The financially struggling US Postal Service could get billions of dollarsin vital tax relief this year to help it reduce its heavy losses under measures in the 2012 budgetproposed by President Obama yesterday.
The USPS made a mammoth $8.5 billion loss in the fiscal year endingSeptember 30, 2010, and is heading for another large-scale loss of about $7 billion this year.Executives have warned the world’s largest postal operator may run out of cash later this yearwithout changes to its finances.
Under legal changes introduced in 2006, the postal operator has topre-fund future Retiree Health Benefits (RHB). These contributions totalled $5.5 billion last yearout of total USPS costs of some $75 billion. The USPS has warned it may not be able to make thesecontributions this year due to its heavy losses and having used up its maximum borrowing limits. Inresponse, postal leaders, unions and politicians have been lobbying for a change to the USPS taxregime.
In his budget, President Obama proposed that in 2011 the Postal Serviceshould be allowed to pay only $1.5 billion in RHB contributions, thus amounting to a $4 billionsaving. Payment of the remainder of the contributions would be deferred to later years.
In addition, the US President proposed a 30-year repayment of the $6.9billion worth of contributions that the USPS is estimated to have over-paid into the federalretirement fund. The agency would receive an initial $550 million refund in fiscal year 2012. Bothmeasures require approval by the US Congress.
“The Administration recognises the enormous value of the Postal Service tothe nation’s commerce and communications, as well as the urgent need for reform to ensure thefuture viability of USPS. Therefore, the Budget proposes specific short-term financial reliefmeasures, grounded in principles of fiscal responsibility as well as sound financial management,and the Administration will work with the Congress and postal stakeholders to secure necessaryreforms,” the budget proposal stated.
The President also called on the world’s largest postal operator tocontinue cutting infrastructure costs and making its workforce more “adaptive” to changes in thepostal sector. “These steps to provide USPS with the breathing room necessary to continuerestructuring its operations without severe disruptions must be coupled with meaningful reforms toits business model to make USPS viable for the medium- and long-term,” the budget proposalsaid.
The comments appear to indicate presidential support for plans to closesurplus and under-used post offices. The USPS is also seeking to stop mail deliveries on Saturdaysto reduce operating costs.
In response, USPS CFO Joseph Corbett welcomed “the President’s recognitionof the Postal Service’s financial situation” and his support for infrastructure and workforcechanges. “We look forward to working with the Administration and Congress in the coming year onCSRS and FERS over-funding, the retiree health benefit pre-funding requirement, deliveryflexibility and retail access,” he stated. “The Administration’s commitment, together with ongoingPostal initiatives within existing structures, will help put USPS on a path toward financialstability.”
Sen. Tom Carper (D-Del.), chairman of the Senate subcommittee overseeingthe US Postal Service, also welcomed the effort “to stabilise the Postal Service’s precariousfinancial situation”. The senator said he would re-introduce his postal reform law which wouldenable USPS to drop Saturday deliveries, downsize its network and take other cost-cutting measures.“I hope my colleagues and the Administration will join me in pushing for this much needed reform sowe can prevent the Postal Service from going broke by the end of the year,” he declared.
