USPS warns of default on retiree benefits

Wednesday - 5/18/2011, 7:41am EDT

WFED's Jared Serbu

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By Jared Serbu
Federal News Radio

The U.S. Postal Service will begin to default on its financial obligations just over four months from now unless Congress takes action to relieve it of its obligation to pre-fund retiree health care accounts, its leader told lawmakers Tuesday.

USPS expects to post a net loss of $8.3 billion for this fiscal year, nearly as much as it lost last year. And with its $15 billion debt limit due to be reached this year, more borrowing is not an option, Postmaster General Pat Donahoe said in testimony before a subcommittee of the Senate Homeland Security and Government Affairs committee.

"Despite our aggressive cost cutting and revenue generating efforts, we are in serious financial predicaments today," he said. "As things stand, we do not have the cash to make the $5.5 billion prepayment for future retiree health benefits due on September 30. And we may be forced to default on other payments. This could extend to operational expenses."

USPS contends the prepayment for future retirees is a financial obligation that none of its competitors, nor any government agency, has to live with. The requirement came along with a 2006 postal reform bill that was passed when mail volume was at its peak.

Officials say the payments were also based on what was then a much larger employee base. USPS has cut its workforce by 113,000 since then. Donahoe said in written testimony to the subcommittee on federal financial management that not only can USPS not afford the future retiree health bill this year, but that without Congressional action, it's inevitable that the organization will eventually default on payments to employees and suppliers as well.

After the hearing, he told reporters that was a last resort, and skipping the retiree health payment this year would provide at least some breathing room.

"The last thing we would do would be to negatively disrupt the delivery of mail, because it's tremendously disruptive to American commerce," he said. "There's trillions of dollars that go through the mail. 52 percent of Americans still pay their bills through the mail versus online."

The postal service also wants Congress to refund up to $75 billion it says it has overpaid into the Civil Service Retirement System (CSRS), and another $7 billion in overpayments into the Federal Employee Retirement System (FERS). It would use that money to finish off its retiree health benefit prepayments and pay down its accumulated debt.

But Donahoe said those were short term fixes. Longer term health for the postal service, he said, means more management flexibility, including the option to go from six-day to five-day delivery.

He said USPS is also working to cut more costs by removing excess capacity from the postal system, including the politically-sensitive subject of closing post offices themselves.

"In some small offices, we're looking at consolidation because what we're finding is that many of these offices don't even have an hour's worth of work in a day," he said. "If it's close to another office, a mile or so, we can consolidate. In other cases, many towns have three businesses: a general store, a gas station and a post office. What we're looking for is to talk to the general store or the gas station to take a contract to provide postal services. There are many options, and we want to hear from people, but we have to move on these things."

Sen. Tom Carper (D-Del.), the chairman of the subcommittee, has introduced legislation that would give the postal service what says it needs. It would allow USPS access to the excess FERS and CSRS funds it has paid so it can pay off its retiree health benefits once and for all.

Carper said it would also let USPS management run the organization with less Congressional interference.

"No business, facing the kind of challenges the postal service faces today, would survive very long if they were told how many retail outlets they should have or where they should be located, or if they were prevented from making operational changes or taking advantage of the resources they have at their disposal," Carper said. "Yet that's what Congress does to the postal service."

Carper believes USPS needs to think of new ways to generate revenue, and his legislation would let it sell or provide non-postal products and services, as long as they're in the public interest.

His legislation also would let USPS ship alcoholic beverages for the first time.