Cash-strapped postal service faces economic fallout from sequester

The cash-strapped U.S. Postal Service is bracing to take a financial hit from sequestration — even though it's being spared from the $85 billion across-the-board cuts themselves.

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Because USPS does not receive taxpayer dollars to fund its operations, the agency’s budget will not take the 9 percent hit that the sequester would take out of non-defense discretionary programs. 

But the Postal Service could still see its bottom line hurt if the automatic cuts prove to be a drag on the economy — as both the White House and the nonpartisan Congressional Budget Office (CBO) project.

“Any economic or other factors that lead our residential and business customers to mail less is a concern,” USPS spokesman Dave Partenheimer told The Hill in an email.  

An economy weakened by sequestration risks weighing down USPS, which lost close to $16 billion in fiscal 2012 and currently bleeds $25 million a day.

But for now, Partenheimer said it would be business as usual for the agency after Friday’s start of sequestration.

“Post offices will remain open, and employees and suppliers will continue to be paid on time,” he said in an email.

Parteneheimer noted that the 2008 fiscal crisis had played a role in both the Postal Service’s own financial troubles and in the decline of first-class mail volume, which has been sliding for years. 

CBO, meanwhile, has said that sequestration could be a 0.6 percent drag on economic growth this year, and cost the economy some 750,000 jobs —outcomes that could have a trickle-down effect on the postal service’s finances.

Jason Furman of the White House’s National Economic Council also stressed this week that the $85 billion in cuts would spiral out, and cause issues for the broader economy. 

Given its financial challenges, Postmaster General Patrick Donahoe has urged lawmakers to act quickly to overhaul postal operations. 

Donahoe also moved last month to scrap Saturday delivery of letters, his latest move to try to shore up the service’s finances. Package delivery, a growing part of USPS’s business, would continue to be delivered six days a week. 

Sen. Tom Carper (D-Del.), the Homeland Security Committee chairman, and Rep. Darrell Issa (R-Calif.), the chairman at House Oversight, have vowed to work together on legislation to overhaul the Postal Service, after falling short in the last Congress. 

USPS defaulted twice last year, to the tune of roughly $11 billion, on scheduled prepayments for future retiree healthcare. Postal officials have asked for relief from that payment, and postal unions say it is the major cause of the postal service’s current financial woes.

The agency’s finances got so tight, Donahoe told a congressional hearing last month, that USPS had just four days worth of operating cash on hand at one point in October 2012. USPS owes a hefty payment to the Labor Department for workers’ compensation insurance each October.

Art Sackler, the co-cordinator of the Coalition for the 21st Century Post Office, said that financial reality made the service vulnerable to any negative swing in the economy.

“The postal service is teetering on the knife’s edge of liquidity,” Sackler said. “All it takes to get them from slightly positive to a negative cash flow is one unexpected hiccup, really.”

White House officials have acknowledged that it will take awhile for the sequester’s impact on the economy to fully be felt, and lawmakers working on postal issues have stressed that they want to wrap up legislation in the next several months.

But if negotiations should linger, and the sequester begins to hurt the economy, Sackler said he wouldn’t be surprised to see the cuts put even more pressure on Congress. 

“If that does happen, I would assume that could be a reason to hopefully speed up relief for it,” he said.