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
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
"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
"We think it's an excellent idea," Donahoe said."What
the Postal Service brings is convenience in that whole industry. We've
seen other posts—Australia Post for an example has done
that—and that's one of their biggest growth products."
He said carriers would not deliver alcohol directly to a home, but
would require an adult to pick the package up at a post office.
Several lawmakers expressed concerns about the five-day delivery idea,
particularly members representing Hawaii and Alaska, where delivery times
are longer, and residents, particularly in remote areas, are heavily
reliant on mail.
And Sen. Claire McCaskill (D-Mo.) said USPS might be surrendering its
biggest competitive advantage.
"If you were looking at this through the very cold lens of just a
pure business model, you're giving away the major advantage you have when
you give away that sixth day," she said. "What keeps us from
going to four? If we go to five, aren't we really talking about the
beginning of a death spiral here?"
Donahoe doesn't believe so.
He said Saturdays are easily the postal service's lowest volume day,
because commercial advertising customers don't want their mailings to
arrive on Saturday, when people are busy doing other things. Nonetheless,
he said he was not particularly excited about eliminating Saturday
"We do not want to go to five day delivery," he said.
"Financially, we're in a situation where we've got to take that as an
option. It is tied directly to the loss of first class mail volume.
America's changing. People are paying bills online. Every time a bill's
paid online, that's 18 cents (of profit) we can't use to cover six-day
delivery and a number of these small post offices."
On the subject of small post office closures, lawmakers heard some
pushback from labor organizations. Mark Strong, president of the National
League of Postmasters, said USPS spends less than one percent of its
overall budget on the smallest one-third of its post offices. He said the
organization should find new ways to use its physical locations, rather
than shutting them down and contracting out their services.
"Post offices are where the American flag flies in every community
in this country," Strong said. "To take those flags down and
replace them with grocery stores or gas stations should be the last
alternative. We should be putting more government services into those
In addition to Carper's bill, Sen. Susan Collins (R-Maine) has
introduced a separate postal reform proposal that would order the Office
of Personnel Management to recalculate USPS's contributions to federal
pension accounts to prevent future overpayments.
Donahoe said USPS supported that bill, but without the extra management
flexibility the Postal Service is asking for, he said leaders will be
back before Congress next year, facing another looming payment default.
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