Postal Service Default: Postmaster General Pleads For Congressional Action As Bankruptcy Looms

WASHINGTON -- The postmaster general pleaded with lawmakers on Capitol Hill on Tuesday to pass legislation that would help the postal service right its finances and avoid possible bankruptcy.

“The Postal Service is at the brink of default,” Postmaster General Patrick Donahoe warned at a Senate hearing. “Our situation is urgent. Congressional action is needed immediately to avoid this default.”

John Berry, director of the White House’s Office of Personnel Management, said the White House plans to release a proposal that aids the postal service as part of a $1.5 trillion deficit-reduction package that President Obama will submit to Congress.

Faced with flagging revenues and high workforce costs, the Postal Service is projected to post a $9 billion deficit on the year and could miss a $5.5 billion payment on retiree benefits at the end of this month. Arguing that the service suffers from a “restrictive business model,” Donahoe said that Congress needs to pass legislation that would make the independent agency more like “a private-sector business.”

“We do not have the flexibility to achieve these cost reductions,” Donahoe said.

As part of those cost reductions, Donahoe said he would like to shed more than 100,000 postal workers who are now covered by no-layoff clauses in union contracts; move new employees from a defined-benefit plan to a lesser defined-contribution plan; and eliminate the service’s mandatory annual payment into employee health benefits. The plan would also close around 300 of the postal service's 500 processing centers, shutter thousands of post offices around the country, and eliminate Saturday delivery. Many of those actions would require a mandate from Congress.

Overall, the plan translates into a much leaner postal service -- as well as a less attractive job for postal workers -- but lawmakers on both sides of the aisle seemed eager to do what’s necessary to keep the agency from crumbling.

“It needs to reduce its head count,” Sen. Tom Carper (D-Del.) said of the postal service’s workforce, noting that a default would be “embarrassing and dangerous.” “They want to do it humanely. We need to let them.” Aware of the American public's weariness of bailouts, Carper added, "There's not a huge bailout that's needed here ... We need to get out of the way."

But Reps. Elijah Cummings (D-Md.) and Stephen Lynch (D-Mass.) sent a letter to Donahoe on Tuesday saying they wouldn't support dissolving the no-layoff provision of the agency's union contracts, a move they believe would undercut workers' rights. "To now ask Congress to nullify part of this same contract less than five months after it was concluded is neither fair to Postal Service employees nor helpful to the Postal Service’s credibility in future negotiations,” Cummings and Lynch wrote.

A bankruptcy of the postal service could have drastic implications, not merely for the agency but for the broader economy. A $1 trillion mailing industry employing more than 8 million workers relies directly on the agency’s services, as do countless American businesses, Donahoe testified.

The service has seen a 22 percent drop in the volume of mail handled in recent years, thanks largely to the explosion in internet transactions like online bill pay. At the current pace, the agency is estimating shrinking revenues through 2020. Although the use of first-class mail will probably continue to decline, Donahoe said he sees a brighter future for the agency when it comes to “standard mail,” such as direct-mail advertising, as well as package service. He told lawmakers these services would not suffer significantly from mass layoffs.

“We will not have people moving away from us on account of these changes we’re making,” he said.

Donahoe also urged lawmakers to pass legislation that would allow for the return of what he described as $6.9 billion in “overpayments” to retiree pension funds over the years. Berry said the administration would support the return of that money, so long as Congress passed legislation allowing it.

Phillip Herr, director of physical infrastructure issues at the U.S. Government Accountability Office, said that the postal service is no longer viable under its current model.

“The stark reality is the postal service’s business model ... is broken,” Herr said. “The gap between revenues and maintaining its network has become unsustainable.”

Although nothing calamitous will happen in the coming weeks, Donahoe warned that the agency may run out of cash by next summer, at which point it will be no longer able to pay its contractors. He asked that Congress pass legislation before the end of the year that would enable layoffs, changes to employee benefits and the closing of certain facilities.