Postal Service's 'broken business model' under fire but solutions scarce

Wednesday - 4/17/2013, 7:50pm EDT

One week ago, the U.S. Postal Service backed off of plans to end first-class mail delivery on Saturdays, a plan the agency argued would have saved $2 billion a year.

But the savings from ending Saturday delivery would have been just a drop in the bucket of a much more serious issue facing the Postal Service.

"The Postal Service is currently operating with a broken business model," Postmaster General Pat Donahoe told the House Oversight and Government Reform Committee Wednesday during a hearing that focused on "options to bring the Postal Service back from insolvency."

Over the last six years, the agency has lost some $41 billion and is down to just nine days of cash on hand, Donahoe said.

That imbalance between costs and revenues "will only get worse in the coming decade unless laws that govern the Postal Service are changed," Donahoe testified.

Ending Saturday delivery faces roadblocks

Much discussed and debated at the hearing was the decision by the USPS Board of Governors to back off on a plan to end Saturday delivery.

In February, when the government was operating under an earlier funding bill, Donahoe announced plans to end First Class mail delivery on Saturdays. However, the board backtracked on that decision last week saying it had no choice because of a 2013 appropriations bill passed by Congress last month that continued a de facto ban on five-day mail delivery

However, the Government Accountability Office later disputed the Postal Service's legal claims that it had the authority to adjust its delivery schedule.

"There are differing opinions about the limits of the law passed by Congress," said Mickey Barnett, chairman of the USPS Board of Governors. He agreed, however, that the CR as it stands now blocks the move to five-day delivery. "We need to remove that particular roadblock and many others," he said.

Debate over 'fiscally responsible' prefunding requirement

Another of those legislative hurdles is the requirement that USPS prefund future retirees' health benefits. The 2006 Postal Accountability and Enhancement Act required USPS to make multiple $5 billion payments each year over the following decade. Since then, USPS has shelled out about $48 billion.

However, last year, USPS defaulted on both payments, totaling more than $11 billion, and may do so again when the next payment comes due in September.

GAO, which has recommended a comprehensive postal reform package, suggested Congress change the way the payments are calculated — from a fixed set of payments to actuarial-based ones.

"It needs to modify the prepayment of post-retirement health care costs in a fiscally responsible manner," Comptroller General Gene Dodaro said of a postal reform bill. "It is very important that this be dealt with in that way so that costs are not deferred down the line particularly in light of the declining mail volume that portends revenue challenges going forward."

One of the Postal Service's largest employee unions, though, believes the prefunding requirement should be set aside entirely until the agency can dig itself out of its fiscal hole and return to a surplus.

"It's is not fiscally responsible to exhaust your borrowing authority, to drain your savings and to use all your resources to take all your resources from one of your pots and put it in another pot," said Frederic Rolando, national president of the National Association of Letter Carriers. "It's not fiscally responsible."

For his part, Donahoe said the debate over prefunding could be avoided entirely if Congress were to allow USPS to establish its own health care plan.

"Rather than worrying about how much to prefund, we need to step back ... and take over our own health care plan," he told lawmakers.

Donahoe said the new USPS health plan could still be contained within the larger Federal Employees Health Benefits Program (FEHBP), but would allow the agency to offer more competitive options and would leverage the "full effects of Medicare," which USPS workers pay into, Donahoe said.

"If we did that, we are on record in our testimony, showing that we break even and there is no further need to prefund," he said. "We would provide top-quality healthcare for all the postal employees employed right now and into the future."

In hearings last year, House lawmakers were skeptical of the Postal Service's plans to set up its own program.

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