GAO: Congress must act fast to stave off USPS bankruptcy

Monday - 9/12/2011, 2:08pm EDT

Phil Herr, Director of Physical Infrastructure Issues, GAO

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By Jolie Lee
Federal News Radio

If the Postal Service were a business, it would be facing the equivalent of Chapter 11 bankruptcy. USPS lost $20 billion in the last five years, and it is on track to lose more than $6 billion this year.

In testimony before the Senate Committee on Homeland Security and Governmental Affairs, the Government Accountability Office said the "stark reality is that USPS's business model is broken."

"USPS cannot continue providing services at current levels without dramatic changes in its cost structure," wrote Phil Herr, director of Physical Infrastructure Issues at GAO, in the testimony.

In an interview with In Depth, Herr said GAO prepared a report in April 2010 on the Postal Service's challenges, including declining mail and revenue and pre-funding the retirement fund.

"All those issues have continued to be problematic in the last year and a half," Herr said.

Faced with a dire financial reality, USPS announced in August a plan to cut 220,000 jobs, including 100,000 through attrition, by 2015. USPS is also considering moving employees out of the FERS health benefit system and creating its own plan.

Highlights from the testimony:

  • Restructure retirement fund payments

    USPS has claimed it has a FERS account surplus of $6.9 billion. In June, the Postal Service said it would suspend advance payments in order to have cash on hand to pay employees and bills. But the Labor Department has warned it won't be able to pay out workers' compensation to federal employees if USPS doesn't make a $1.2 billion payment by October.

    In the testimony, GAO recommended USPS continue pre-funding its retirement fund, but added that Congress should consider modifying the way USPS makes its payments, shifting to smaller payments for the short-term followed by larger amounts later.

    Another option is a pay-as-you-go payment method, which GAO said would decrease USPS' total payments by $44 billion through fiscal year 2020 but would also result in a $66 billion increase in its unfunded obligation in fiscal year 2020.

  • Eliminate layoff protections

    USPS seeks to eliminate this clause in union contracts so it can speed up workforce reductions. GAO has suggested Congress consider revising the collective bargaining laws to "ensure that binding arbitration takes USPS's financial condition into account," according to the testimony.

  • Close or convert 3,700 retail facilities

    The challenge with this initiative is the timing, GAO said. Closures would "likely face public resistance and would be subject to the appeals process." The watchdog agency questioned if Congress would need to change regulations to speech up the review of appeals.

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