US Postmaster General calls for fixes, not bailouts, for USPS

“We will not need a bailout,” said US Postmaster General Pat Donahoe yesterday as he was questioned by the House oversight subcommittee in the US Congress. While Republican Congressman Connie Mack attempted to draw the Postal Service chief executive into a humiliating plea for taxpayer assistance, along similar lines as the big US banks in 2008, Donahoe insisted there were other solutions to the multi-billion dollar losses at the Postal Service.

Following on from last year’s record $8.5bn loss, this year the USPS is projected to post a $6.4bn loss, with its borrowing reaching the legal limit of $15bn by the end of the fiscal year in September.

The Postmaster General said yesterday that a few key resolutions from Congress – relieving pressure from the USPS pension and future retiree healthcare obligations, and proving it with more flexibility to cut costs – would be enough to hold off insolvency.

He said other than the pre-funding requirements, his staff had already managed to cut costs to cope with the 22% drop in mail volumes over the past decade.

During his testimony, Donahoe explained his organization’s view – which is backed by regulators – that the USPS has paid too much into its retirement systems because of the “arbitrary” system of payments enacted in the 2006 PAEA law from Congress, and would otherwise by balancing its books.

Ruth Goldway, the chairman of the independent federal regulator, the Postal Regulatory Commission, supported his view yesterday, stating: “Bottom line: without the retiree healthcare benefits fund the Postal Service would have broken even despite the impact of the recession and declining mail volumes.”

Default

The Postmaster General confirmed yesterday that if Congress does not come through with fixes, the USPS would default on paying a $5.5bn payment into the federal retiree healthcare fund in September and $1.3bn into the workers’ compensation system in November.

But, during the hearing he stressed that the Postal Service would still be able to pay both its employees and suppliers nevertheless.

“We’re up against the debt limit, so there is no breathing room,” Donahoe said.

“We will deliver the mail, we will pay the employees to deliver the mail, we will make sure that we pay our suppliers. The thing we will not do is pay the federal government.”

The USPS chief explained to new members of Congress that requests for a rebate on “overpayments” into federal retirement systems was not a request for taxpayer money, since the funds came from USPS revenues.

There was understanding from some members of the subcommittee who returned from last year, with Democrat Congresswoman Eleanor Holmes Norton saying: “Normally, if you have an overpayment you would get a refund – so I am hearing you.”

“Too big to fail”

However, while the Postmaster General fended off questions loaded with emotive terms like “too big to fail”, he did point out that the USPS could not be a self-funding organization if Congress did not make the changes being requested.

The first quarter of 2011 has already seen a loss of $329m at the Postal Service, although this would have been a net income of $226m without the pre-funding requirement, according to Donahoe.

Other witnesses before the subcommittee warned that if changes are not made in the way the Postal Service pays into its retirement funds, continuing financial shortfalls would see Congress required to make “an actual taxpayer-paid bailout”.

This was the view from Arthur Sackler, co-ordinator of the USPS customer lobby group Coalition for a 21st Century Postal Service, who explained that that if the USPS defaulted on its federal obligations in September there would be “no legal or other consequences” for the Postal Service or its management.

But he suggested the defaulting of such a major government entity could affect mailers’ confidence in USPS services, and could even effect the credit rating for the United States as a whole.

Sackler said of the USPS: “Questions about its reliability will arise with those that do business with it, and will overseas holders of US securities treat this as the first loose thread in unraveling the nation’s financial ball of yarn? What would that do to interest rates and yields for Treasury bonds?”