Postal Service threatens again to not pay retiree benefits

May 17, 2011

The U.S. Postal Service is once again threatening to not pay roughly $5.4 billion in retiree health benefits this fall because it says it cannot afford to do so.

“This year I don’t have the cash, and I can’t make the payment,” Postmaster General Patrick R. Donahoe said in an interview Tuesday. “And if I did make the payment, I wouldn’t have cash to [pay] anything else.”

By law, the USPS must pay about $5.4 billion annually to prefund future retiree benefits. But Donahoe warned members of a Senate subcommittee on postal affairs Tuesday that he won’t be able to pay unless Congress acts before Sept. 30 to change the law.

“We must pay our employees and our suppliers,” Donahoe told the subcommittee. “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.”

Donahoe’s predecessor, John E. Potter, also threatened last year 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 real, Donahoe said. He’s anticipating losses of at least $8.3 billion when the fiscal year ends in September. A 7 percent year-to-year drop in first-class mail volume is mostly the cause of the shortfall, he said.

The USPS is close to exhausting a $15 billion line of credit with the U.S. Treasury, with $2.5 billion still available, Donahoe said. Even if first-class mail volume improved in the third and fourth quarters, the new revenue would be needed to keep the USPS operating into the next fiscal year, he said.

Postal officials familiar with the issue said that the USPS consulted with the Justice Department, Office of Management and Budget, and Government Accountability Office. The 2006 law mandating the retiree payments says nothing about potential penalties if the payments aren’t made, the officials said.

Donahoe pushed senators to quickly pass a bill reintroduced Tuesday by Sen. Thomas R. Carper (D-Del.) that would permit the USPS to use billions of dollars it has overpaid to federal worker pension funds to make the $5.4 billion payment.

The Postal Regulatory Commission and the Postal Service inspector general estimated that the USPS has overfunded the Civil Service Retirement System by $50 billion to $75 billion since the 1970s.

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, endorsed Carper’s plan.

“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 slightly different legislation, urging Donahoe to make deeper cuts in personnel and operations costs.

But Sen. Scott Brown (Mass.), the panel’s ranking Republican, said he and his colleagues generally agreed with Carper’s proposals.

“It’s just a question of giving them the flexibility to work in a responsible matter to solve their own problems, because it’s clear the path they’re going down is not sustainable,” Brown said.

Senators also reviewed details of a new GAO report that said the USPS needs new trucks to deliver the mail but cannot afford the almost $6 billion needed to do so.

The report credits the USPS for repairing instead of replacing vehicles but said Congress and postal officials need to work on a long-term plan to replace a fleet that is nearing a quarter century in age.

Ed O’Keefe is a congressional reporter with The Washington Post and covered the 2008 and 2012 presidential and congressional elections.
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