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Cash woes spur USPS to consider stopping FERS payments

Aug. 7, 2012 - 09:47AM   |  
By SEAN REILLY   |   Comments

U.S. Postal Service executives are considering suspending contributions to the Federal Employees Retirement System because the agency may run out of cash, a new inspector general’s report says.

The IG said the agency could face a $100 million cash gap in mid-October, when it is supposed to reimburse the Labor Department $1.4 billion for workers’ compensation costs.

The Postal Service tried to suspend contributions to FERS last year on the grounds that the agency had a $7 billion surplus with FERS, but it later paid up after the money became available, spokesman Dave Partenheimer said.

The news of the Postal Service’s cash problems came shortly before it failed to make a legally required $5.5 billion payment for future retiree health care. That default could be the first in a string of cash-flow crises stretching into next year.

Postal executives have said they also lack the money to make a similar payment — this one, $5.6 billion — due at the end of September.

No decisions have been made on any new “extraordinary cash preservation measures,” Chief Financial Officer Stephen Masse wrote in a response to the inspector general’s report. Instead, the Postal Service’s board “will monitor the situation with management and decide, as needed, in the future,” Masse said.

At this point, the Postal Service is on track to make the October workers’ comp payment, Partenheimer said in an email last week. He said the agency expects to collect about $300 million in extra revenue related to the presidential election around the same time.

But the IG report, released July 25, underscored the fragility of USPS finances as Congress remains deadlocked over the terms of a legislative fix. By October 2013, the agency projects a $1.2 billion cash shortfall, the report said.

Despite warnings from postal executives that they lacked the money to make last week’s payment, lawmakers balked at granting an extension.

“You can only be in denial so long,” Rep. Darrell Issa, R-Calif., said last week. After a year with “essentially no real reforms” and too little action to shrink the Postal Service’s workforce, he added, the result is that lawmakers are unwilling “to kick the can down the road, at least at this time.”

Issa, chairman of the House Oversight and Government Reform Committee, is the lead sponsor of a bill that would have cut the future retirees’ health care payment that was due last week to $1 billion. The bill also could put a specially appointed control board in charge of the Postal Service’s operations. While Issa’s committee approved the bill last October, it has yet to come up for a vote in the full House. In April, the Senate passed competing legislation that would have waived the $5.5 billion payment, but the House has not taken up that measure, either.

“Every day Congress delays fixing this problem, the financial challenges grow more difficult and the potential solutions become more expensive,” Sen. Tom Carper, D-Del., a sponsor of the Senate bill, said in a statement.

In the first six months of fiscal 2012, the Postal Service lost $6.5 billion; it is scheduled to release financial results for the period from April through June on Aug. 9.

The mailing industry is divided on the potential impact of last week’s default, which does not affect day-to-day postal operations or current retiree health coverage. Between the missed payment and congressional inaction, “mailers will be increasingly wary” of the Postal Service’s stability “and will likely divert more mail out of the system,” said Art Sackler, co-coordinator of the Coalition for a 21st Century Postal Service, which includes newspapers, catalogers and other business mailers.

But Tony Conway, executive director of the Alliance of Nonprofit Mailers, labeled the default a “non-event” and said the same would likely be true if the Postal Service skips the $5.6 billion payment due Sept. 30.

“I really think all of these payment issues shouldn’t be a surprise to anybody,” Conway said. “They’ve been telegraphed for months.”

Dan Blair, a former member of the Postal Regulatory Commission, thought that mailers might take heart from the Postal Service’s willingness to put a higher priority on continuing normal operations over complying with the law.

“It bolsters the Postal Service’s commitment to its customers,” Blair said.

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