Donahoe: USPS could default on operational expenses

US Postmaster General Pat Donahoe said today in the US Senate that the US Postal Service could be forced to default on other financial obligations beyond payments to the federal government. Donahoe was speaking today at a hearing of the Senate Homeland Security and Governmental Affairs Committee’s Federal Financial Management Subcommittee on Capitol Hill, at which the subcommittee’s chairman, Senator Tom Carper, unveiled his new bill seeking to address the USPS financial problems.

The Postal Service reported a loss of $8.5bn last year, and this year has seen its losses increase – $2.6bn losses were reported for the first two quarters of this fiscal year compared to $1.9bn in FY 2010.

The USPS also faces a legally-set $15bn limit on government borrowing, which is expected to mean running out of cash by September.

Previously, Donahoe has said dealing with the cash shortage this year, he would only refuse to pay the government its $5.5bn yearly payment for the retiree healthcare benefits fund, and the $1.5bn payment for workers compensation adjustments. Both payments are due in the fall. He stressed at this month’s National Postal Forum in San Diego that USPS workers and suppliers would definitely be paid.

However, today the Postmaster General went further in his warning.

“We are in a serious financial predicament,” Donahoe told the subcommittee. “As it stands we would not have the $5.5bn and we may be forced to default on other obligations, this could extend to operational expenses.”

In his written testimony to the Subcommittee, the Postmaster General said it was “imperative” that employees and suppliers be paid to ensure that USPS could continue to deliver America’s mail. However, he added: “It must be understood that absent legislative action, the Postal Service is certain to default on these substantial payments.”

The urgency of the situation was recognised by Senator Carper today, who noted that today’s Senate hearing had become more important than previous hearings that the reason that “the crisis the Postal Service faces is now more urgent than it has faced in the past”.

POST Act

Carper said he hoped his Postal Operations Sustainment and Transformation (POST) Act, introduced today, would “jump start” the process of solving the problems.

The Act would seek to unlock up to $75bn in overpayments found to have been paid by the USPS into its civil service pension fund, along with $6.9bn overpaid into its federal retirement fund, to help balance the USPS books.

It could mean paying off the retiree health benefits fund for “several years”, but Senator Carper said dealing with the pensions and healthcare issues would only deal with around a third of the current USPS losses.

Carper’s Bill also seeks to give more flexibility to the Postal Service to act “more like a business” – which Carper explained meant the freedom to have as many facilities as it needed to run its mail services.

The Bill would also seek to allow a move to drop Saturday mail deliveries, and more freedom to offer non-postal products and services as well as shipping wine and beer – something that UPS and FedEx can currently do, but not the Postal Service.

The POST Act would also give the Postal Service more freedom to arrange specific contracts with individual mailers – and require regulators at the Postal Regulatory Commission to speed up their review and approvals process for such Negotiated Service Agreements.

“My bill requires all parties – postal management, employees and customers – to make sacrifices,” Carper said. “It also gets Congress out of the way by providing the flexibility and tools necessary to address the problems plaguing the Postal Service in an effective way.”

Speaking at this morning’s Senate hearing, the Democrat from Delaware said he hoped to find a compromise with his Republican colleague Senator Susan Collins, who introduced a bill back in February that has “many overlaps” with the Carper POST Act.

“My hope is that Senator Collins and I will work on these issues and find common ground,” he said.