The Obama administration said on Tuesday that it would seek to save the deficit-plagued Postal Service from an embarrassing default by proposing to give it an extra three months to make a $5.5 billion payment due on Sept. 30 to finance retirees’ future health coverage.
Speaking at a Senate hearing, John Berry, director of the federal Office of Personnel Management, also said the administration would soon put forward a plan to stabilize the postal service, which faces a deficit of nearly $10 billion this fiscal year and had
warned that it could run out of money entirely this winter.
“We must act quickly to prevent a Postal Service collapse,” said Senator Joseph Lieberman, independent of Connecticut, who is chairman of the Senate Homeland Security and Governmental Affairs Committee, which held the Tuesday hearing on the Postal Service’s financial crisis.
Postmaster General Patrick R. Donahoe testified that even with a three-month reprieve on the $5.5 billion payment, the post office was likely to run out of cash and face a shutdown next July or August unless Congress passed legislation that provided a long-term solution for the ailing agency.
To help erase the postal service’s deficit, Mr. Donahoe has proposed several painful and controversial steps, among them, eliminating Saturday delivery, closing up to 3,700 postal locations and laying off 120,000 workers — despite union contracts with strict limits on layoffs.
“The Postal Service is on the brink of default,” Mr. Donahoe testified. “The Postal Service requires radical change to its business model if is to remain viable in the future.”
Mr. Berry said the Obama administration would push for legislation to allow a three-month delay in the $5.5 billion payment. But he stopped short of endorsing a far-reaching proposal, backed by the postal service, to allow the agency to claw back more than $50 billion that two independent actuaries have said the post office has overpaid into a major federal pension plan. Postal Service officials say such a move would go far to alleviate the agency’s financial problems.
Mr. Berry said the administration was studying the proposal, but not endorsing or opposing it at this point.
He said the administration would release a more comprehensive proposal in coming weeks “to ensure a sustainable future for the postal service,” one that would be part of the broader $1.5 trillion deficit reduction package that the
President Obama has promised to send to Congress.
The post office’s financial problems are complex. Mail volume has been steadily declining, and the agency has been unable to cut its labor costs or reduce services quickly enough to match the fall in revenue. At the same time, the post office faces legal constraints that prevent it from diversifying into new lines of business, and it is also barred from raising postage prices faster than the rate of inflation.
Mr. Berry noted that the Obama administration did support the postal service’s push to recover $7 billion that officials agree was overpaid into yet another pension fund. But he expressed serious reservations about the postal service’s plan to cut costs by moving postal workers into a new, supposedly cheaper health insurance plan.
The two senators most active on postal issues — Thomas Carper, a Delaware Democrat who is chairman of the subcommittee overseeing the post office, and Susan Collins of Maine, who is the ranking Republican on the governmental affairs committee — criticized the Obama administration for not acting more quickly and decisively to address the post office’s problems.
“The proposals put forward by the administration to date have been insufficient,” Mr. Carper said.
Ms. Collins added, “I just don’t understand why the administration doesn’t have a plan to put before us today, given the dire straits that we’re in.”
Several senators from rural states attacked the postal service’s proposals to close many post offices and to end Saturday delivery, saying it would hurt rural Americans disproportionately and would hurt those who rely on mail delivery of prescriptions and newspapers.
Postal officials say a major reason for the postal service’s financial crisis — it has lost $20 billion over the last four years — is a 2006 law requiring the post office to pay an average of $5.5 billion a year for 10 years to underwrite 75 years of health coverage for future retirees. The post office hopes to use much of $50 billion in claimed pension overpayments to cover those annual health care payments.
Cliff Guffey, president of the American Postal Workers Union, one of the four postal unions, denounced the post office’s proposal to lay off 120,000 workers. The agency has asked Congress to pass a special law overturning no-layoff provisions in its union contracts. Some of those contracts bar the layoff of any workers with more than six years on the job.
“These proposals are outrageous, illegal and despicable,” Mr. Guffey said.
He said his union had agreed to $3.7 billion in savings in a contract signed in May to help the postal service cut costs. In return, the union preserved its longstanding job-protection provisions. “To unilaterally abrogate what we gained is totally contrary to the duty to bargain collectively,” he said.
An overarching trend that has fueled the Postal Service’s crisis — and reduced annual mail volume by 22 percent since 2006 — is that Americans are e-mailing, paying bills electronically and reading shopping catalogs and news online.
Noting that some great books have been written based on letters sent by the Founding Fathers and by soldiers, Senator Claire McCaskill, Democrat of Missouri, urged the postmaster general to run an advertising campaign urging Americans to send more letters to each other.
“There is something special about receiving a piece of first-class mail, knowing that it comes from someone you care about,” she said. “I really believe that if someone would begin to market the value of sending a written letter to someone you love, you might be surprised what it will do for your Christmas season.”
Emmarie Huetteman contributed reporting from Washington.
