USPS also needs more flexibility to cut costs, federal officials told a congressional subcommittee on Wednesday. Rules requiring the agency to pre-fund its retiree health benefits and a lack of reimbursement of overpayments to its pension accounts are key barriers to its fiscal health, they said.
Postmaster General Patrick Donahoe warned that unless Congress provides some relief, the agency will reach its borrowing limit and will default on its $5.5 billion obligation to the retiree health benefits fund due Sept. 30.
"We will pay employees and deliver mail," said Donahoe. "The thing we will not do is be able to pay the federal government."
USPS trimmed $3 billion in costs in fiscal 2010 and this year aims to cut an additional $2 billion, along with 40 million work hours, he said. The agency also plans substantial reductions to the employee head count, currently at 570,000, to below 500,000, in the near future.
Subcommittee Chairman Rep. Dennis Ross, R-Fla., said such cost-cutting measures must be the primary focus of the Postal Service now.
"We need to empower you," he said. "However, proposals to provide short term relief … do not address the long-term, systemic problem and solvency issues that must be tackled in order that the Postal Service will achieve long-term financial stability."
USPS has posted significant losses recently, including $329 million in the first quarter of fiscal 2011, because of the $1.4 billion pre-funding obligation to retiree health benefits and a $700 million workers' compensation liability. In addition, the agency has overpaid its Civil Service Retirement System account by $75 billion and contributed nearly $7 billion beyond its obligations to the Federal Employees Retirement System.
Lawmakers and federal officials are at odds over how to help return the Postal Service to financial stability, however. USPS has been pushing for changes outlined in its 10-year strategic plan, such as relief from its pre-funding requirements, as well as the flexibility to close post offices for economic reasons and reduce the number of weekly mail delivery days from six to five.
President Obama's fiscal 2012 budget proposal would provide some short-term relief, returning about $6.9 billion in FERS overpayments to the Postal Service over 30 years, including $550 million in fiscal 2011. In the budget proposal, USPS also would receive short-term relief from a 2006 requirement to pre-fund its retiree health benefits at about $5 billion annually. It is the only federal agency with that obligation.
The Office of Personnel Management's inspector general has advised that USPS proposals to restructure its benefits funding could adversely affect those programs and would not provide financial stability. The IG report, released on Monday, warned against lowering FERS funding obligations, noting any policy changes would shift additional costs to taxpayers.
"Before we do layoffs and change delivery frequency, we need to alter the benefit payment schedule that cannot account for changing demand," said Rep. Stephen Lynch, D-Mass.
During the hearing, Lynch announced plans to reintroduce legislation from July 2010 that would reduce the agency's burden to fund its CSRS account and reverse years of overpayment. Rep. Gerry Connolly, D-Va., will sponsor a similar bill in the coming weeks.
Lawmakers also expressed concern about the compensation provided to postal employees. Labor costs account for 80 percent of the Postal Service's expenses.
Negotiations currently are under way with two of the Postal Service's employee unions, and workforce flexibility and changes in compensation, including a reduction in the agency's contribution to employee health insurance, are two issues on the table, Donahoe said.
"The only pay that the Postal Service has in excess of the federal government is health benefits, Donahoe said. "The unions are already coming to that level. What's being discussed right now will get us there in four years."