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EcommerceBytes-NewsFlash, Number 2625 - September 07, 2011 - ISSN 1539-5065    3 of 4

Postmaster Tells Congress USPS Crisis Could Push It into Default

By Kenneth Corbin
EcommerceBytes.com
September 07, 2011




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Appearing Tuesday before a Senate oversight committee to address the dire financial predicament facing the U.S. Postal Service, Postmaster General Patrick Donahoe painted a grim picture of his organization's finances, warning of a "looming liquidity crisis" that could push the USPS into default by the end of the month.

Donahoe appealed to members of the Senate Homeland Security and Government Affairs Committee for swift action to help the Postal Service remain solvent, laying out a multi-pronged plan that would entail a restructuring of its health-care and pension programs, a shift to five-day weekly delivery and the removal of the obligation to pre-fund employees' retirement health benefits - all proposals that would require congressional action.

"The importance of a healthy and thriving Postal Service cannot be overstated. The mailing industry, of which the Postal Service is only one component, depends on the continued evolution, growth and development of our organization," Donahoe said in prepared testimony.

"Without legislative change this year, the Postal Service faces default, as available liquidity at the end of this month will be insufficient to meet our financial obligations."

Donahoe described the Postal Service's financial situation as "grim," noting that in the third quarter of the current fiscal year, ending June 30, the organization posted a net loss of $3.1 billion. For the first three quarters of the fiscal year, the Postal Service lost $5.7 billion, and is projecting losses for the full year as high as $10 billion. Those losses are being driven in part by a sustained decline in mail volume, projected at 2 percent this year, with a disproportionate dip in First-Class Mail.

The news isn't all bad, as revenue in the shipping services category, which includes Express Mail and Priority Mail, increased 7.2 percent in the third quarter, while revenue from Standard Mail and Package Services both posted more modest increases. But those bright spots were small solace when set against the big picture, Donahoe said.

"These small gains are not enough to offset the dramatic and steep decreases in First-Class Mail, which contributes much more to the Postal Service's bottom line," he told the committee.

The Postal Service is projecting a $9 billion loss next year, and has warned that the red ink could swell to $16 billion by 2015, and $20 billion by 2020.

The Postal Service reports that approximately 80 percent of its costs are tied up in compensation and benefits paid to its employees.

Cliff Guffey, president of the American Postal Workers Union, also testified at Tuesday's hearing, expressing support for the Postal Service's appeal for relief from the retirement benefit pre-funding obligation, as well as congressional action to give the organization access to the overpayments it has made to the Civil Service Retirement Fund and the Federal Employees Retirement Fund, estimated at between $50 billion and $75 billion.

But at the same time, the union remains sharply opposed to other measures the Postal Service has outlined in its cost-cutting blueprint, proposals that would necessarily entail reductions to the heavily unionized workforce.

"In lieu of legislation that would provide this financial relief, the Postal Service has stated that it will take steps to curtail service as a means of cutting costs," Guffey said in his prepared testimony. "These proposed service cuts, including elimination of Saturday delivery, closure of thousands of small post offices, and rapid and extreme consolidation of mail processing facilities threaten to de-value and weaken the Postal Service in ways that could exacerbate its revenue problems."

Sen. Susan Collins (R-Maine), the ranking minority member on the committee, praised the Postal Service for seriously confronting its financial predicament, though she similarly warned against dramatic cuts in the USPS' delivery service and retail footprint.

"I want to give the new postmaster general credit for more creative proposals to stem the crisis. At times, however, the Postal Service's responses have been inadequate and counterproductive," Collins said in her opening statement. "Some would cut directly into the revenue the Postal Service so desperately needs, while leaving customers with diminished and insufficient service." Collins pointed to the Postal Service's plan to initiate an aggressive procedure of closing facilities and its plans to move to five-day weekly delivery service. Both proposals, she said, could significantly harm residents in rural areas, as well as industries such as pharmaceuticals and weekly newspapers that rely on the current USPS operating framework.

Collins and Sen. Tom Carper (D-Del.) have each introduced legislation that would enable the Postal Service to access to the money tied up in the overfunding of its pension obligations.

A USPS representative is scheduled to appear before the Postal Regulatory Commission, an independent oversight body, later this week to defend the plan for facilities closures.

About the Author
Kenneth Corbin is a freelance writer based in Washington, D.C. He has written on politics, technology and other subjects for more than four years, most recently as the Washington correspondent for InternetNews.com, covering Congress, the White House, the FCC and other regulatory affairs. He can be found on LinkedIn here .

About the author:

Kenneth Corbin is a freelance writer based in Washington, D.C. He has written on politics, technology and other subjects since 2007, most recently as the Washington correspondent for InternetNews.com, covering Congress, the White House, the FCC and other regulatory affairs. He can be found on LinkedIn here.

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