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Postal Service's looming defaults raise fears over future

By Hope Yen

Associated Press

POSTED:


WASHINGTON » The U.S. Postal Service is bracing 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.

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 is 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 midsize 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, which releases third-quarter financial results next week, has projected a record $14.1 billion loss for the year. It expects to avoid bankruptcy in October only by defaulting on the two health prepayments, totaling $11.1 billion. It faces a cash crunch again next year.

Peter Nesvold, a financial analyst with Jefferies and Co., says the post office's financial future will depend on how Congress resolves its conflict over the mail agency's core mission.

While the Postal Service is a business expected to stay afloat, it also has a legal obligation to provide uniform first-class mail service even to sparsely populated, far-flung areas of the U.S., all for the same price of a 45-cent postage stamp. UPS and FedEx don't deliver to those areas that are less profitable, contracting with the Postal Service to get the job done.






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serious wrote:
The small towns/cities faced this problem years ago when they wanted to maintain library service. The bookmobile was invented. The Postal Service can run busses to these small places maybe twice a week to deliver and receive mail and packages. Next???
on July 31,2012 | 05:14AM
peanutgallery wrote:
This is what happens with government employee unions. The public always ends up paying way more than they are worth as the govenment employee union credo rings-out; "we want as much as we can get, for doing as little as possible." This is the Democrat party way. Give everyone government assistance, whether it's food stamps or a union job, and as Obama says; "vote Democrat becasue it's easier than working for a living, and when we run out of money, I'll just raise taxes on the rich, again."
on July 31,2012 | 02:23PM
bender wrote:
The real problem is the mandated retireee benefit package payments. For some strange reason, someone agreed to fully fund an employees retirement package 100% berforehand. It doesn't work that way in the real world. If the rest of the nation operated this way, just about every major city in the country would be facing the same situation. Remove that mandatory 100% pension funding requriement and then see how the books look.
on July 31,2012 | 05:55AM
soundofreason wrote:
Gee, put a small donation in for 20 years and get a full blown retirement check for 40 years and nobody could see "a problem" with that math? Maybe they should take the hit for believing that this would have ever worked in the first place.
on July 31,2012 | 07:15AM
Maui wrote:
It was a law passed by the Republican Congress and signed by George W in 2006. Congress can fix the problem but the Republicans don't want to. It funds the retirements of workers that have not been born yet.
on July 31,2012 | 07:38AM
cojef wrote:
Cash for life. People crticized the PO workers, but their labor unions outsmarted Congress again and now are faced with pension costs without peer. Pension funds has got be employee/employer funded and when implemented provide for past-service liabilities. Other than that spells bankruptcy. Rolling the can down road only magnify the pain. Poor money management is the government's way of doing business. No business can survive under that model of operation, spend now pay later or spend more than incoming earnings.
on July 31,2012 | 09:28AM
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