Postmaster General: Postal Service 'On Brink of 5.5 Billion Payment Default'

Postmaster General Patrick Donahoe appears before the Senate Homeland Security and Governmental Affairs Committee as the panel examines the economic troubles of the Postal Service, a self-funded federal agency in decline because of the Internet and advertising losses, on Capitol Hill in Washington, Tuesday. (AP Photo/J. Scott Applewhite)

WASHINGTON -- Postmaster General Patrick Donahoe warned that the Postal Service is on "the brink of default" as he battles to keep his agency solvent. Without legislation by Sept. 30, the agency "will default on a mandated $5.5 billion payment to the Treasury," Donahoe told the Senate Homeland Security and Governmental Affairs Committee on Tuesday.

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And with no congressional action, a year from now, next August or September, the post office could run out of money to pay salaries and contractors, hampering its ability to operate, Donahoe said.

"We do not want taxpayer money," Donahoe said, "We have got to get our finances in order."

Committee Chairman Joe Lieberman, I-Conn., said: "We must act quickly. The U.S. Postal Service is not an 18th century relic, it is a 21st century national asset, but times are changing rapidly now and so, too, must the post office."

Sen. Susan Collins, R-Maine, noted that the post office supports a $1.1 trillion mailing industry employing more than 8 million people in direct mail, periodicals, catalogs, financial services and other businesses.

Sen. Tom Carper, D-Del., noted several proposals have been put forward to improve postal operations and said that Congress needs to work on areas where agreement can be found. Both Carper and Collins have introduced bills to reform postal operations, and measures have also been introduced in the House.

Donahoe and his predecessor John Potter have warned for months that without changes in the law governing postal operations the Postal Service will be unable to make advance payments to cover future retiree medical benefits.

Staggered by the economic downturn and the massive shift from first-class mail to email, the post office lost more than $8 billion last year and is facing losses at least that large this year, despite having cut 110,000 jobs over the last four years and making other changes, including closing smaller, local post offices.

The Postal Service, which does not receive tax money for its operations, is not seeking federal funds.

Instead, postal officials want changes in the way they operate, including relief from the requirement that it prefund medical costs. No other federal agency has to prefund retiree health benefits, but because of the way the federal budget is organized the money counts as income to the government, so eliminating it would make the federal deficit appear larger.

When Congress restructured postal operations in 2006 it ordered the agency to establish a separate fund to begin covering those benefits, instead of using money for the post office's general fund, starting in 2017, and to make annual advance payments to that account. The payment due Sept. 30 would be $5.5 billion.

Also, the post office wants to reduce mail delivery to five days-a-week; close 3,700 offices, further cut the workforce by up to 220,000; and to withdraw from federal retirement systems and set up its own. It also seeks the return of $6.9 billion it overpaid into retirement funds.

Contracts with its employee unions currently strictly limit layoffs and closing post offices riles local communities who complain to their members of Congress.

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