The holiday season is a robust time of year for the U.S. Postal Service, but the long-term future for the nation's mail system is not as bright. First-class mail, the financial...

Share story

WASHINGTON — The holiday season is a robust time of year for the U.S. Postal Service, but the long-term future for the nation’s mail system is not as bright.

First-class mail, the financial backbone of the Postal Service, has been steadily declining as Americans turn to the Internet to pay bills and rely on e-mail, cellphones and cheap long-distance calls to keep in touch.

“For the first time in history, in 2005 first-class mail is projected to fall below standard (advertising) mail as the largest volume product,” said Richard Strasser, Jr., the Postal Service’s chief financial officer.

As the shift away from cards, letters and other first-class mail accelerates, so does the erosion of the revenue base that supports universal service — the six-days-a-week delivery of mail to every city high-rise, suburban subdivision and remote hamlet in the country.

Most Read Stories

Unlimited Digital Access. $1 for 4 weeks.

“Death spiral” warning

First-class mail contributes about 60 percent of the Postal Service’s $69 billion in revenue. If that falls as much as expected, the Postal Service will have to deal with less income or charge more for commercial mailings — creating what postal officials have referred to as a “death spiral” of rising rates and declining business.

Congress will consider long-stalled legislation early next year to reform the rules that govern the Postal Service and relieve it of some financial burdens. But the Bush administration has yet to get on board because of a multibillion-dollar fight over who will pay for the military benefits for workers who served in the armed forces.

“We are not only dealing with a Postal Service in evolution, but with the governmental equivalent of self-inflicted wounds,” said Gene DelPolito, head of the Association for Postal Commerce, a group that represents mass-volume mailers and others who do business with the Postal Service.

Rick Merritt of Postal Watch, a nonprofit advocacy group, said the Postal Service has been “rapidly evolving into a commercial advertising medium that happens to carry some first-class mail.”

He said the Postal Service needs to change the way it operates to meet the new realities.

Postal officials have been trying to adjust to the electronic age and competition from private overnight-delivery services by increasing productivity, shrinking their work force, acquiring new technology, and adding options for mass mailers and customers.

More mailing options

For example, the Postal Service now sells stamps via the Internet, 21,000 retail stores and 16,000 vending machines as well as at 38,000 post offices. It recently added a flat-rate box for priority mail that can go anywhere in the country for $7.70 carrying “whatever you can fit in it,” and it has placed self-service machines in postal lobbies.

But Merritt said rising costs and declining first-class mail volumes point to future rate increases for consumers and “sticker shock” for high-volume mailers.

Postmaster General John Potter has said a request to increase the price of a first-class stamp — 37 cents since 2002 — will be filed next year with the independent Postal Rate Commission. The earliest it could be enacted is 2006.

The size of the increase will depend on whether Congress passes stalled legislation to alter the 1970 law governing postal operations. That was the law that transformed the Post Office Department — which traced its origins to the days when Benjamin Franklin served as postmaster general — into the U.S. Postal Service, now a regulated business.

The Postal Service has asked Congress for greater flexibility to compete against the private sector. Among other things, it wants the ability to change rates and service depending on economic conditions and competition.

It also wants to be freed of the $27 billion long-term obligation to pay the military benefits.

Without these changes and additional help on some pension issues, postal officials have said, a first-class stamp could cost 41 cents or possibly even 43 cents by 2006.

“Unless Congress acts, that rate increase will be one of the largest in history — at least 15 percent, or six cents on a first-class stamp,” said Rep. Tom Davis, R-Va., a sponsor of the reform legislation that failed to pass the 108th Congress.

Debt is reduced

The good news is the Postal Service has been in the black for two years, showing a $3 billion profit for the fiscal year that ended Sept. 30. That has helped the Postal Service to reduce its debt to $1.8 billion from a high of $11 billion two years ago. And it is expected to break even in the current fiscal year.

But Postal Service officials said the positive financial picture is temporary, and they project losses into the future without rate increases and the reforms they seek from Congress.

The Postal Service received temporary financial relief from Congress in 2003 through a law that allowed it to divert $3 billion in annual payments from its overfunded pension accounts to general revenue. That ends in fiscal 2006 unless a full reorganization plan is in place.

More important, the 2003 law imposed a new cost on the Postal Service — the $27 billion in retirement benefits to some workers related to their military service. Previously, the U.S. Treasury had paid such costs.

Legislation to relieve the Postal Service of that burden and allow continued use of the excess pension money was blocked in Congress because of opposition from the Bush administration.

George Gould, legislative director for the National Association of Letter Carriers, said he believes there is strong support in Congress for the reform legislation and is hopeful the White House opposition will be overcome.

“The Postal Service is trying to do its job, perform its services and compete in 2004 under a law created in 1970,” Gould said. “Marketing conditions have changed, people’s time expectations have changed, international commerce has changed, and the Postal Service law needs to change.”