U.S. Postal Service Nearing Default; Agency Pleading to Congress for Help

If Congress doesn't deal with problems facing the United States Postal Service when legislators return Tuesday from recess, America's mail institution will likely default on a $5.5 billion payment due at the end of this month and may have to shut completely down this winter.

The post office is in a bind, wrenched by fast-declining revenue and costs that can't be shed fast enough.

Our situation is extremely serious, postmaster general Patrick R. Donahoe told the New York Times. If Congress doesn't act, we will default.

The postal service's deficit will likely eclipse $9 billion this year, and the agency is trying to move fast to shore up its money-losing business, avoiding default in late September. Donohoe and the USPS want to eliminate Saturday mail delivery, close as many as 3,700 postal locations, and lay off 120,000 workers even though the agency has a no-layoffs clause in union contracts.

The moves, in addition to dealing with the $5.5 billion due to the federal government, can't occur without help from Congress, so the post office is lobbying hard hoping that lawmakers will address the issue when the return from recess Tuesday.

The postal service receives no taxpayer funds and expects to lose $8 billion or more this year, as its business declines amid more people using online bill pay and e-mail. The postal service needs to cut its payroll to 425,000 jobs -- reducing one-fifth of its workforce -- and take over its retirement and health benefits instead of participating in federal programs, Postmaster General Patrick Donahoe told Reuters last month.

But Congressional approval is needed for either step. Donahoe saaid the agency hopes to reach a deal with Congress by the end of September to give the agency more control over its finances, and the postal service is threatening to default by the end of September if Congress does not step in with help.

If Congress does address the issue -- as the USPS is asking -- it is expected to be politically sensitive, since both plans including the job cuts and benefits change would face severe opposition from postal worker unions which have contracts that ban layoffs.

In the past four years, the post office has cut 110,000 jobs, and it is in the process of eliminating 7,500 administrative jobs.

Last month, the post office's chief financial officer said the agency is cash-starved. He warned of default and publicly asked Congress to help address the dire situation.

The postal service must make a $5.5 billion annual prepayment for retiree health benefits to the federal government by Sept. 30, but the USPS has said it doesn't have the money. The postal service wants Congress to shift the burden of that annual payment from the agency's books -- and fast. The postal service is also facing a $1.3 million payment for worker's compensation due in November.

The Senate Homeland Security and Governmental Affairs Committee will hold a hearing on the agency's predicament on Tuesday.

We know that the (mail) volume will continue to drop off from a First Class standpoint, Donahoe told Reuters last month. So we've got to do the responsible thing and get ourselves in order.

It's our goal to work with both houses of Congress...to help craft a bill that would be passable and signed by the president by the end of September.

Joseph Corbett, finance chief of the postal service, also noted seriousness of the situation in a statement last week. We are experiencing a severe cash crisis and are unable to continue to maintain the aggressive prepayment schedule, he said.

Nonetheless, Donohue said the mail will still get delivered if something isn't done, until the agency can no longer operate.

We will deliver the mail, he said. The thing we will not do is pay the federal government.

He said the postal service cannot survive as a self-financing entity without changes to the laws requiring it to make such large payments to the government.

Thomas Carper, a Delaware Democrat who is chairman of the Senate subcommittee that oversees the post office told the New York Times the situation is dire and that if we don't react in a smart, appropriate way, the postal service could literally close this year.

if the postal service misses its $5.5 billion payment due Sept. 30 the agency will technically be in default, but officials say it will not cause immediate shut down or agency harm. It won't be until early next year that the agency runs out of money to pay employees and operating delivery vehicles that a shutdown might occur if nothing is done.

Still, the USPS has has wanted to get the large annual payment off its books for some time. It argues that the prepayment to the federal government for future retiree benefits isn't an obligation faced by its competitors or any government agency.

Post office official add that the payment is based upon legislation passed in 2006, when mail volume was at its peak and when it had more workers. Since 2006, it has shed 113,000 employees.

With its business in decline, as more people turn to e-mail for letters and online services for bill-paying, the post office lost $3.1 billion in the third quarter.

Total mail volume for the quarter ended June 30 fell to 39.8 million pieces, a 2.6 percent drop from the same period the previous year. In an attempt to shrink itself, the postal service last month added 3,700 more retail locations throughout the country to a possible closure list.

It now has about 32,000 post offices and branches and 583,908 career employees.

The postal service had a loss of $5.7 billion for the nine-month period ended June 30, compared with a loss of $5.4 million in the same period in 2010, it said.

The recent debt ceiling debate displayed bipartisan bickering and exposed how hard it can be for lawmakers to reach a consensus on cutting costs; hence, adding another $5.5 billion to the deficit and tackling politically sensitive jobs issues with labor unions isn't likely to happen easily.