Bloomberg News

Postal Service Debt to Hit $45 Billion Unless Law Changes

February 13, 2013

The U.S. Postal Service, which lost $1.3 billion in its first quarter, said its debt could reach $45 billion by around 2017 if Congress doesn’t pass legislation allowing it to change its business model.

The post office, at a Senate Homeland Security and Governmental Affairs Committee hearing today, asked for permission to run its own health plan for employees and retirees. Postmaster General Patrick Donahoe testified the service could save as much as $7 billion a year through 2016 by taking its health coverage out of the U.S. government plan.

“Congressional action to allow this fundamental change would dramatically reduce health care spending, helping the Postal Service take a significant step toward financial stability,” he said. “It would also provide savings for employees and retirees.”

The service has reached the $15 billion limit on what it’s allowed to borrow from the U.S. Treasury and defaulted last year on two payments worth more than $11 billion due to the Treasury for future retiree health benefit costs. Today’s hearing is on Postal Service finances in this Congress after legislation to allow changes failed to pass last year.

Saturday Delivery

Representative Elijah Cummings of Maryland, the top Democrat on the House committee with postal overnight, said he told House Minority Leader Nancy Pelosi today that House postal legislation is “90 percent” ready and could be passed by the end of March.

“March may be a little ambitious for both houses to come out with a bill,” Representative Darrell Issa, the California Republican who leads that committee, told reporters after testifying. “We certainly could have it out of our committee by the end of March.”

Donahoe last week said the service plans to end Saturday mail delivery in August even though an appropriations law first enacted in 1981 requires it to deliver mail six days a week. The postmaster general said the service could act unilaterally under a temporary funding resolution that expires March 27.

The service spends $13.1 billion year, or 20 percent of its revenue, on health-care costs, Donahoe said. That includes $4.8 billion for premiums, $2.7 billion for retiree premiums and $5.6 billion due for future retiree health-care costs.

The Government Accountability Office in a report today said action to reform the Postal Service is “urgent.” The GAO called on both Congress and the service to act to cut costs.

Cluster Boxes

Congress should change the future retiree health benefits funding schedule “in a fiscally responsible manner,” allow the service to change its business model to cope with declining mail volume and require binding arbitration processes with unions to take the service’s financial condition into account, the GAO said.

In addition to ending Saturday delivery, the service should end door-to-door delivery by instead putting mail in “cluster boxes” to save delivery costs, Issa said. He is chairman of the House Oversight and Government Reform Committee.

Issa and Senator Tom Coburn, the Oklahoma Republican who is his party’s top member on the Senate panel overseeing the service, support the plan to end Saturday mail delivery, which drew criticism from congressional Democrats. Cummings today called that announcement “an unfortunate development.”

Art Sackler, coordinator of the Coalition for a 21st Century Postal Service, whose members include Bank of America Corp. and EBay Inc., said he hopes congressional dissent over the Saturday delivery plan “doesn’t become a sideshow” and prevent passage of more comprehensive postal legislation this year.

To contact the reporter on this story: Angela Greiling Keane in Washington at agreilingkea@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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