WASHINGTON (AP) - The U.S. Postal Service is
bracing for a first-ever default on billions in payments due to the
Treasury, adding to widening uncertainty about the mail agency's
solvency as first-class letters plummet and Congress deadlocks on ways
to stem the red ink.
With cash running
perilously low, two legally required payments for future postal
retirees' health benefits - $5.5 billion due Wednesday, and another $5.6
billion due in September - will be left unpaid, the mail agency said
Monday. Postal officials said they also are studying whether they may
need to delay other obligations. In the coming months, a $1.5 billion
payment is due to the Labor Department for workers compensation, which
for now it expects to make, as well as millions in interest payments to
the Treasury.
The defaults won't stir any
kind of catastrophe in day-to-day mail service. Post offices will stay
open, mail trucks will run, employees will get paid, current retirees
will get health benefits.
But a growing chorus of
analysts, labor unions and business customers are troubled by continuing
losses that point to deeper, longer-term financial damage, as the mail
agency finds it increasingly preoccupied with staving off immediate
bankruptcy while Congress delays on a postal overhaul bill.
Postmaster General Patrick
Donahoe has described a "crisis of confidence" amid the mounting red ink
that could lead even once-loyal customers to abandon use of the mail.
"I think for my generation
it was a great asset - if you had a letter or package and you needed it
to get up to the North Pole, you knew it would be delivered," said Jim
Husa, 87, of Lawrence, Mich., after stopping to mail letters recently at
his local post office. Noting the mail agency's financial woes, he
added: "Times have changed, and we old-timers know that. FedEx and UPS
and the Internet seem to be making the Postal Service obsolete."
Banks are promoting
electronic payments, citing in part the growing uncertainty of postal
mail. The federal government will stop mailing paper checks starting
next year for millions of people who receive Social Security and other
benefits, paying via direct deposit or debit cards instead.
First-class mail volume, which has fallen 25 percent since 2006, is projected to drop another 30 percent by 2016.
Art Sackler, co-coordinator
of the Coalition for a 21st Century Postal Service, a group
representing the private-sector mailing industry, said the payment
defaults couldn't come at a worse time, as many major and mid-sized
mailers are preparing their budgets for next year.
"The impact of the postal
default may not be seen by the public, but it will be felt by the
business community," he said. "Mailers will be increasingly wary about
the stability of the Postal Service. The logical and likely move would
be to divert more mail out of the system."
The Postal Service, an
independent agency of government, does not receive taxpayer money for
operations but it is subject to congressional control. It estimates that
it is now losing $25 million a day, which includes projected savings it
had expected to be accruing by now if Congress this spring had approved
its five-year profitability plan. That plan would cut Saturday
delivery, reduce low-volume postal facilities and end its obligation to
pay more than $5 billion each year for future retiree health payments.
While the Senate passed a
bill in April that provides an $11 billion cash infusion to help the
mail agency avert a default, it also would delay many of the planned
postal cuts for another year or two. The House remains stalled over a
measure that allows for the aggressive cuts the Postal Service prefers;
that's unlikely to move forward this year, partly due to concerns among
rural lawmakers over cutbacks in their communities.
The Postal Service
originally sought to close low-revenue post offices in rural areas to
save money but after public opposition agreed to keep 13,000 open with
shorter operating hours. The Postal Service also is delaying the closing
of many mail processing centers, originally set to begin this spring.
The estimated annual savings of $2.1 billion won't be realized until the
full cuts are completed in late 2014.
The postal uncertainty
offers opportunities for banks, which can save up to one-third of the
cost of processing checks if payments are made electronically. JPMorgan
Chase & Co., Bank of America Corp., Citigroup Inc. and Wells Fargo
& Co. have been urging electronic transactions.
"This could be a watershed
event to motivate consumers and businesses to stop writing checks," said
Rodney Gardner, head of global receivables at Bank of America, who
recently reviewed the topic at a conference with insurance companies.
The Postal Service, which
releases third-quarter financial results next week, has projected a
record $14.1 billion loss for the year. It expects to avoid bankruptcy
in October only by defaulting on the two health prepayments, totaling
$11.1 billion. It faces a cash crunch again next year.
Fredric Rolando, president
of the National Association of Letter Carriers, notes that the onerous
health payment for future retirees - something not required of any other
government agency or private business - is to blame for much of the
post office's red ink. He faults Congress for mandating the payments in
2006, saying they force the post office every year into a "panic mode
that absorbs energy and resources" rather than focusing on longer-term
innovation.
"The word 'default' sounds ominous, but in reality this is a default on the part of Congress," Rolando said.
In 2007 and 2008, the
Postal Service initially had profits of roughly $3 billion but fell into
the red after making the health payments. In more recent years, it has
suffered annual losses of $2 billion to $5 billion even after factoring
out the health payments; by 2016, the mail agency expects to lose $21.3
billion a year, of which $5.8 billion will be caused by that payment.
Peter Nesvold, a financial
analyst with Jefferies and Co., says the post office's financial future
will depend on how Congress resolves its conflict over the mail agency's
core mission. While the Postal Service is a business expected to stay
afloat, it also has a legal obligation to provide uniform first-class
mail service even to sparsely populated, far-flung areas of the U.S.,
all for the same price of a 45-cent postage stamp. UPS and FedEx don't
deliver to those areas that are less profitable, contracting with the
Postal Service to get the job done.
Last year, first-class mail
contributed to 49 percent of the Postal Service's total revenue; by
2016, that share will drop to 41 percent. The mail agency has been
seeking to pick up the slack by promoting its fast-growing package
business as a cheaper alternative to FedEx and UPS, as well as
encouraging more use of "standard mail," which are advertising circulars
and catalogs often referred to as "junk mail."
Linda Graham, a postmaster
in Hope, Alaska, says she understands the Postal Service's financial
dilemma. Her rural postal branch may see its hours reduced from eight to
four hours a day. "I feel that right now the post office is really
grasping to try to make things work. I mean, they're losing money," she
said.
Graham acknowledges her
postal branch could probably get by if it were open just 6 hours a day,
but believes that a bigger cut would be "suicide" for the town because
of the role it plays as a community gathering place. "That's a real
concern. So I just tell people, write more letters, buy more stamps,"
she said.
