Lawmakers expected to watch Postal Service default

By Bernie Becker - 07/31/12 05:31 PM ET

Lawmakers appear ready to let the cash-strapped U.S. Postal Service default for the first time on Wednesday, when a required payment to the federal government of more than $5 billion is due.

USPS said in a statement this week that it would not make the $5.5 billion prepayment for retiree healthcare due on Aug. 1, nor a second payment of a similar size due at the end of September.

The expected default comes as postal reform legislation remains stalled in Congress, with House Republicans having yet to act on their measure that aims to give the service more fiscal security.

Senate sponsors of postal legislation have urged the House to act on their bill, and Congress has delayed the required prepayment in the past.

But with USPS saying that default will not affect day-to-day operations, the House is not expected to take up its postal legislation until at least after the upcoming recess, and GOP lawmakers have suggested that delaying the prepayment wouldn’t make much difference anyway.

“The default by the Postal Service on its obligation to its own employees and retirees follows decades of mismanagement, and a willful blindness to fundamental changes in America’s use of mail,” Rep. Darrell Issa (R-Calif.), the chairman of the House Oversight Committee and the sponsor of the chamber’s postal legislation, said this week.

In its statement this week, the Postal Service reiterated that operations would be fully funded, with mail continuing to be delivered and employees continuing to receive their benefits.

USPS has racked up billions of dollars in red ink in recent years, with first-class mail volume taking a dive since 2006 amid technological advancements and a weak economy. In the long term, the agency has said it needs to cut $22.5 billion from its annual budget by 2016.

Postal advocates and lawmakers like Sen. Tom Carper (D-Del.) have also said that Congress needs to act to offer more certainty to businesses that use USPS.

“This default couldn’t come at a worse time, as many major and mid-sized mailers are preparing their budgets for next year,” Art Sackler, a coordinator for the Coalition for a 21st Century Postal Service (C21). “With Congress delaying action on a Postal bill, mailers will be increasingly wary about the stability of the Postal Service and will likely divert more mail out of the system.”

“This is a tenuous economic recovery. One of the reasons why the economic recovery is tenuous is because of all the uncertainty, lack of predictability,” Carper told reporters Tuesday. “Businesses need predictability and certainty. And frankly, we’re not providing a lot of it for the Postal Service.”

But Republicans have suggested that USPS is not using all the cost-cutting tools at its disposal, including a union contract from last year that they see as too generous.

GOP lawmakers in the House have also said that the Senate bill — from Carper and Sens. Joe Lieberman (I-Conn.), Susan Collins (R-Maine) and Scott Brown (R-Mass.) — is insufficient, a line of thinking shared by Postmaster General Patrick Donahoe and other top postal officials.

And Republicans have expressed concern that taxpayer money would be needed to shore up the Postal Service, whose operations are funded by the sale of postal products. Postal employees do receive government benefits, and the agency is subject to congressional control.

“While this default will not cause a service disruption, some are already trying to use it as an excuse to shift billions of taxpayer dollars into USPS coffers,” Rep. Dennis Ross (R-Fla.), Issa’s co-sponsor on the House bill, said this week. “Congress must reject calls for a taxpayer funded bailout and instead focus on the need to enact comprehensive reform that mandates cuts to operating expenses in order to restore long-term solvency. ”

Under the bill passed by the Senate, USPS would be able to use an overpayment into a government account to ease workers into retirement, and would get some relief from the retiree prepayment.

But the bill would likely not allow the agency to move as quickly to five-day delivery as the House proposal, which also would install an oversight board to cut costs.

Ross is among the Republicans who has said that the bill has enough support to pass the House – to which Carper says, bring it on.

“I don’t care what it is. Pass anything that we can go to conference with. We’ll work out the details,” Carper said. “We’ll get a better bill. We’ll get a better bill than our bill.”