By: Ron Nixon
Confronting $11.1 billion in payments over the next two months for future benefits, the service said it would fail to pay about half that amount, which is due Wednesday, and does not foresee making the other half, which is due in September. An additional $5.6 billion payment due next year is also in question.
The service is struggling for ways to cut costs, but it cannot eliminate Saturday delivery, as it wants to, without Congressional approval, nor can it slow delivery of the mail without regulatory approval.
The Postal Service had hoped that Congress would help stanch the losses, as it did last year when it deferred the payment that is due again on Wednesday. But the House has taken no action. The Senate passed a measure that provided incentives to retire about 100,000 postal workers, or 18 percent of its employees, and allowed the post office to recoup more than $11 billion it overpaid into an employee pension fund. The Senate declined to act to stop Saturday deliveries.
For now, the agency said its operations would not be affected by the defaults. Mail and packages will continue to be delivered, and employees and vendors will be paid.
The post office wants to reduce operating hours or close more than 13,000 post offices. It has also announced plans to close half of its processing centers. It wants Congress to give it more flexibility in setting prices. And it also wants to lower service standards to largely eliminate next-day delivery for first-class mail.
But even if the post office were to get these changes from Congress, including eliminating Saturday delivery and the multibillion-dollar payments on future retiree programs, the agency would still be losing money, it said. Since 2007, it has lost $25 billion — $20 billion of which is attributable to the payments for future benefits, required by law since 2006.
“We are continuing to monitor our liquidly situation as we go into the new fiscal year and looking at all of our options,” said David Partenheimer, a spokesman for the Postal Service.
The Postal Service inspector general, David C. Williams, reviewed the post office’s financial statements and confirmed its projected cash shortages last week in a memorandum to the postmaster general, Patrick A. Donahoe. It noted that if the service does not receive an anticipated $300 million windfall from political mailings before the elections on Nov. 6, the cash crisis could grow.
“The impact of this default may not be seen by the public, but it will be felt by the business community,” said Arthur B. Sackler, co-coordinator of the Coalition for a 21st Century Postal Service, a trade group representing larger mailers like FedEx.
“This default couldn’t come at a worse time, as many major and midsized mailers are preparing their budgets for next year,” he said. “With Congress delaying action on a postal bill, mailers will be increasingly wary about the stability of the Postal Service and will likely divert more mail out of the system. It would be the perfect storm of negatives for the Postal Service.”
The cash shortfall reflects a six-year decline in mail volume, because of businesses and individuals moving, at a faster pace than the Postal Service expected, to online bill paying, e-mail and other forms of electronic communications. The agency lost $5.1 billion in the 2011 fiscal year, which ended on Sept. 30. So far this year, the agency has lost more than $25 million a day and expects to lose $14.1 billion total.
Mail volume has declined more than 20 percent, to 168 billion pieces last year, the most recent year for which figures are available, from a record high of 213 billion pieces in 2006. First-class mail, which provides the bulk of the Postal Service revenue, declined 28 percent, to 73 billion pieces of mail, from a record of 102 billion in 2002.
The inspector general said that one option could be suspending payments to one pension fund for current employees. The agency has already overpaid into the fund by more than $11 billion, and suspending payments would have no effect on current employees.
Another option would be delaying a $1.5 billion payment to the Labor Department for workers’ compensation payments due in October. By delaying the payment or paying in three installments, the agency could hold on to cash, but that could also constrain Labor Department operations, the postal inspector general said.
Missing those payments would be on top of the looming default on Wednesday on payments for future retirees, a financing requirement imposed by Congress in 2006 and now opposed by the post office and its unions as overly stringent.
Thomas M. Davis, a former Republican congressman from Virginia who proposed the law, said the payment requirement was initiated by the administration of President George W. Bush.
“They saw that mail volume would decline in the future and didn’t want the taxpayers to be on the hook for billions for the Postal Service employees’ health care fund,” Mr. Davis said. “The agency is facing many problems with its business model, but the law has contributed to their financial situation because of the recession and mail volume has declined faster than projected.”
Last year, Congress allowed the agency to defer its payment until Aug. 1 because of declining revenue, and lawmakers worked to pass a bill that would overhaul the agency.
In the House, leaders have said they would not act on the bill before Congress left for the August recess at the end of this week.
Senators have criticized the House and have called for House leaders to schedule a vote on a postal overhaul before the agency defaults on its payments.
“If House leaders will stop punting on postal reform and start voting, we can preserve the Postal Service for future generations,” said Senator Thomas R. Carper, a Delaware Democrat and co-sponsor of the Senate bill.
Postal unions said Congress created the problem the Postal Service finds itself in when it passed the 2006 law that required to agency to pay $5 billion a year into a future retiree health fund. The fund, they said, currently has $45 billion, enough to pay for decades of retiree health care.
“Congress has failed to deal with the unfair and unaffordable financial burden of prefunding, which is the one thing that could provide the Postal Service some much-needed breathing room to address its long-term challenges in a strategic way,” said Fredric Rolando, president of the National Association of Letter Carriers union. “In short, Wednesday’s default won’t be committed by the Postal Service, but by Congress.”