Obama Budget offers USPS $4bn in relief, retiree fund reforms
Today’s Budget announcement from the White House includes a pledge to work with Congress to reform the US Postal Service’s retiree healthcare payments system. Payments as scheduled by the 2006 Postal Act (PAEA) would still “prudently” pre-fund the USPS retiree liabilities, the Budget stated, but based on accruing costs rather than fixed arbitrary amounts that have led to the overpayments.
A restructuring of payments would also see some funds paid at a later date, after 2022, to provide immediate relief to USPS finances in 2011.
“This restructuring and near-term deferral would provide USPS with $4 billion in temporary financial relief in 2011,” President Obama’s Budget stated. “Over the 2011 to 2021 budget period this proposal has an estimated deficit effect of $5 billion.”
The new system would also adjust better for “dramatic shifts in demand or workforce”, the Budget stated – helpful for a Postal Service set to shed jobs as part of its cost-cutting.
“These steps to provide USPS with the breathing room necessary to continue restructuring its operations without severe disruptions must be coupled with meaningful reforms to its business model to make USPS viable for the medium- and long-term.”
The 2012 Budget document also pledges to return $6.9 bn to the struggling USPS from amounts it has overpaid into the Federal Employee Retirement System.
Funds will be returned over 30 years, starting with $550m in 2011.
The Budget stated that the Administration recognized the “enormous value” of the Postal Service to the nation’s commerce and communications and the “urgent need for reform” to ensure its future viability.
Losses
The USPS posted an $8.5bn loss last year, not helped by its pensions and healthcare overpayments, and expects a $6.3bn loss in 2011 and a $7.2bn loss in 2012.
Beyond a token $100m from Congress to cover overseas postal voting and mail services for the blind, the USPS is self-funding, and does not receive tax monies. However, it has had to borrow billions to cover its losses, and is expecting in September 2011 to reach its $15bn borrowing limit as imposed by Congress – essentially running out of cash.
With losses increasing in the first quarter of its 2011 financial year, the USPS warned last week it could end up on defaulting on its government borrowing.
President Obama’s latest Budget said today that “specific short-term financial relief measures, grounded in principles of fiscal responsibility” would be adopted.
The document promised “sound financial management” as it works with Congress and postal stakeholders to bring in the required reforms.
The Obama Administration noted that postal volumes had “dropped precipitously” in the last few years as a result of the economic crisis and the rise of electronic communications technologies. It stated in the Budget that the USPS would need the “flexibility to adapt to these changes and higher public expectations for customer service”.
Discussions with Congress will therefore seek to help the USPS realign its infrastructure, facilities and delivery systems to continuously improve efficiency while adapting to the modern age and improving public services while respecting market competition, it said.
“Encouraged”
Commenting this afternoon on the Budget announcement, the USPS chief financial officer Joseph Corbett said the Postal Service was “encouraged” by the President’s recognition of the company’s financial situation.
Corbett said: “We look forward to working with the Administration and Congress in the coming year on CSRS and FERS over-funding, the retiree health benefit pre-funding requirement, delivery flexibility and retail access.”
The USPS chief financial officer added that the Postal Service also “strongly supports” the principles laid out in the Budget for the realigning of the company, its workforce and services.
“The Administration’s commitment, together with ongoing Postal initiatives within existing structures, will help put USPS on a path toward financial stability,” Corbett said.
