USPS financial rescue may not stop 'death spiral'

Thursday - 3/3/2011, 7:00am EST

WFED's Jason Miller on the Federal Drive

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By Jason Miller
Executive Editor
Federal News Radio

Some members of Congress are poised to give the Postal Service some relief to its crushing financial requirements. But it's far from a done deal.

Sen. Susan Collins (R-Maine) introduced the U.S. Postal Service Improvements Act of 2011 (S. 353) Feb. 15. The ranking member of the Homeland Security and Governmental Affairs Committee introduced a similar bill last session of Congress. The latest version of her legislation calls on the Office of Personnel Management to redetermine the postal surplus or supplemental liability as of the close of fiscal 2010, and for each year thereafter through 2043. That surplus would remain in the Civil Service Retirement and Disability Fund until distribution is necessary as long as USPS meets certain criteria.

Rep. Stephen Lynch (D-Mass.), ranking member of the Oversight and Government Reform Subcommittee on Federal Workforce, U.S. Postal Service and Labor Policy, will follow Collins' lead and introduce a version of the bill as early as this week.

"We collectively, and by collectively I'm referring postal management, workers, mailers and the administration as well as this Congress, must come to the realization that some difficult decisions made rather quickly in order to address the Postal Services current financial situation," said Lynch during a subcommittee hearing Wednesday. "However before we tackle issues such as changing delivery frequency, cutting services and laying off hard working Americans, there are certainly some more palatable actions we should consider first."

Lynch said Congress should revisit the Postal Service's obligations to pay for future retiree healthcare and workers' compensation funds. He said this prevents USPS from dealing with shifts in demand and changes to the size of its workforce that it has experienced in recent years.

"Simply requiring the Postal Service to tackle the obligations in such an aggressive pace is unheard of in the private sector and continues to be a driving factor behind the Postal Service's dismal fiscal performance," he said.

Collins said USPS must take several steps to fix its situation.

"The financial state of the Postal Service is abysmal," she said in an e-mailed comment to Federal News Radio. "The numbers are grim: the Postal Service recently announced that it lost $8.5 billion in fiscal year 2010. The Postal Service must reinvent itself. It must increase revenues by increasing its value to its customers and by becoming more cost effective. Unfortunately, many of the solutions the Postal Service has proposed would only aggravate its problems. Filing for enormous rate increases, pursuing significant service reductions - including elimination of Saturday mail delivery - and seeking relief from funding its liabilities are not viable long-term solutions to the challenges confronting the Postal Service. These changes will drive more customers to less expensive, digital alternatives. That downturn in customers will further erode mail volume and accelerate a death spiral for the Postal Service."

Sen. Tom Carper (D-Del.), who co-sponsored the postal reform bill last session with Collins, may hold a hearing this spring on the new bill.

Pat Donahoe, Postmaster General, told lawmakers the agency continues to lose money because of the requirements to fund retirement health care benefits and worker's compensation liability obligations as well as provide money for employee pensions.

USPS will have to make two payments of $5.5 billion and $1.2 billion, respectively, this year to fund the retirement health care benefits and worker's compensation liability funds. He said those payments will push USPS over its legislative limit of $15 billion in borrowed money.

He said USPS will not have the cash available to make these payments and needs legislation this year to solve their problem.

"The liquidity crisis is caused by a combination of factors," Donahoe said. "With the enactment of the Postal Accountability and Enhancement Act of 2006, the Postal Service was required, beginning in 2007, to prefund retiree health benefits for future retirees. The incredible burden of this annual prepayment of $5.5 billion, due at the end of each fiscal year, is one no other entity, public or private, must bear. In addition to the prefunding, the Postal Service also pays $2.2 billion for annual health benefit premiums for current retirees."

Additionally, the USPS Inspector General found the agency overfunded the CSRS by $75 billion and FERS by $7 billion adding to their money problems.

These obligations and overfunding along with the downturn in use of first class mail and the economy has pushed the Postal Service to the edge of insolvency.

If USPS doesn't get fiscal relief, Donahoe said the mail will be delivered, employees and vendors will be paid, but the legislatively mandated funds will not be taken care of.