Postal Service on the verge of default

Posted at 7:29 AM, Aug 01, 2012

By Jennifer Liberto

WASHINGTON (CNNMoney) — Without help from Congress, the U.S. Postal Service is likely to default on a big bill due Wednesday to the federal government — $5.5 billion to prepay health care benefits for retirees.

Postal officials have said they’re bracing for default on the payment. They also don’t have the money to make a $5.6 billion payment due Sept. 30.

Congress alone has the power to help the service. The Senate passed a bill to help the service back in April, but the full House has yet to consider the issue.

The service is in a financial bind, having reported several quarters worth of multi-billion-dollar losses due to the recession, declining mail volume and the congressional mandate to prefund retirement health care benefits for future retirees.

While default would be a first for the Postal Service, it’s largely symbolic. Postal officials have pledged that employees and subcontractors will continue to be paid and mail will be delivered as normal.

“The U.S. Postal Service will not make mandated prefunding retiree health benefit payments to the Treasury,” the service said in a statement Monday. “This action will have no material effect on the operations of the Postal Service.”

The real loss could come as more postal customers turn away from U.S. Mail and question its long-term stability, said Art Sackler, a co-coordinator for the Coalition for a 21st Century Postal Service, a group of businesses that depend on mail service.

“With Congress delaying action on a postal bill, mailers will be increasingly wary about the stability of the Postal Service and will likely divert more mail out of the system,” Sackler said in a statement.

Unions say the Postal Service’s problems are entirely caused by the Congressional mandate on health care benefits. They want Congress to repeal the mandate and stop cuts that the service has in the works.

“This bogus ‘default’ has proved to be useful rhetoric to those who want to dismantle the Postal Service, especially those who for ideological or competitive reasons want it privatized,” said Frederic Rolando, president of the National Association of Letter Carriers.

Unions also like to point out that no other private or public entity has to set aside money for future retiree health benefits.

However, neither the bill that passed the Senate nor the bill expected to be taken up by the House takes the unions’ advice to do away with the prepayments on benefits entirely. Such a move would add billions to already hefty federal budget deficits.

Last year, Congress gave the Postal Service a reprieve by delaying the mandated prepayment, giving lawmakers time to pass reform. But Congress took too long.

In April, the Senate passed a bill that eased the pricey retirement benefit payments by stretching the payments out over time. The bill also gave the Postal Service access to much needed cash: an $11 billion overpayment in the Federal Employees Retirement System.

The measure would also allow the service to cut Saturday mail service in two years after several studies are conducted.

The House has yet to consider a bill that would open the door for the service to pursue deep cuts to post offices and postal plants, and end Saturday service, among other things.

House lawmakers blamed the default on the Postal Service for failing “to do all it can under current law to cut costs,” said Rep. Darrell Issa, a California Republican who authored the House bill.

In the meantime, the service is consolidating 46 plants over the next month, which will impact 5,000 workers. If the consolidation goes like others, workers will be offered other jobs, but some of those jobs will require moves to other cities or states.

The Postal Service has also offered retirement incentive packages, and about 4,000 of 21,000 eligible local postmasters and 3,000 of 45,000 eligible mail handlers want to take the deal, according to the agency.

The Postal Service is considered independent and doesn’t usually use taxpayer dollars. Currently, it’s operating on a $12.7 billion loan from Treasury

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