Billions deep in debt, Postal Service defaults on benefits payment

Ron Nixon / New York Times News Service /

Published Oct 2, 2012 at 05:00AM

WASHINGTON — The Postal Service sank deeper into debt Monday after the agency defaulted on a $5.6 billion payment due at the end of September, the second time the agency has missed a deadline this year to set aside money for its future retiree health benefits.

The post office said it expected net operating losses to be $15 billion for the fiscal year that ended Sept. 30. That loss includes the two missed payments totaling $11.1 billion for the agency’s future retirement funds. This month, the post office also faces a $1.5 billion workers’ compensation insurance payment to the Labor Department. The post office said Monday that it would most likely make that payment, but that it would leave the agency with a cash shortage of about $100 million.

Postal Service officials said they expected the shipping of holiday packages and election mailings to help offset some of the losses.

Despite the losses, Patrick Donahoe, the postmaster general, said there would be no disruptions in post office operations. Mail will continue to be delivered on time, and employees and vendors will continue to be paid, he said.

“Customers can be confident in the continued regular operations of the Postal Service,” Donahoe said.

The post office had warned Congress for months that it would not be able to make the payments into the fund for its future retiree health benefits.

The first $5.5 billion payment was due last September, but lawmakers allowed the service to push back the payment until August while they worked on postal legislation. The second payment was due on Sept. 30.

The payments are required by a 2006 law and do not affect current retiree benefits.

Lawmakers left Washington last month without passing legislation that would have helped the post office deal with its crippling debt and its operating losses.

The agency is seeking to end Saturday delivery, enter new lines of business like shipping beer and wine, close nearly half of its mail processing centers and reduce hours at local post offices. It is also seeking to stretch out the payments for its future retiree benefits and to receive a refund of $11 billion that it has overpaid into one of its pension funds.

The Senate passed a postal bill that would give the agency some of the changes it seeks, but the bill does not allow the agency to end Saturday delivery. The House has not passed its version of the legislation.

Although Donahoe said he expected Congress to take up the measure when it returns after the elections, passage remains uncertain. Lawmakers will have to devote much of their time during the lame-duck session to dealing with the “fiscal cliff” — the end-of-the-year deadline for the expiration of hundreds of billions of dollars in tax cuts and for billions in across-the-board spending cuts.

For now, the agency said it was doing what it could to lower costs, like reducing staffing levels and closing mail processing facilities.

But post office officials, postal unions and large mailers said the agency could do only so much on its own. If the post office is to survive, Congress needs to pass postal reform legislation, they said.

Postal Service revenue continues to decline as mail volume drops. Since 2006, the agency has seen first-class mail volume drop by 26 percent. The drop in mail volume and revenue comes as online bill payments, email and other forms of electronic communication become more widespread.