Postal Service May Cut 120,000 Jobs; Agency Near Default

Nearing default and financially strapped, the U.S. Postal Service is considering cutting as many as 120,000 jobs, according to a report.

The post office said it expects a budget deficit of $8 billion or more this year, as its business declines amid more people using online bill pay and e-mail.

In addition to the jobs cuts, the USPS wants to pull its workers out of retirement and health benefit plans covering federal workers and instead set up its own benefit systems, potentially saving millions of dollars.

Congressional approval is needed for either step. If Congress does address the issue -- as the USPS is asking -- it is expected to be politically sensitive, since both plans 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.

Earlier this 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.

Without help from Congress, postal service offical has said it will likely default on those payments.

"The Postal Service will not have the cash available to make both of these payments," Postmaster General Patrick Donohue told a House Oversight subcommittee earlier this year. "We need legislation this year to address that fact."

Joseph Corbett, finance chief of the postal service, reiterated the seriousness of the situation in a statement on Friday. "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. "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.

The USPS 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.

Congress is in recess until September, but few lawmakers want to touch the issue of the required $5.5 billion annual payment from the postal service. The reason: If Congress takes on the $5.5 billion payment, it will show up on the government's balance sheet as more debt.

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 isn't likely to happen easily. Critics have blamed the infighting for the U.S. credit rating downgrade.