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USPS broke by August 2012, No. 2 official predicts

Aug. 21, 2011 - 06:00AM   |  
By SEAN REILLY   |   Comments
Deputy Postmaster General Ron Stroman addresses the Postal Service Mailers Technical Advisory Committee in Washington, D.C., on Aug. 17.
Deputy Postmaster General Ron Stroman addresses the Postal Service Mailers Technical Advisory Committee in Washington, D.C., on Aug. 17. (J. Lee / Staff)

U.S. Postal Service leaders are poised to forgo legal obligations next month by skipping a $5.5 billion payment for retiree health care, but even that unprecedented step won't buy the flailing mail carrier much time, one of its top officials said last week.

Without that action and congressional relief on other fronts, the Postal Service will at best stay solvent only until next August, Deputy Postmaster General Ron Stroman said in an interview with Federal Times.

"We're really up against the wall here," he said.

That sudden sense of urgency driven both by frustration at congressional inaction and a cash crunch worsening faster than expected may help to explain a dramatic burst of restructuring proposals.

For the first nine months of fiscal 2011, the Postal Service's operating losses totaled more than $5.5 billion. Financial managers expect to tap out a $15 billion line of credit from the Treasury Department by the end of next month. Despite constant cost-cutting, the agency's financial condition is reaching a "crisis level," according to the Government Accountability Office. Postal managers now want to slash the size of the career workforce, which now totals about 560,000, by about 40 percent in the next few years.

Overall, the Postal Service has to fill a $20 billion budget gap between now and the end of 2014 to regain profitability, Postmaster General Patrick Donahoe said last week.

A particular irritant has been the yearly "prepayment" requirement for health benefits, mandated by the 2006 Postal Accountability and Enhancement Act to ensure that future retirees have coverage. USPS officials contend that no other government agency or private business faces such a requirement. Without that mandate, they said, the Postal Service would have turned a profit during the last few years.

New cost-cutting proposals

Earlier this month, the Postal Service announced it wants congressional approval to pull out of the Federal Employees Health Benefits Program in favor of providing its own coverage, as well as to break away from the two main federal retirement programs. Talks are underway with both the House and Senate, Stroman said, although nothing will happen before lawmakers return after Labor Day from their August recess.

The Postal Service also is asking lawmakers to free it from long-standing labor agreements that shield unionized workers from layoffs. Its four unions are fiercely opposed, but can't stop the agency's plans to close more than 300 of its 508 mail processing plants by the end of next year. That move will save up to $3 billion annually while wiping out more than 30,000 jobs, said Dave Williams, vice president of network operations.

The planned downsizing is part of a larger redesign of the postal processing network aimed at dealing with declining mail volume, Williams told participants in a mailing industry conference last week.

While USPS officials have not decided on a final list of plants to be shuttered, "we are going to drive the timeline as quick as we can," he said. To squeeze more capacity out of the remaining facilities, the Postal Service plans to run equipment, such as delivery bar code sorters, 20 hours a day, he said, compared to a pace of about five hours a day now. Besides costing jobs, the new strategy will mean slower delivery of some first-class mail.

Attrition should cushion some of the workforce impact, while career employees can be reassigned to other facilities, said John Hegarty, president of the National Postal Mail Handlers Union. Non-career workers have no such protections.

The cost-cutting foreshadows what will likely be a grueling series of contract negotiations getting underway this month between the Postal Service, the mail handlers union and the National Association of Letter Carriers.

Existing contracts for both those unions expire in late November; Postmaster General Patrick Donahoe has signaled that he will seek some of the same concessions such as a lower wage scale for new hires that the American Postal Workers Union accepted earlier this year. Although the Postal Service agreed to continue no-layoff protections through 2015 in that agreement, USPS officials now argue that the financial picture is darkening so fast that they need the latitude to shrink the career workforce by 220,000 in the next few years, in part through layoffs.

Whether Congress would sanction mass job cuts during the worst economic downturn since the Great Depression is anybody's guess. But George Gould, a former legislative and political director for the National Association of Letter Carriers, doubted that the Postal Service is serious about the idea.

"I think it's a tactic, not a reality," Gould said. Postal officials are instead hoping to get lawmakers to focus on "the overall issue" of the agency's financial health, he added.

Former proposals not enough

The Postal Service's newfound stance does represent a sharp reversal from what top leaders were saying only a few months ago. At an April congressional hearing, for example, Donahoe told lawmakers that the Postal Service's legislative wish list boiled down to three items: the freedom to end most Saturday delivery; an end to the retiree health care prepayments; and a refund on about $7 billion in overpayments into the Federal Employees Retirement System.

In recent months, however, "time has marched on and there's been no action," Chief Financial Officer Joseph Corbett said in an interview when asked why USPS officials are now urging more drastic measures. "We are too important to the industry and to the economy to allow ... the mail not to be delivered."

At the same time, he said, the falloff in profitable first-class mail usage has accelerated as Americans turn to the Internet to pay bills and handle other tasks that once required a stamp. For the first nine months of fiscal 2011, first-class mail revenue totaled $24.5 billion, down more than 6 percent from the same period in the preceding year. Total losses this year are expected to be as much as $9 billion.

Still, there's little sense of urgency on Capitol Hill, where lawmakers are deadlocked on the best strategy for putting the Postal Service back on its feet. Nowhere is that more evident than on the $5.5 billion retiree health care prepayment due Sept. 30.

This year, the Postal Service has so little cash on hand that it will be unable to cover any of the tab, Donahoe said last week.

In 2009, when the agency was in a similar bind, lawmakers agreed to defer most of that year's outlay. But both the House and Senate were then in the hands of Democrats more friendly to the Postal Service.

This year, with Republicans running the House, the sales job is tougher.

The chairman of the House Oversight and Government Reform Committee, for example, is Rep. Darrell Issa, R-Calif., who argues that an end to the prefunding requirement could leave taxpayers on the hook if the Postal Service can't later pay for retiree health care.

Instead, Issa has introduced legislation that would create a special five-member commission to oversee the Postal Service if it defaults on the health-care prepayment. Among other powers, the commission would be able to override Donahoe and void labor contracts. The Postal Service would get back its operational authorities only after finishing two straight years in the black.

Issa has not yet sought to push the bill forward. a rival measure by Sen. Tom Carper, D-Del., also now in committee, would refund tens of billions of dollars in pension overpayments to the Postal Service that could then be funneled to pay retiree health care costs.

‘Doing all that we can'

The Postal Service proposals unveiled earlier this month are an attempt to find a bridge between the two camps, Stroman said. "It is saying that we are doing all that we can possibly do to close this [financial] gap," he said. "Congress also needs to do what they can to make this happen."

Should the Postal Service default on next month's retiree prepayment, the impact is uncertain. The agency has already told the Office of Management and Budget and the Office of Personnel Management that it can't cover the bill, but has so far not been informed of any "adverse action," Corbett said.

In an email, OMB spokeswoman Meg Reilly said the Obama administration is working on a legislative solution to provide the Postal Service "with the flexibility it needs to modernize and meet requirements in the future."

An OPM representative had no comment.

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