September 28, 2012

US Postal Service to default on second $5B payment

The Associated Press

WASHINGTON — The U.S. Postal Service, on the brink of default on a second multibillion-dollar payment it can't afford to pay, is sounding a new cautionary note that having squeezed out all the cost savings within its power, the mail agency's viability now lies almost entirely with Congress.

click image to enlarge

FILE - In this Sept. 6, 2011 file photo, Postmaster General Patrick Donahoe testifies on Capitol Hill in Washington. The nearly bankrupt U.S. Postal Service, on the brink of default on a second multibillion-dollar payment it cannot afford to pay, is sounding a new cautionary note: having squeezed out as much cost savings within its power, the mail agency's viability now lies almost entirely with Congress. In an interview, Donahoe said the mail agency will be forced to miss the $5.6 billion payment due Sunday to the Treasury, its second default in as many months. Congress has left Washington until after the November elections, without approving a postal fix. (AP Photo/J. Scott Applewhite, File)

AP

In an interview, Postmaster General Patrick Donahoe said the mail agency will be forced to miss the $5.6 billion payment due to the Treasury on Sunday, its second default in as many months. Congress has left Washington until after the November elections, without approving a postal fix.

For more than a year, the Postal Service has been seeking legislation that would allow it to eliminate Saturday mail delivery and reduce its $5 billion annual payment for future retiree health benefits. Since the House failed to act, the post office says it's been seeking to reassure anxious customers that service will not be disrupted, even with cash levels running perilously low.

"Absolutely, we would be profitable right now," Donahoe told The Associated Press, when asked whether congressional delays were to blame for much of the postal losses, expected to reach a record $15 billion this year.

He said the two missed payments totaling $11.1 billion for future retiree health benefits — payments ordered by Congress in 2006 that no other government agency or business is required to make — along with similar expenses make up the bulk of the annual loss. The remainder is nearly $3 billion in losses, he said, which would have been offset by savings if the service had been allowed to move to five-day mail delivery.

Donahoe said the post office will hit a low point in cash next month but avert immediate bankruptcy due to a series of retirement incentives, employee reductions and boosts in productivity among remaining staff that saved nearly $2 billion over the past year.

But the post office has few tools left to build its revenue, he said, without either having to pay upfront money it lacks or get approval from postal unions or Congress.

"We've done a lot to reduce cost out of our system," Donahoe said. "The problem now is this: There's nowhere to go."

Postal unions also say Congress is mostly to blame for losses, but disagree that a reduction to five-day delivery is an answer.

"What is needed is for Congress to undo the harm it has done with the prefunding mandate and for the Postal Service to develop a balanced plan moving forward," said Fredric Rolando, president of the National Association of Letter Carriers. He said cutting Saturday delivery would in particular hurt rural residents and the elderly who depend more heavily on the mail for prescription drugs and other goods.

The Postal Service last month failed to pay $5.5 billion, its first default ever on a payment. While it will miss a second payment Sunday, it expects to make a $1.4 billion payment due to the Labor Department on Oct. 15 for workers' compensation. Cash levels are expected to hit a low after that labor payment before rising again due to increased volume from holiday and election mail, including ballots for early voting.

The mail agency said the two payment defaults will not affect day-to-day operations. Post offices will stay open, and suppliers and employees will get paid. Longer term, however, Donahoe has cautioned that a "crisis of confidence" over postal solvency could damage growth.

(Continued on page 2)

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