US Postal Service seeks reprieve from Congress to avert 'default'

In a Senate hearing that once again rang an alarm bell on the dire straits the US Postal Service is in, US Postmaster General Patrick Donahoe said the institution is on “the brink of default.” He also told Congress that without legislation by Sept. 30, the Postal Service would default on a mandated $5.5 billion retiree health benefit payment due this month.

Mr. Donahoe told Congress that unless lawmakers enact emergency measures, the Postal Service (USPS) could shut down entirely this winter and completely run out of money to pay salaries and contractors by August or September of next year.

“We are at a critical juncture,” Donahoe said Tuesday afternoon in testimony prepared for a hearing before the Senate’s Committee on Homeland Security and Governmental Affairs. “Action from Congress is sorely needed by the close of this fiscal year.”

He urged Congress to approve measures that would loosen regulations by which the Postal Service must currently abide, and allow it to operate more like a business.

“The Postal Service requires radical changes to its business model if it is to remain viable in the future,” Donahoe told Sen. Joseph Lieberman (I) of Connecticut, chairman of the committee. “The Postal Service is in a crisis today because it operates with a restrictive business model…. [Its survival rests on its] ability to operate more as a business does.”

Donahoe reiterated a list of cost-cutting measures he has been proposing in recent months to erase the agency’s deficit, which could reach up to $10 billion this fiscal year. They include eliminating Saturday mail delivery, closing as many as 3,700 postal locations, and laying off 120,000 workers – nearly one-fifth of the agency’s work force. (This doesn’t include another 100,000 jobs lost to attrition that the agency does not plan to replace, for a total of 220,000 lost positions.)

The Postal Service will handle an estimated 167 billion pieces of mail this fiscal year, down 22 percent from 2006. E-mail communication, electronic bill payments, and the economic downturn have taken a toll on the USPS, which is facing its second straight year of losses of more than $8 billion.

The Postal Service is also hampered by high personnel costs and contractual promises made to unionized workers, including a no-layoff clause and the prefunding of retiree health benefits. In fact, wages and benefits for its 571,566 full-time employees account for 80 percent of the Postal Service's operating budget, compared with 53 percent of UPS's and 32 percent of FedEx’s, two of its biggest private competitors.

The Postal Service is asking Congress to allow it to break union contracts to lay off workers and to loosen a requirement to prefund future retirees’ health-benefit costs.

Senator Lieberman and Sens. Susan Collins (R) of Maine and Tom Carper (D) of Delaware all underscored the urgency of the situation.

“We must act quickly to prevent a Postal Service collapse and enact a bold plan to save its future,” Lieberman said. “Times are changing rapidly and so too must the Postal Service if it is to survive.”

Senator Collins characterized the Postal Service’s current financial status as “abysmal,” and called for far-reaching legislation to overhaul the troubled agency. She noted the critical role the Postal Service plays in the US economy, including supporting a $1.1 trillion mailing industry employing more than 8 million people in direct mail, periodicals, catalogs, financial services, and other businesses.

The White House is expected to weigh in on the issue soon. As part of a $1.5 trillion deficit-reduction package it will present in coming weeks, the White House plans to include a financial rescue plan for the Postal Service.

Nonetheless, the Postal Service’s proposals are controversial and already face opposition. Given the range of stakeholders and the partisan rancor in a Congress still smarting from the debt ceiling showdown, Gene del Polito says it is unlikely the parties will reach a consensus on the Postal Service’s proposals.

“Any other day, any other time when there isn’t this sort of partisan rancor, this issue would have been dealt with sensibly by Congress,” says Mr. del Polito, president of the Association for Postal Commerce in Washington. “This Congress can’t pass a budget, can’t pass an appropriations bill, can’t come to grips with the debt ceiling. It’s not moving forward with this postal bill.”

He said the proposal’s naysayers failed to offer an alternative approach in Tuesday’s hearing and that boded ill for the agency.

“Not one person has come forward with an appropriate remedy for the difficulty [Postmaster General Donahoe] has bought to their attention,” he says. “For Congress, if you don’t allow Donahoe’s proposals, you’re pushing the institution into the governmental equivalency of bankruptcy.”

Del Polito called the Postal Service’s proposals to scale back services and cut jobs and facilities “not a desirability, but an inevitability,” and said the agency’s goals should be self-sufficiency, not profitability.

“I think Congress has to stop calling the Postal Service a business and start talking about it as an essential element of the nation’s economic infrastructure,” he said.