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Kicking Can on Postal Service Isn't Option as Financial Chasm Looms

Wednesday, 14 Nov 2012 07:50 AM

 

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Overshadowed by a political battle over year-end tax increases and spending cuts known as the fiscal cliff, the U.S. Postal Service could run out of money to deliver mail next year unless President Barack Obama and Congress act.

The service, whose 530,000 employees are more than at any U.S.-based publicly traded company other than Wal-Mart Stores Inc., has exhausted its borrowing authority, defaulted on more than $11 billion of payments to the U.S. Treasury and is operating on cash it generates from selling stamps and package- delivery services.

After streamlining delivery routes and cutting work hours, it’s running out of money-saving tricks it can use without congressional approval. House and Senate proposals differ on whether to let the service eliminate one day of mail delivery and on how easy it should be to shut post offices and plants.

“The bottom line is that something will be done because the Postal Service can’t survive without getting some help,” said Art Sackler, coordinator of the Coalition for a 21st Century Postal Service, whose members include some of the country’s biggest postal customers, such as Bank of America Corp. and EBay Inc. “It’s very near the edge financially.”

Postmaster General Patrick Donahoe has said the service may have lost a record $15 billion during the fiscal year that ended Sept. 30. It’s scheduled to report its annual results tomorrow. In the first three quarters, it lost $11.7 billion.

Shrinking Surplus

The service reached its $15 billion borrowing limit Sept. 28. It had said it would temporarily run out of cash in October before rebounding for an unspecified length of time. Chief Financial Officer Joseph Corbett will update projections on available cash tomorrow, David Partenheimer, a spokesman, said.

“Our liquidity remains a major concern into 2013, especially as we get into the second half of the fiscal year,” Partenheimer said.

The service’s outlook worsened yesterday, when the U.S. Office of Personnel Management said the service’s projected surplus in a government-worker retirement account has fallen to $2.6 billion, less than one-quarter of the previous year’s estimate, due to lower interest rates. The service has proposed tapping that surplus to help cover its losses.

As Congress returns for a post-election session, the post office will find it hard to get attention while the White House and lawmakers seek agreements before a Jan. 1 deadline on expiring tax cuts and the automatic spending reductions known as sequestration, said Roger Kodat, who was a Treasury official working on postal issues during President George W. Bush’s administration.

Immediate Crises

“I don’t see the Postal Service as the one that’s going to catch” Congress’s attention, Kodat, now principal at the Kodat Group LLC consulting firm, said in an interview. “I would imagine it’s difficult to make it a top-burner issue. It’s always been a tough slog.”

The post office’s challenge may take a back seat to immediate crises because it’s in what’s typically its best quarter of the year. Campaign mailings boosted volume before the Nov. 6 U.S. election, and the agency said last week said it expects to handle a record 365 million packages during the Christmas holiday season, a 20 percent increase from 2011.

“House and Senate leaders recognize the importance of taking action to help put the Postal Service on a solid financial path,” Partenheimer said in an e-mail. “We continue to take actions to cut expenses and grow revenue but cannot return to long-term financial stability without passage of the comprehensive legislation identified in our five-year business plan.”

Saturday Delivery

The Senate measure would make it more difficult for the service to close facilities or end Saturday delivery, and would install a chief innovation officer to help seek new revenue sources.

The House bill would create a commission to oversee facilities closings, on the notion that would be easier if lawmakers were removed from the process. It would create a control board to oversee operations. Both chambers would give the service more time to fund future retirees’ health benefits, which would cut the amount the Postal Service must pay into that account each year.

‘Dangerous Situation’

The Postal Service, without any consequences so far, skipped two payments totaling $11.2 billion due to the Treasury this year toward those benefits. While spreading those costs out would buy the Postal Service time, that wouldn’t be enough by itself to make the agency profitable.

“Any adverse circumstances that would cause its volumes to drop beneath their projections and we could have a dangerous situation,” Sackler said in an interview.

Representative Darrell Issa, chairman of the House Oversight and Government Reform Committee, has urged Obama to press for postal legislation before the year ends. The committee earlier this year backed a bill sponsored by Issa, a California Republican, and Representative Dennis Ross, a Florida Republican.

“USPS is in a severe cash crunch primarily due to its mismanaged response to the diminished demand for paper-based communication,” Issa wrote in a Sept. 7 letter to Obama. “Regardless of the cause, it is unacceptable for a federal agency to be in default to the federal government.”

Ali Ahmad, an Issa spokesman, said the letter was the most recent action from the congressman on the postal measure. The full House hasn’t considered the bill.

The Senate, with bipartisan support from lawmakers who are leaving Congress in January, passed a postal service bill that’s languished, awaiting House action.

Seeking Action

Delaware Democratic Senator Tom Carper, a sponsor of the Senate bill, “remains hopeful that, now that the elections are over, the House Republicans will pass postal reform legislation so that a final bill can be approved by Congress and signed into law by the end of the year,” said Emily Spain, a spokeswoman for Carper.

Like the Postal Service, the National Association of Letter Carriers, whose members deliver mail in cities, is pushing Congress to act before mail can’t be delivered and there’s not enough money to pay workers.

“This can’t wait forever,” said Jim Sauber, chief of staff at the Washington-based union. “Once next spring or the early summer of next year when the volumes are lower, that could be a cash crisis and they could have to make operational cuts so they can pay bills. There’s a lot at stake.”

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