Postal Service to default on $5B payment - a first

U.S. Postal Service letter carrier Juan Padilla puts letters into a mailbox as he walks his delivery route Dec. 5, 2011, in San Francisco. / Getty Images

(CBS/AP) WASHINGTON - The U.S. Postal Service braced Wednesday 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.

Some members of Congress are seeing Wednesday's default as a cry for help, CBS Radio News correspondent Dan Raviv reports from Washington. The Senate passed a bill in April to spread retiree health payments over a longer period and to allow the Postal Service to save money by canceling Saturday deliveries, but the House of Representatives has not taken any action.

Congress let the Postal Service delay Wednesday's payment for more than half a year.

Financial analysts feel Wednesday's default could be a step toward filing for bankruptcy, Raviv reports.

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.

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[AHerring]

This week my local post office stopped delivering packages & parcels that required leaving mail trucks unattended. What cost-savings can be accrued from this policy? Anyone know?

[rwsmith29456]

Sure the P.O. needs to change but some higher ups are going to send it to an early grave.

[baldy50047]

Consider this: "...end its obligation to pay more than $5 billion each year for future retiree health payments".

Notice that they want to stop paying towards a bill that they KNOW is going to come due. It's not that they are denying the obligation to pay future retiree's healthcare benefits -- they realize that they can't pay for it now. The fact is, they will never be able to pay for it. They can't afford it now, and obviously they won't be able to afford it later. So what's the solution?

[Lerianis4]

The solution is to stop making them pay 10 years ahead of time. That would cut that bill to 10% of what it currently is and might give them a chance to pay it.

Bottom line however is that the postal service is being abrogated by technology.

[MegaProcrastination]

Lower salaries, for crying out loud! Our former post master got paid $60,000 a year to work thirty-five hours a week! On top of that, he'd get permission to close the office down on extra days during holiday season so he could travel with his family without using vacation days.

[Lerianis4]

So, you have a problem with people getting good pay that they can live on, basically? Sounds like a bunch of sour grapes and jealousy.

[credibility2]

End all public sector unions and make it a law. Immediately cease any lifetime goody benefits like egregiously high pensions the USPS is facing. Public sector unions and their unreasonable salaries and benefits are what have caused this problem. It has also caused problems for every state budget. Time to get real and force parity with the private sector.

[GoUnion86]

Since the postal service receives no tax dollars, how can their unions be considered public sector?

[hypnotoad72]

Forgive me but, unlike UPS and FedEx, USPS doesn't take corporate welfare:

http://www.nalc.org/postal/perform/selfsufficient.html#subsidize

Also, what do public sector unions have to do with this?

You also conveniently forget the times where people have responded to you pointing out that the benefits the public sector enjoys used to be worse than what the private sector offered even 10 years ago.

Time to get real and realize your precious private sector has screwed over all of us in the working class and got propped up by our tax dollars. Don't bother responding until you go back and do the research I and others asked you to do.

[sjc_1]

Congress needs to give the USPS the authority to make changes. They saddle them with future pension health care benefits payments far in excess of what is required, only so the Congress can borrow that money to cover the national deficits.

[hypnotoad72]

vsmit -

gee, not a peep from you about corporate welfare...

What a shock.

See my post to credibility0 above... the USPS does not take welfare, yet its competitors (UPS and FedEx) ***DO*** - despite charging more.

[sjc_1]

Health care benefits 75 years into the future is excessive and Congress knows that, but they want the money to cover what they don't want to raise revenue to pay for. Borrow and Waste is the GOP creed.

[fredisalive]

listen CON servatives, youre entitled to your opinions but not your own facts! Where do these wing nuts get these fake data? LOL

[stephand]

Yes, we need more government control! Take more taxes from people that knows how to run a business and use it to support Amtrak, US Postal and Washington.

[sjc_1]

FedEx and UPS will deliver a package, but it will cost twice as much. Medicare will administer for 3% while private sector takes 30%.

[sjc_1]

In general business finds it more cost effective to use the USPS. One example from you makes no difference. Figure it out, USPS does not require big profits to keep shareholders buying their stock and does not have to pay dividends.

[dantom39]

How long could you run your house like this suggestion downsize.

[Martha12345]

Another bloated government agency that is inept and inefficient. With luck, President Obama will bring us more of the same.

[hypnotoad72]

*snicker*

[tomanyt]

@Martha12345...A bloated government agency that receive NO taxpayer funds.