 million in guaranteed federal loans.
FFB also gave a $117,330 loan to the struggling Kahuku Wind Power and more than $77 million to the Solar Partners companies, which are due $485 million in White House approved loans.
The Solar Partners companies are units of BrightSource Energy, which is building a massive solar-powered energy plant near the Mojave Desert in San Bernardino, California.
BrightSource lost $45 million in 2008, $44 million in 2009, and $72 million in 2010, even though it has rich backers that include Google . . . .
Besides the green energy projects, the FFB provides a backdoor government bailout of the US Post Office, which has been spilling red ink. The FFB has lent the US Post Office so far $12.6 billion. The Post Office faces an estimated $10 billion shortfall this year . . .
And the government bank gave loans to car and car parts manufacturers to retrofit their plants to make green cars. The FFB lent Ford Motor $163 million for its green car programs. The FFB is now financing projects at Fisker Automotive, Nissan North America and Tesla Motors, with $528.6 million, $1.4 billion and $465 million in federal loans, respectively. . . .

For Tesla, "It lost $55.7 million in 2009, $154.3 million in 2010, and $108 million for the first six months of 2011." The weaknesses behind pushing electric cars is discussed here.

US Post Office Deficit will reach $9.2 billion this fiscal year?

While everyone wants Congress to give the Post Office billions of dollars, there is a solution to all this: get rid of the Post Office's monopoly. Whose fault is it that the Post Office has these horrible labor contracts that force all this inefficiency? From the New York Times:

the agency is so low on cash that it will not be able to make a $5.5 billion payment due this month and may have to shut down entirely this winter unless Congress takes emergency action to stabilize its finances.
“Our situation is extremely serious,” the postmaster general, Patrick R. Donahoe, said in an interview. “If Congress doesn’t act, we will default.”

In recent weeks, Mr. Donahoe has been pushing a series of painful cost-cutting measures to erase the agency’s deficit, which will reach $9.2 billion this fiscal year. They include eliminating Saturday mail delivery, closing up to 3,700 postal locations and laying off 120,000 workers, nearly one-fifth of the agency’s work force.

The post office’s problems stem from one hard reality: it is getting squeezed on both revenue and costs.

As any computer user knows, the Internet revolution has led to people and businesses sending far less conventional mail.

At the same time, decades of contractual promises made to unionized workers, including no-layoff clauses, are increasing the post office’s costs. Labor represents 80 percent of the agency’s expenses, compared with 53 percent at United Parcel Service and 32 percent at FedEx, its two biggest private competitors. Postal workers also receive more generous health benefits than most other federal employees.

Missing the $5.5 billion payment due on Sept. 30, intended to finance retirees’ future health care, won’t cause immediate disaster. But sometime early next year, the agency will run out of money to pay its employees and gas up its trucks, officials warn, forcing it to stop delivering the roughly three billion pieces of mail it handles weekly. . . .

Judge Napolitano has a slightly old piece on why we should abolish the USPS available here.

In the 1840's, the cost of mailing a letter was determined by weight and distance. An average one-ounce letter cost $0.14.5 to mail from New York to Boston. And in 1841, it took five days to get there. Then a man named Lysander Spooner started a business to compete with the post office. He charged lower rates. He delivered in less time. And he brought the mail directly to your home, not just to the post office in your town. Not to be outdone, the post office kept lowering its charges for stamps.
By 1851, both Spooner's company and the government were charging $0.03 to deliver that same one-ounce letter from Boston to New York. And so the federal government, unaccustomed to competition, sued Spooner and his company and tried to get a jury to put him out of business. The jury loved what Spooner did. He made life better and cheaper. The feds lost. And then they did what they always do when they have competition they can't tolerate, they outlawed it.
So in 1851, the feds were losing money by delivering mail from post office to post office and Spooner was making money by delivering mail from post office to private homes and businesses. And Congress thought it would make the post office solvent by banning the competition from charging less than the post office charged. The $0.03 stamp stayed in place for over 100 years with Congress using tax dollars to fill in the deficits in the post office's budget. . . .
Since the 1960s, the price of a stamp has gone up from $0.05 up of $0.44. The service is worse. . . . .

No Bailout: Let the Post Office default, and really privatize the company

Just as there was no reason to bailout GM, there is no reason to bailout the USPS. Courts properly handle bankruptcy all the time. From the AFP:

The US Postal Service warned on Friday that it could default on payments it owes the federal government, just days after the US government itself narrowly averted a default.
The government's mail service said it lost $3.1 billion in the period from April to June, blaming "the anemic state of the economy" and the growing popularity of electronic communications over old-fashioned letters.
As a result of its mounting losses, the US Postal Service said it would not be able to make a legally required $5.5 billion payment in September to a health-benefits trust fund.
"Absent substantial legislative change, the Postal Service will be forced to default on payments to the federal government," it said in a statement. . . .

Of other interest: Postal Workers' Union Inaccurately Claims that the Post Office doesn't get Government Subsidies
Here is one story about how the post office has been run. A very long report is available here. Politico discusses it here.

In 2008 — one year before the Postal Service's long-term lease on the Sarasota property was to expire — the agency announced plans to exercise its option to buy the property for $825,000, a fraction of its estimated $12 million market value, the IG report said. The deal would have meant a big loss for the property's owners, Post Office Associates (POA), who bought it in 1988, the IG report said. POA's partners include Band Family Partnership Ltd. Douglas Band, who is Clinton's counselor and top adviser, has a financial interest in POA and is its legal representative, according to the report.

POA objected to the sale and the Justice Department in July 2010 filed a lawsuit on behalf of the Postal Service against POA to force it to sell the property. That lawsuit is still ongoing.

The IG's report said that the Postal Service's vice president of facilities, Tom Samra, "believed Governor Kessler's actions wasted Postal Service time and resources, and potentially weakened [the Justice Department's] litigation position."

The report found that Band enlisted Kessler to help scuttle the deal. Kessler held multiple meetings with postal officials urging them to settle with POA, the report said. Kessler was the only postal official urging a settlement, the IG said.

The IG said that Kessler also worked behind the scenes to help POA come up with a political strategy to fight the Postal Service: POA threatened to get members of Congress to intervene to quash the purchase on the grounds that this leasing program was improper and unfair. Kessler later raised similar concerns with postal officials, the report said. . . .

Postal Workers' Union Inaccurately Claims that the Post Office doesn't get Government Subsidies

Given all the regulations imposed on all sorts of companies, I am sure that a lot of them would appreciate the tax and other benefits given to the USPS. One thing apparently not included as a government subsidy is the monopoly that the government gives the USPS for first class mail delivery. The Union though wants to convince people that the USPS wants to "dispel the persistent myth that our work is funded by taxpayers." If Obama wants to get rid of tax subsidies, this might really be one place to start. From Fox News:

The postal workers union is refusing to take down a new ad after Republican Rep. Darrell Issa accused its members of "misleading" viewers by claiming tax dollars do not support the Postal Service.
"The ad is accurate," Sally Davidow, spokeswoman for the American Postal Workers Union, told FoxNews.com.
The TV ad, which started running this week, has a voiceover claiming U.S. mail delivery doesn't cost taxpayers a "single cent" and is "funded solely by stamps and postage."
The problem with that statement, according to Issa, is that the Postal Service enjoys other "implicit subsidies" -- a 2007 Federal Trade Commission report noted that the service does not have to pay taxes, including property tax; does not have to pay vehicle registration fees, and can borrow at low-interest rates through the U.S. Treasury. . . .
Indeed, the FTC report estimated that federally imposed restraints on the Postal Service -- as of fiscal 2006 -- cost between $330 million and $782 million annually, while the special benefits were worth between $39 million and $117 million.
Davidow suggested the benefits were justified and didn't undermine the union's claim about being unsupported by tax dollars. . . .