The US Postal Service is to default on its $11 billion payment obligations to the US governmentin August and September after the failure of US legislators to agree life-saving legislation for
the indebted company left it facing a cash shortfall this autumn.USPS said yesterday: “The US Postal Service will not make mandated prefunding retiree healthbenefit payments to the Treasury of $5.5 billion due 1st August, or the $5.6 billion payment due30th September, absent legislation enacted by Congress. This action will have no material effect onthe operations of the Postal Service. We will fully fund our operations, including our obligationto provide universal postal services to the American people.”
The company insisted it would continue to deliver the mail, pay its employees and suppliers andmeet its other financial obligations. “Postal Service retirees and employees will also continue toreceive their health benefits,” it added. “Our customers can be confident in the continued regularoperations of the Postal Service.”
USPS said it was continuing to implement its strategic plan. “However, comprehensive postallegislation is needed to return the Postal Service to long-term financial stability,” it added. “Weremain hopeful that such legislation can be enacted during the current Congress.”
The decision followed reports earlier this month that that legislation covering therestructuring of the US Postal Service was set to be delayed until the end of the year, whichCEP-Research reported could lead to a payment default by USPS.
Earlier this year, the US Postal Service warned that it would lose up to $18 billion a year by2015 unless Congress grants it the freedom to raise prices, eliminate Saturday deliveries, and slowfirst-class mail by a day. The organisation said the five-year restructuring plan it presented thisyear would enable USPS to save $22.5 billion by 2016 and thus keep costs below expected revenuesfor the rest of the decade.
USPS chief financial officer Joe Corbett also warned in February that in the absence ofsignificant changes in the law to allow normal commercial freedoms, the Postal Service woulddefault on retiree health benefits pre-payments to the federal government due this year. Even iflegislation changed or eliminated the pre-funding payments, he said that USPS may reach its $15billion debt ceiling this autumn.
Last June, the cash-strapped US Postal Service also suspended its payments towards certainemployee pension funds as an emergency measure to preserve liquidity, stressing that it had a‘FERS’ account surplus valued at $6.9 billion.
The American Postal Workers Union (APWU) blamed House Republican leaders for failing to takeaction to resolve the “congressionally manufactured” USPS financial crisis that had brought thePostal Service to the brink of default. APWU President Cliff Guffey said the default would have noimmediate impact on mail delivery or employees’ pay, but the missed payment would focus attentionon the Postal Service and invited “misleading or downright inaccurate” reports about theorganisation. “Already there have been editorials calling for drastic cutbacks and privatisation,”he pointed out. “Most of these misguided editorials fail to recognise the cause of the PostalService’s financial difficulties, so they can’t possibly advocate a reasonable solution.”
Guffey said the primary source of USPS financial difficulties was the 2006 law — the PostalAccountability and Enhancement Act — that requires the Postal Service to pre-fund retiree healthbenefits 75 years into the future, and to do so in a 10-year period.
“No other government agency or private company bears this crushing burden,” he said. “Since itwas implemented in 2007, it has drained the Postal Service of more than $20 billion. These payments— not the internet and not losses from postal operations — are responsible for 82% of USPS red inksince the law was implemented.
“The postal debacle is a manufactured crisis, and it is being exploited by those who want toprivatize the Postal Service,” he added. “The House Republican leadership’s bill to ‘fix’ thePostal Service couldn’t be clearer.”
