USPS to see $10 billion deficit this month

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This story has been updated.

The U.S. Postal Service is running out of time to address its fiscal crisis, as the agency's top official expects to be $10 billion in the red by the end of the month.

Postmaster General Patrick Donahoe told lawmakers on Tuesday that the agency will default on its obligation to prepay its retiree health benefits account and reach its statutory borrowing limit by the end of September unless it receives immediate relief.

After paying $1.3 billion in workers' compensation liabilities in October, the agency will have just one week's worth of cash to cover operational expenses. USPS expects $9 billion in losses next year. By September 2012, the Postal Service likely will be unable to pay its employees and contractors, according to Donahoe.

"Short-term stop gap proposals will not help," Donahoe said during a Senate Homeland Security and Governmental Affairs Committee hearing. "We're trying to get profitable by 2013… and eventually get to the position to make some very important investments, like vehicles, but more important than that, we want to stabilize our finances, which is critical for the American economy."

The Postal Service already has asked Congress for legislative changes such as the flexibility to cut Saturday delivery, adjust the size of the workforce, receive a refund from its retiree accounts and end an obligation to prefund retiree health benefits. Officials in August announced they would seek flexibility to allow the agency to create its own health and retiree benefits programs. Postal workers currently are covered under the Federal Employees Health Benefits program, Civil Service Retirement System or Federal Employees Retirement System.

Office of Personnel Management Director John Berry said President Obama is planning to release a strategy in the coming weeks for addressing the Postal Service's fiscal crisis in conjunction with the deficit reduction package. The administration also is calling on Congress to delay USPS' retiree health payment by 90 days, he said.

According to Berry, USPS' withdrawal from FEHBP would have a limited impact on the program and its costs, though the elimination of plans that cater to postal employees could reduce competition within the plan. Moving to a separate retirement system could also place at risk the agency's ability to pay benefits, he said.

USPS also wants to cut 120,000 jobs by 2015, a move that will require changes in rules governing the use of layoffs. The agency cut 8,000 jobs in the third quarter of this fiscal year through attrition and early out options. Without active cuts, the Postal Service expects to lose just 100,000 employees in the next three years, less than half of the reductions it needs, Donahoe said.

Cliff Guffey, president of the American Postal Workers Union, said he feels betrayed by USPS proposals to change collective bargaining agreements. USPS signed a new contract with the union this spring and recently began negotiations with the National Association of Letter Carriers and the National Postal Mail Handlers Union. To repeal the no-layoff protection and alter employee benefits is "outrageous, illegal and despicable," Guffey said.

House lawmakers rallied in support of union members. In a letter sent on Tuesday to Donahoe, Reps. Stephen Lynch, D-Mass., and Elijah Cummings, D-Md., wrote that nullifying contract provisions is unfair to employees and hurts the agency's credibility in future negotiations.

Sen. Susan Collins, R-Maine, ranking member of the committee, expressed frustration that the administration has yet to produce a concrete postal reform plan given the number of legislative proposals already are in play to bring the agency back to fiscal health. The bills contain disparate provisions regarding delivery day flexibility and retiree benefit obligations, among other things.

"We need to focus on the areas of agreement and set the Postal Service on a road to stability and profitability," Sen. Tom Carper, D-Del., said.

According to Sen. Joseph Lieberman, I-Conn., chairman of the panel, Congress must act quickly to prevent the agency's collapse and enact a plan to ensure it survives into the future.

"We're considering the question of whether the United States Postal Service can survive in the 21st century," Lieberman said. "It's hard to believe that it's come to this, but it has."

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