Carper: 'While the situation is dire, it is not hopeless.'
Sep 09 2011
WASHINGTON – Today, Sen. Tom Carper (D-Del.), Chairman of the Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security, which oversees the U.S. Postal Service, sent a letter to President Obama urging the Administration to take immediate and dramatic action to avert a Postal Service shutdown.
As a result of the troubled economy and rapid changes in the way Americans communicate, the Postal Service's mail volume and revenues have dramatically declined over the past several years, leaving the Postal Service on the brink of collapse. Postmaster General Patrick Donahoe projected a year-end loss for the Postal Service of $10 billion – nearly $2 billion more than he projected in May 2011. If nothing is done, the Postal Service will not be able to make a required $5.5 billion retiree healthcare pre-payment to the U.S. Treasury due on Sept. 30. Even under the best circumstances, the Postal Service will struggle to find enough cash to maintain its operations through the fall. If nothing is done, the Postal Service will be insolvent by August 2012, if not sooner. In his letter, Sen. Carper warns of the urgency of the situation and underscores the need for the Postal Service to reform, right size, and modernize.
"The serious nature of these developments calls out for immediate and dramatic action. While the situation is dire, it is not hopeless," wrote Sen. Carper. "Like the troubled American automobile manufacturers did as they faced a crisis that threatened their survival, the Postal Service needs to right size to reflect the changing demand for the products and services it offers.... Maintaining the status quo, as I am certain you are aware, is not an option."
He also warns of the repercussions a postal shutdown would have on our fragile economy, noting that the Postal Service operates at the center of an industry that employs millions of people and generates more than $1 trillion in sales and revenue each year. Over the past year and a half, Sen. Carper has held hearings on the ongoing postal crisis and introduced legislation to address the problem. While Sen. Carper welcomed the news that the Administration is working on a proposal to address the postal crisis and the Postal Service's short-and long-term financial needs, he urged the Administration to consider reforms outlined in his bill, the Postal Operations Sustainment and Transformation (POST) Act (S. 1010), introduced in May.
The text of Sen. Carper's letter follows:
September 8, 2011
The Honorable Barack Obama
President of the United States
The White House
1600 Pennsylvania Avenue, NW
Washington, DC 20500
Dear Mr. President:
As you may know, Office of Personnel Management (OPM) Director John Berry testified earlier this week at the Senate Homeland Security and Government Affairs Committee's hearing on the financial crisis currently facing the U.S. Postal Service. At this hearing, Director Berry stated that the Administration is currently working on a proposal to address that crisis, one that I have been sounding the alarm on for over a year now. I welcome the news that your Administration will soon be putting forward a proposal to address the Postal Service's significant short- and long-term financial challenges. I am writing today to recommend several major reforms of the Postal Service for your consideration as your Administration prepares its proposal, which I understand will be submitted in the coming days to the Joint Select Committee on Deficit Reduction as part of a larger deficit reduction package.
The Postal Service has been in a financially tenuous position for nearly a decade now. Today, it stands on the brink of failure. Postmaster General Patrick R. Donahoe testified this week that the Postal Service is projecting a record $10 billion loss for the current fiscal year, nearly $2 billion more than what was projected in May when Mr. Donahoe last testified in the Senate before my subcommittee on Federal Financial Management. Due to this rapidly deteriorating situation and the continuing migration away from First-Class mail, the Postal Service will be forced to default on the $5.6 billion retiree health pre-funding payment it owes the Treasury on September 30th. Come October, the Postal Service will be left with just enough cash to fund its daily operations. Under even the rosiest projections, it will have difficulty making payroll in October and may even be hard-pressed to make good on the $1.2 billion it owes the Department of Labor that month for compensation for postal employees. If nothing is done, the Postal Service will have exhausted all of its cash and borrowing authority by August of next year, if not sooner, forcing it to shut its doors.
If the Postal Service were to fail, the impact on our economy would be dramatic. As Mr. Donahoe and other have pointed out time and time again, the Postal Service operates at the center of an industry that employs millions of people. These men and women don't just work at the Postal Service. They work at businesses large and small in every state in the country and generate more than $1 trillion in sales and revenue each year. At such a difficult time for our country, we cannot afford to put those jobs and that kind of productivity in jeopardy.
The serious nature of these developments calls out for immediate and dramatic action. While the situation is dire, it is not hopeless. Like the troubled American automobile manufacturers did as they faced a crisis that threatened their survival, the Postal Service needs to right size to reflect the changing demand for the products and services it offers. It needs to shed employees. It needs to reduce its network of processing facilities. It needs to close, consolidate, or re-locate post offices too. It may even need to adjust delivery frequency. Maintaining the status quo, as I am certain you are aware, is not an option.
As your Administration develops its proposal, I would urge you to consider a number of ideas discussed below that have been proposed in recent months, including in the Postal Operations Sustainment and Transformation Act, the comprehensive Postal Service financial restructuring legislation I introduced this past spring.
- Pension Overpayments – The Postal Service's Office of Inspector General, the Postal Regulatory Commission, and two nationally-recognized independent actuarial firms – the Hay Group and Segal Company – have all found that the Postal Service has paid more than it owes into the Civil Service Retirement System. Estimates on the overpayment range from $50 billion to as much as $75 billion. In addition, both the Postal Service and OPM agree that the Postal Service has also overfunded its Federal Employees Retirement System obligations by nearly $7 billion. My bill would give the Postal Service access over time to the funds it has apparently overpaid into the federal pension systems in order to make the pre-payments for retiree healthcare it is scheduled to make through FY2016. Beginning in FY2017, any overpayments not refunded could be used to pre-fund the Postal Service's workers' compensation obligations or to pay down its debt to the Treasury. Since my bill was introduced, it has also been suggested that at least a portion of the Postal Service's pension overpayments be made available to fund an effort to encourage as many as 120,000 postal employees at or near retirement age to retire. Such an effort, if successful, could save as much as $8 billion annually.
- Retiree Health Payments – As I discussed above, the Postal Service must make a payment each September 30th to pre-fund its future retiree health obligations. These payments, set into statute in 2006 through the enactment of the Postal Accountability and Enhancement Act (P.L. 109-435), range from $5.5 billion to $5.8 billion. Unfortunately, the size of the payments is not related to what the Postal Service actually owes its retirees. Nor is it based on an analysis of how much it would be reasonable or necessary for the Postal Service to pay in advance. Rather, the payments were set for each year at the amount necessary for the Postal Service to pay to cover the annual projected score of the 2006 Act. In 2006, the Postal Service was operating at peak mail volume and could afford to make these aggressive pre-funding payments. Today, the obligation is bankrupting them. Mr. Donahoe testified this week that, over the past four years, the Postal Service's annual losses have totaled about $20 billion while its retiree healthcare pre-funding payments have totaled about $21 billion. It would be of significant help to the Postal Service, then, if the current payment schedule could be restructured in a way that better reflects the Postal Service's future retiree healthcare obligations.
- Delivery Frequency – Recognizing that mail volume continues to decline and is not likely to return to its pre-recession peak, the Postal Service has proposed eliminating Saturday delivery. While the estimated savings associated with taking this step vary, Mr. Donahoe contends that it will save the Postal Service upwards of $3 billion per year. My bill would remove language from current law that prevents the Postal Service from responding to its dire financial situation by taking the difficult— but probably necessary— step to move to a five-day delivery schedule. The enactment of a provision like this would be especially necessary if the Postal Service is unsuccessful in working with its two letter carrier unions during the collective bargaining process in the coming months in making Saturday delivery more cost-effective.
- New Revenue Opportunities – Under current law, the Postal Service is generally prohibited from offering "non-postal" products or services despite the fact that a number of foreign posts earn a significant amount of revenue from these kinds of endeavors. My bill would authorize the Postal Service to offer any product or service that meets a public need and that leverages the Postal Service's existing processing, logistics, and delivery network. It also seeks to give the Postal Service more flexibility to work with existing customers to keep mail in the system and to coordinate with state and local government on potential new uses of postal retail outlets. While it's unclear how much revenue these provisions would raise, they would give postal management new tools they can use to slow the erosion of mail volume and continue to keep the Postal Service relevant as Americans' communication needs and habits change.
I would be happy to discuss these and other proposals with you or the appropriate members of your team at your convenience. Thank you for your consideration of these proposals.
With best personal regards, I am
Tom Carper, Chairman
Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security