USPS financial rescue may not stop ‘death spiral’

WFED's Jason Miller on the Federal Drive

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By Jason Miller
Executive Editor
Federal News Radio

Some members of Congress are poised to give the Postal Service some relief to its crushing financial requirements. But it’s far from a done deal.

Sen. Susan Collins (R-Maine) introduced the U.S. Postal Service Improvements Act of 2011 (S. 353) Feb. 15. The ranking member of the Homeland Security and Governmental Affairs Committee introduced a similar bill last session of Congress. The latest version of her legislation calls on the Office of Personnel Management to redetermine the postal surplus or supplemental liability as of the close of fiscal 2010, and for each year thereafter through 2043. That surplus would remain in the Civil Service Retirement and Disability Fund until distribution is necessary as long as USPS meets certain criteria.

Rep. Stephen Lynch (D-Mass.), ranking member of the Oversight and Government Reform Subcommittee on Federal Workforce, U.S. Postal Service and Labor Policy, will follow Collins’ lead and introduce a version of the bill as early as this week.

“We collectively, and by collectively I’m referring postal management, workers, mailers and the administration as well as this Congress, must come to the realization that some difficult decisions made rather quickly in order to address the Postal Services current financial situation,” said Lynch during a subcommittee hearing Wednesday. “However before we tackle issues such as changing delivery frequency, cutting services and laying off hard working Americans, there are certainly some more palatable actions we should consider first.”

Lynch said Congress should revisit the Postal Service’s obligations to pay for future retiree healthcare and workers’ compensation funds. He said this prevents USPS from dealing with shifts in demand and changes to the size of its workforce that it has experienced in recent years.

“Simply requiring the Postal Service to tackle the obligations in such an aggressive pace is unheard of in the private sector and continues to be a driving factor behind the Postal Service’s dismal fiscal performance,” he said.

Collins said USPS must take several steps to fix its situation.

“The financial state of the Postal Service is abysmal,” she said in an e-mailed comment to Federal News Radio. “The numbers are grim: the Postal Service recently announced that it lost $8.5 billion in fiscal year 2010. The Postal Service must reinvent itself. It must increase revenues by increasing its value to its customers and by becoming more cost effective. Unfortunately, many of the solutions the Postal Service has proposed would only aggravate its problems. Filing for enormous rate increases, pursuing significant service reductions – including elimination of Saturday mail delivery – and seeking relief from funding its liabilities are not viable long-term solutions to the challenges confronting the Postal Service. These changes will drive more customers to less expensive, digital alternatives. That downturn in customers will further erode mail volume and accelerate a death spiral for the Postal Service.”

Sen. Tom Carper (D-Del.), who co-sponsored the postal reform bill last session with Collins, may hold a hearing this spring on the new bill.

Pat Donahoe, Postmaster General, told lawmakers the agency continues to lose money because of the requirements to fund retirement health care benefits and worker’s compensation liability obligations as well as provide money for employee pensions.

USPS will have to make two payments of $5.5 billion and $1.2 billion, respectively, this year to fund the retirement health care benefits and worker’s compensation liability funds. He said those payments will push USPS over its legislative limit of $15 billion in borrowed money.

He said USPS will not have the cash available to make these payments and needs legislation this year to solve their problem.

“The liquidity crisis is caused by a combination of factors,” Donahoe said. “With the enactment of the Postal Accountability and Enhancement Act of 2006, the Postal Service was required, beginning in 2007, to prefund retiree health benefits for future retirees. The incredible burden of this annual prepayment of $5.5 billion, due at the end of each fiscal year, is one no other entity, public or private, must bear. In addition to the prefunding, the Postal Service also pays $2.2 billion for annual health benefit premiums for current retirees.”

Additionally, the USPS Inspector General found the agency overfunded the CSRS by $75 billion and FERS by $7 billion adding to their money problems.

These obligations and overfunding along with the downturn in use of first class mail and the economy has pushed the Postal Service to the edge of insolvency.

If USPS doesn’t get fiscal relief, Donahoe said the mail will be delivered, employees and vendors will be paid, but the legislatively mandated funds will not be taken care of.

Donahoe said legislative changes to the 2006 law are a big part of the solution to their financial problems. Without these obligations, USPS would have positive revenue. He said in the first quarter of 2011, USPS lost $329 million, but without the retiree health benefits and worker’s compensation obligations, it would have had $226 million in income.

“Prefunding health benefits is an incredible burden,” Donahoe said. “In 2007 and 2008 we would have had net profits except for the prefunding.”

USPS does have support for these changes to its obligations from the administration in the fiscal 2012 budget request. President Obama called for refunding of $6.9 billion that has been overpaid into the FERS over a 30 year period, and asked that $4 billion of retiree health benefit payments be deferred at the end of this year.

Postal Service chief financial officer Joseph Corbett said on the Federal Drive in February both of these changes would be helpful in letting USPS get through this year in terms of funding.

But getting support from enough members of Congress to pass the bill is far from certain.

Both House and Senate members agree USPS needs immediate help. But House Republicans aren’t sold on the need to change the organization’s funding obligations.

“Congress has an obligation to make statutory changes, if necessary which will allow the Postal Service to address its own budget imbalance,” said Rep. Dennis Ross (R-Fla.), chairman of the Subcommittee on Federal Workforce, U.S. Postal Service and Labor Policy. “We need to empower you. However, proposals for providing short term fiscal relief such as modifying retiree health benefits, prefunding payments or refunding so-called overpayments of the CSRS and FERS do not address the long term systemic problem and solvency issues that must be tackled in order to address the Postal Service’s long-term financial stability. Without a thorough reform of all aspects of the Postal Service’s business model, there could be little hope it could return to profitability in the near or long term future.”

Full committee chairman Rep. Darrell Issa (R-Calif.) wants USPS to be more innovative in how they solve their problems. He said he is open to the idea to let USPS change their business model, but did not come out and support changes to the agency’s funding obligations.

The Postal Service is taking other steps to cut costs aside from the funding obligations. Donahoe said it reduced its workforce by 240,000 people in recent years, and will take another 16 percent reduction in officer ranks and senior management changes in the coming year. Donahoe said he would announce later in March further decreases in staffing.

Last year it cut costs by $3 billion and expects to reduce spending by another $2 billion this year, Donahoe said.

The agency is also seeking to cut costs by closing or consolidating offices and has proposed eliminating deliveries on Saturdays, while offices would remain open six days.

Donahoe also sought to be upbeat, saying that challenges can be recast as opportunities to make the post office more market-responsive.

“We think there is plenty of growth available in standard mail, in the package market” and other new products, he said. In addition the agency is exploring electronic opportunities, he said.

The Associated Press contributed to this story.

(Copyright 2011 by All Rights Reserved.)