The U.S. Postal Service is once again threatening to not pay roughly $5.4 billion in retiree health benefits this fall because it cannot afford to do so.
But Postmaster General Patrick R. Donahoe said he would reverse his decision if Congress acts before Sept. 30 to change a 2006 law requiring the post office to pay for future retiree benefits each year.
Donahoe’s predecessor, John E. Potter, last year also threatened not to pay future retiree benefits, arguing that the Postal Service couldn’t afford to do so.
But the likelihood of defaulting on the payments this year is very real, according to USPS officials familiar with the issue.
The Postal Service is anticipating $8.3 billion in losses at the end of the fiscal year in September as first-class mail volume continues to plummet, Donahoe said. At that time, USPS would owe the $5.4 billion in retiree benefits and $1.2 billion to reimburse the Labor Department for workers’ compensation costs.
“The Postal Service is committed to satisfying our core mission — delivering America’s mail,” Donahoe said in prepared written testimony for a hearing held by a Senate subcommittee with oversight of the Postal Service. “That is an imperative. To do this, we must pay our employees and our suppliers. But it must be understood that, absent legislative action, the Postal Service is certain to default on these substantial payments. This is clearly not the outcome we would choose, but without congressional involvement, the result is unavoidable.”
USPS is on the verge of exhausting a $15 billion line of credit with the U.S. Treasury, with only $2.5 billion left to use, Donahoe said. The remaining funds would cover only payroll obligations and supplier payments at the end of the fiscal year, according to aides who were not authorized to speak publicly.
A roughly 2 percent drop in first-class mail volume last quarter also means USPS will be broke at the end of the fiscal year unless volume increases substantially in the next four months, the aides said.
Further, the 2006 law mandating the retiree payments says nothing about potential penalties or jail time for postal officials if the payments aren’t made, according to legal opinions obtained by USPS, the aides said.
Donahoe urged senators to quickly pass a bill reintroduced Tuesday by Sen. Thomas R. Carper (D-Del.) that would permit USPS to use billions of dollars it has overpaid to the federal worker pension funds in the last 30 years to make the $5.4 billion payments.
Carper’s bill also would allow the Postal Service to cancel Saturday mail delivery and save about $3 billion annually in operating costs, Donahoe said.
In a statement, Carper said his bill should be passed because “We are rapidly reaching the point. . .at which the Postal Service no longer has the authority under current law to do what it needs to do to get by.”
Cliff Guffey, president of the American Postal Workers Union, also endorsed Carper’s bill, saying Carper’s proposal shouldn’t be considered a taxpayer-funded bailout.
“The Postal Service is very capable of dealing with the challenges it is facing because of declining mail volumes and a shift to electronic transmissions,” Guffey said in his written testimony. “What it cannot sustain is the burden of the unique and unreasonable requirement to prefund its retiree health benefits.”
Republican lawmakers are pushing a slightly different version of Carper’s legislation, and have urged the Postal Service to make deeper cuts in personnel and operations costs.
Senators skeptical of Carper’s proposal to end Saturday delivery pressed Donahoe to justify the move, with several lawmakers expressing concerns about the potential negative impact on rural communities.
“We don’t want to do this,” Donahoe said, but acknowledged the move is necessary to cut costs. He cited polling data suggesting a majority of Americans favor cutting Saturday service in order to maintain universal mail service during the rest of the week.
The panel also reviewed details of a new Government Accountability Office report that said USPS needs new trucks to deliver the mail, but cannot afford the almost-$6 billion required to do so.
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