Some folks knew the U.S. Postal Service (USPS) has been heading for bankruptcy for years. Federal employee unions have sealed the fate of USPS by demanding and receiving lavish retirement programs, a no-layoff policy and an antiquated system that hasn’t been relevant for decades.

May 10th of this year in Shut down the U.S. Postal Service? we foretold the current crisis that’s now making headlines. USPS stands to lose $10 billion this fiscal year and a default is expected in the near future without congressional intervention, according to the head of the USPS.

Postmaster General Patrick Donahoe will testify to Congress today that USPS’s financial problems are far more serious than previously disclosed. Donahoe will appeal to lawmakers to come to the services aid or face a shutdown. Donahoe said the agency will hit its $15 billion borrowing limit this month and will miss an upcoming $5.5 billion payment for health care costs.

“Failure to act could be catastrophic,” Donahoe warned in his prepared remarks.

The bigger question is whether the USPS can ever be effective with the rise of email and online bill-paying. Nearly two-thirds of all mail delivered by the USPS is what we would call “junk mail.” Should taxpayers be saddled with the cost of subsidizing a service which delivers material we cast into the trash bin?

The Association of Federal, State and Municipal Employees (AFSME) is the union representing postal workers. Current contracts with AFSME prohibit layoffs and Donahoe wants to cut 120,000 jobs. Independent analysts have suggested that USPS needs to cut in excess of 200,000 employees to bring it in line with other delivery services. Furthermore USPS whether relevant or not has an impossible business model. While Fedex and UPS spend approximately 32 percent of their revenue on employee costs the USPS spends more than 76 percent. USPS’s health care and pension systems are unsustainable; billions of dollars have been overpaid in pension payments while taxpayers have filled in the funding gaps.

Donahoe will be testifying Tuesday afternoon before the Senate Homeland Security and Governmental Affairs Committee pleading for the Congress to offer them a lifeline to restructure their operations and aid them, via legislation, to amend their contracts with AFSME.

USPS has been telegraphing for some time that termination of Saturday delivery is a mandatory step, however many lawmakers are opposed to such changes. Postal unions are preparing for a fight to defeat proposed layoffs and office closures; it’s very much a catch-22 state of affairs. But in such tough economic times and with budget cuts a necessity, should we even be discussing bailing out a no longer effective or in-demand service?

While the Postal Service is governed by strict federal rules, it is not technically taxpayer-funded, relying instead on fees generated by postage. However, it does not have to pay taxes and enjoys other benefits; however distinct from the federal government it may be, this isn’t the first time it’s come to Congress looking for a handout; each year USPS gets a $96 million subsidy, so claims of complete autonomy are overstated.

USPS is not totally independent from the federal government and never will be. Postal rate increases must be approved by the government and its charter states that it is part of the executive branch of the government. If the USPS was truly an independent business it would’ve gone bankrupt long ago if not for the monopoly they’ve enjoyed. If the USPS had to compete on letter delivery as they do on package delivery they would’ve been a footnote in history shortly after they achieved semi-independence in 1971. It’s time totally private entities be given the opportunity to compete on letter delivery or USPS should become a totally private business and let the market decide its future.

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