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Post office nears historic default on $5B payment

This photo taken July 27, 2012 shows a mailbox outside a US Post Office in Lawrence, Mich. 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. (AP Photo/Robert Ray)

This photo taken July 27, 2012 shows a mailbox outside a US Post Office in Lawrence, Mich. 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. (AP Photo/Robert Ray)

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.

Comments

notblind 1 year, 8 months ago

"...for future retiree benefits..."

What does this mean ???

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roaads1 1 year, 8 months ago

I have to take my mail to the post office because the mail carrier that comes through our area doesn't do what he suppose to with our mail. About half just doesn't make it to where it is mailed. Then when he delivers mail all my neighbors and myself are out in the street exchanging mail because he doesn't put them in the correct mailboxes. And everytime I turn around the postal service needs more money. Close it down. They can't do anything right and obviously can't do accounting.

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DB 1 year, 8 months ago

It is rare to see our mail delivered before 5 pm in 30043. In the winter it is often dark and you have to take a flashlight to get the mail.

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Say_that_again 1 year, 8 months ago

Why are you in such a hurry for the daily deluge of junk mail? What can't wait until dawn?

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teelee 1 year, 8 months ago

Somebody is paying to send that junk mail, so let them send it. You can always go down to the recycling center and make yourself feel good about going Green.

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DB 1 year, 8 months ago

I know you are being sarcastic but I wrote mail, not junk mail. We no longer use our box to post mail as it will sit there all day, an open invitation to thieves.

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Say_that_again 1 year, 8 months ago

And yet the proposal to cut back to 5 day delivery was met with such outrage. Since the majority of mail I receive is junk mail and probably is for most people, quit giving special rates for bulk mail. Also stop allowing Congressional frank (Congressmen being allowed to mail "official letters" for free. With the internet, this has become an unnecessary privilege.

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kevin 1 year, 8 months ago

I throw away over half of the mail without even opening it!!

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teelee 1 year, 8 months ago

Did they mention anything about the fuel costs that have doubled under Barack Hussein Obama? This has to be one of the main problems they are facing with $4.00 a gallon diesel fuel and $3.50 gasoline. It was only $1.50 when Bush left office in January 2009. Yes it spiked under Bush but it always came back down until Obama took over and they have stayed high. But we don't need anymore drilling or any pipelines, we need Green energy like Solyndra right? Exactly how many trillions did Obama spend on the failed stimulus? The post office shortage is chump change compared to that.

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BuzzG 1 year, 8 months ago

Mail cries out to be privatized. A private company could do it cheaper, better and with more innovation. I walk into the post office and wait in long lines to do stuff that I could do mechanically but the postal union has enough political power and they want people coming to the offices for job security. You would never see UPS run like this.

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Jan 1 year, 8 months ago

If UPS were running the daily door to door service, they would be charging closer to $1 per letter. And the post office is being crushed by unnecessary regulation that does not apply to private carriers like UPS. Tese stop innovations to help expedite delivery as well as unusual financial restrictions:

"...the post office is the victim of an artificial deficit created by the 2006 Postal Accountability and Enhancement Act, signed by President George W. Bush, which forces the Postal Service to pre-fund its retiree health benefits 75 years into the future over the next 10 years. What should have been annual revenue surpluses for the Postal Service over the last decade have instead contributed to nightmare annual deficits as it is forced to pay $5.5 billion a year out of operating funds to satisfy this unnecessary and devastating mandate. ."

The above quote is from an Article by Phillip Rubio at: http://www.cnn.com/2011/09/09/opinion/rubio-postal-service-matters/index.htmllink text

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jack 1 year, 8 months ago

The PAEA passed the House by a 410-20 vote, and the Senate by unanimous consent in a voice vote.

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roaads1 1 year, 8 months ago

I'd pay more if they went private and nonunion. They would be able to and we could demand decent service then. Right now all I do is try to find ways to find out where my mail landed so my bills will be ontime, my lights aren't shut off, and my family isn't put out because the service they provide is awful right now. The bottom line is the employees can't be fired so they don't care what we think of the service they do not provide. So in fine federal form I guess Washington will just throw more of our money at it. Nice.

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Mack711 1 year, 8 months ago

Went to the UPS store to send a small package (under1 pound). The UPS store wanted to know if they could send it by the US Postall or UPS. turns out Postal service was cheaper. There were no lines at the UPS Store and they do the samething as the PO. Now that is where I bo to mail things either UPS or USPS. Better service and better product. Remember we subsidize the USPS with our taxes.

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FactChecker 1 year, 8 months ago

Your last statement is false. The USPS has not received subsidies from your taxes since 1980. It does enjoy a tax exemption of property, as do churches. Your tax dollar does do directly to many private industries in the form of subsidies from farming to oil.

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Sandykin 1 year, 8 months ago

In the age of technology, we get few bills by mail anymore and it's been years since I received a first class letter of any sort. Mostly what's in my mailbox is junk mail and campaign propaganda that all goes straight into the recycle bin. If businesses were smart about their marketing dollar, they wouldn't be sending their ads thru the mail either. It's time for government to realize what century were in and let the post office privatize to keep up with the change in demand for their services and stop mandating the saving of funds for ridiculously sized retirement entitlements. It's insanity that cannot keep going in perpetuity.

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kevin 1 year, 8 months ago

add one more government run/backed agency that has failed in the modern world. Big salaries for postman and big pensions are killing them. Back in the 80's a mailman could make up to $65,000 a year. I wonder what the max is today? The more the rates go up, the more people go online to transact business. One must also add in the fact that postal workers steal a lot of packages. They figure if those packages are insured, let the owner file a claim. I lost two uninsured packages already in the past 2 years. The workers sometimes shake them to see if what's inside is worth something or they open and reseal the package. The person you call to complain doesn't do one thing about your complaint after you hang up the phone. It's a well-greased system of corruption.

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