Postal Service to default on retiree health payment, again

Joe Davidson
Columnist September 26, 2012

If it’s September, it must be time for the next installment in the wail of woe from the U.S. Postal Service.

Given the regularity with which USPS bemoans its desperate financial condition, Postmaster General Patrick R. Donahoe runs the risk of being considered the boy who cried wolf.

Joe Davidson writes the Federal Diary, a column about the federal workplace that celebrated its 80th birthday in November 2012. View Archive

That would be a mistake.

Because we continue to get mail delivered daily, it’s easy to discount the Postal Service’s continuing pleas for relief.

But the wails and the woe are real.

So is the wolf.

In this case, the wolf is a financial crisis that has been real for years. Now it prevents the Postal Service from making a $5.6 billion payment to pre-fund retiree health benefits due Sunday. It was the same story last month when the agency defaulted on the Aug. 1 payment.

“In reality, this is a default on the part of Congress, which in 2006 mandated that the Postal Service do something that no other agency or company in the country is required to do — pre-fund future retiree health benefits,” said National Association of Letter Carriers President Fredric Rolando. “It is that unique burden that the Postal Service is ‘defaulting’ on — and what’s ironic is that the USPS already has $45 billion set aside for future retiree health benefits, enough to cover all such expenses for several decades, which no other institution can say.”

The default doesn’t affect retiree health benefits, which are fully funded, or postal services for the public. But the inability to make a required payment does demonstrate just how menacing the postal problem is.

“We are looking at a situation here with the default, a situation that causes a crisis of confidence in the Postal Service with our customers,” Donahoe said in an interview Wednesday. “We are looking forward and expect Congress to act on our reform bill in the lame duck session to resolve these issues.”

For years, the Postal Service has been looking for action from a Congress that in some ways has been pretty lame in response. The Senate did pass, with bipartisan support, legislation in April that received cool reviews from postal officials. The House still has to act.

“Once again, we are watching the days slip away before the U.S. Postal Service faces the second default of its history — only weeks after its first,” said Sen. Thomas R. Carper (D-Del.), a sponsor of the Senate bill. “Republican leaders in the House of Representatives have now had 11 months to do the right thing and fix the serious, but solvable, financial challenges plaguing the U.S. Postal Service. . . . Every day Congress delays fixing this problem, the financial challenge grows more difficult and the potential solutions become more expensive — at a rate of $25 million a day.”

That’s the staggering amount the Postal Service says it loses each day. Mail volume has been dropping and along with it operating revenue, which comes from postal products and services, not tax dollars. Consider these USPS figures: The $5.2 billion loss for the third quarter (April through June) of this fiscal year was over $2 billion more than the loss for the same period a year earlier. Mail volume dropped by 1.4 billion pieces, a 3.6 percent fall. From the start of the current fiscal year through the third quarter, the USPS net loss was $11.6 billion, more than twice the $5.7 billion loss during the same months last year.

This has got to stop.

Yet as bleak as the numbers are, “we are not a financial basket case,” Donahoe said.

At one point, the Postal Service would have made money if not for the prefunding costs, which remain a big, but certainly not the only, drag on agency finances.

Donahoe wants legislation that would do five things, some controversial: change the expensive retiree health benefits prefunding requirement, refund to the USPS $11 billion in pension plan overpayments, allow five-day delivery, permit the USPS greater freedom in its product mix and redesign the workers compensation program. He doesn’t need congressional approval to withdraw the USPS from the Federal Employees Health Benefits Program (FEHBP), so the USPS can set up its own employee health insurance plan. But the postal unions would have to approve the move, and that’s not likely.

Rep. Darrell Issa (R-Calif.), chairman of the House Oversight and Government Reform Committee, “plans to advance comprehensive postal reform legislation this Congress,” said his spokesman, Ali Ahmad. Issa’s bill, however, also leaves postal officials wanting.

The American Postal Workers Union agrees with Donahoe on the prefunding and product mix points, but rejects his plan to pull out of the FEHPB. On five-day delivery, spokeswoman Sally Davidow says, “Slashing service is not the answer to the Postal Service’s current difficulties.” Representatives of nonprofit and commercial mailer associations also don’t like five-day delivery, instead of the current six, but said their members could adjust to it.

If the USPS could jettison the prefunding and six-day delivery requirements and get permission to sell a broader variety of products (office supplies, for example), “that’s worth about $10 billion in swing on your profit and loss statement,” Donahoe said.

“That makes us profitable.”

The Postal Service, profitable? What a thought.

Twitter: @JoeDavidsonWP

Previous columns by Joe Davidson are available at wapo.st/JoeDavidson.

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