U.S. Postal Service : Another Looming CrisisApril 2011 By Erik Cagle
It's hard not to feel sorry for Patrick Donahoe. The Postmaster General of the U.S. Postal Service (USPS) had barely been on the job for two months when, in early March, he found himself addressing a subcommittee of the House of Representatives' Committee on Oversight and Government Reform. At issue: The USPS' ability to function as an ongoing concern.
It is one of many trials for Donahoe. Clearly, the honeymoon phase is over for the new guy. On Donahoe's current fight card:
• He must battle the perception that the USPS is seeking a bailout (some politicians are even under the false impression that Mr. ZIP is on the government dole; it receives no operative tax dollars).
• He is trying to coerce Congress to refund $75 billion in overpayments to the Civil Service Retirement System (CSRS) and $7 billion in over-funding to the Federal Employees Retirement System (FERS). Monocles everywhere will come crashing to the ground upon learning that the government is hesitant to refund the money.
• Donahoe must also fend off the perception that the Postal Service is over-bloated with excess costs, capacity and dead weight. That says nothing about the public perception that the mail is an archaic vehicle for the transmission of information.
• And most galling to those who sympathize with the USPS is the requirement to prefund retiree health benefits (RHB) to the tune of $5.5 billion per year, which they feel is as unfair as it is unprecedented, for no other entity, public or private, carries this burden. USPS also pays $2.2 billion per year for current retiree health benefits. The prefunding was borne out of the 2006 Postal Accountability and Enhancement Act (PAEA), which was intended to provide a modern business plan.
If anything, PAEA has turned out to be a recipe for disaster. In each of the four years prior to the law taking effect, the USPS reaped a net income. In his testimony, Donahoe noted that in fiscal 2007 and 2008, USPS would have showed positive cash flow with profits of $3.3 billion and $2.8 billion, respectively. Instead, the prepayment left it with losses of $5.1 billion and $2.8 billion in those respective years.
Potential Default Looms
The losses have caught up to USPS. It is projected to reach its statutory borrowing limit ($3 billion per year/$15 billion) by the end of its fiscal year in September. At that time, a $5.5 billion RHB bill and a $1.2 billion workers' compensation liability will come due. Mr. ZIP will fall about $2 billion to $3 billion shy. Thus, on Sept. 30 of this year, the Postal Service will default. What happens then is anyone's guess, as the post office's existence is constitutionally mandated. Mr. ZIP won't be collecting unemployment.