Postmaster General Patrick Donahoe painted a grim picture Tuesday regarding the future viability of the U.S. Postal Service when he testified before the Senate Committee on Homeland Security and Governmental Affairs.
If Congress does not intervene in the form of legislation by Sept. 30 – the end of the USPS’s fiscal year – Donahoe said the Postal Service will not be able to make its retiree healthcare benefit prepayment and default on its financial obligation.
“We are at a critical juncture,” Donahoe testified. “Action from Congress is sorely needed by the close of this fiscal year.”
The Postal Service has done “and will continue to do our utmost to address both cost savings and generation of new sources of revenue,” Donahoe continued. “Solving these complex issues will take a truly collective effort, involving the Postal Service, Congress, our mailing industry partners, employees, and union leaders.”
Specifically, Donahoe said the USPS’s survival requires legislation that would accomplish the following:
- Resolve a unique law requiring the Postal Service to make $5.5 billion annual payments to prefund retirement health benefits.
- Return $6.9 billion in Federal Employees Retirement System overpayments.
- Grant the USPS the authority to determine delivery frequency.
- Allow the Postal Service to restructure its healthcare system to make it independent of federal programs.
- Grant the Postal Service the authority to provide a defined contribution retirement plan for new hires, rather than today’s defined benefit plan.
- Streamline the process for product development and pricing.
The USPS on Sept. 30 will reach its statutory $15 billion borrowing limit. “We are committed to paying our employees and our suppliers first,” Donahoe said, “but without changes to the law, we will be unable to maintain the aggressive retiree hhealth benefits prefunding schedule set forth in the Postal Accountability and Enhancement Act.”
After reimbursing the Department of Labor $1.3 billion
for workers’ compensation payments in October 2011, “we will have liquidity equal to approximately one week’s operating expenses,” Donahoe said. Eliminating the prepayment of $5.5 billion for retiree healthcare benefits this year would only delay insolvency until this time next year, he noted.
The USPS has reduced its costs by about $12 billion in the past four years. To return to profitability, Donahoe said, the Postal Service needs to reduce its career workforce by about 220,000 by 2015.
But it can’t do this under the terms of existing collective bargain agreements. So the Postal Service is asking Congress to allow it to use the reduction-in-force provisions currently applicable to federal competitive service employees for positions held by bargaining unit employees.
“We know we can significantly narrow the estimated $20 billion gap between revenue and expenses by continuing to implement proven strategies and by introducing new ideas and initiatives,” Donahoe said.
Hamilton Davison, executive director for the American Catalog Mailers Association, fully supports Donahoe’s recommendations to Congress. If these things aren’t done, he says, “we’re in for a world of hurt.”
Although Donahoe’s testimony was dramatic, many of the issues he discussed have been on the table for the past few years. Donahoe is trying to use Sept. 30 deadline to move Congress because, as Davison notes, Congress “seems to move only when a crisis is present and a real decision must be made.”
Don Landis, vice president of postal affairs for catalog printer Arandell Corp., says it’s a “positive thing the Senate Committee is finally going to listen to PMG Donahoe on how urgent it is for legislation to be enacted.”
It would be nice if they could all agree on how to fix the USPS, “but that is wishful thinking,” Landis says. “The PMG is going to face a tough sell in getting all he wants because of all the political ramifications involved.”