A Small Timeframe for Real USPS Reform

Time Inc.’s Jim O’Brien:‘We’re not off the hook.’

By Bill Mickey
Monday, January 4, 2010

Sandwiched between panelists from BPA and ABC who talked about audit rule updates at a lunch event produced by the FMA in November, Time Inc.’s VP of distribution and postal affairs Jim O’Brien offered a sobering forecast on the near-term prospects for the USPS.

O’Brien outlined the Postal Service’s financial woes—$3.8 billion net loss for fiscal 2009; a decline of 28 billion pieces of mail—before moving into what needs to happen in the next two years to keep it solvent and how that will impact publishers.

Essentially, any push for reform, said O’Brien, will have to be crammed into a window between the 2010 and 2012 election cycles. And reform has to happen. By 2012, the USPS will hit its borrowed debt limit of $15 billion.

At this point, Congress has approved $4 billion in relief from the USPS’s retiree health benefit plan payments, and not a moment too soon. Loathe to offer the USPS any relief for fear it would get complacent in its cost reduction efforts, Congress signed the relief on September 30, the last day of its fiscal year.

That help is fleeting, however. “We’re not off the hook,” said O’Brien. “It was just like rescheduling the mortgage.”

The USPS still had to borrow $3 billion this year, which brings its borrowed debt to $10.2 billion. O’Brien said it will have to borrow a full $3 billion again in 2010, and if there’s no action on the reform front it will almost certainly have to borrow again in 2011, putting it at its $15 billion debt limit. “On September 30th 2010 there’s going to be another train wreck,” said O’Brien, if Congress refuses to offer any relief. “We’re going to go to Congress again. I’m going to wear out the knees in my suits.”

So What’s Next?
O’Brien said 80 percent of the USPS’s costs are labor related, and an argument for significant reductions in this area will be a difficult one to make. The wild card with be Oklahoma Senator Tom Coburn, who will argue for the USPS to fix its financial issues before any relief is signed over. “I guarantee he is going to fight us like you would not believe next year,” said O’Brien.

Complicating the issue is next year’s midterm election. “No Congressman is going to stand against the unions,” said O’Brien. Plus, the healthcare debate is currently hogging Congressional resources. “Until that’s resolved, forget about Postal,” O’Brien added.

“I think Congress will give us temporary relief to get through November elections,” predicted O’Brien, who added that a mandatory $5.4 billion payment to the retiree health plan will be shifted from September to December 2010, delaying the hard debate until 2011—the year real movement needs to happen before the 2012 Presidential elections ramp up. At this point, for any meaningful reform to take place, the retiree healthcare payments are the elephant in the room.

In the meantime, the USPS is pushing for a 5-day delivery week, which O’Brien said makes him “apoplectic” because Saturday—the day the USPS wants to eliminate—is the day 77 percent of Time magazine’s subscriber circ is delivered. Nevertheless, it makes sense for the Postal Service, he said, because it will immediately shave off $3.5 billion in costs.

The USPS will also look to close more large facilities. “As volume continues to go down, they can get rid of some of the bigger facilities,” said O’Brien.

Aside from the 5-day delivery week, publishers can look forward to no rate hike in 2010, a possible reintroduction of a spring and/or summer sale, use of the intelligent mail barcode, and enforcement of the move update.

“Be very careful with the move update,” said O’Brien. “It’s a big deal.”

A meeting with the Postmaster General revealed that the USPS is already going after the blatant offenders, which are settling out of court for millions of dollars—after threatened with fines in the tens of millions.