July 31st, 2012
(HigginsBlog) – The U.S. Postal Service is set to default on a giant payment later this week as congress fails to address the agency’s deep financial woes.
As cities and counties across the country declare bankruptcy the United States Postal Service is set to default on a massive payment this week as the fiscal cliff looms on the horizon and the deadlocked US congress can’t seem to agree on anything that doesn’t put money into their own pockets.
The US Postal Service has warned since last year that it was insolvent and could not make a $5.5 billion payment toward retiree benefits and despite nearly a year to act Congress has failed to do so.
In fact, instead of address the issue in 2011 they simply extended the Postal Service’s deadline to act until August 1st and with Congress heading into the summer recess the problem still looms to be addressed.
The U.S. Postal Service is set this week to default on a giant payment, the latest blow illustrating Congress’ slow progress toward fixing the agency’s deep financial woes and one that could damage some customers’ confidence.
Compounding the problem is a payment of nearly equal size is due in September which is likely to be defaulted on as well.
More from CNBC
Postal Service Set to Default Payment on Financial Woes
The Postal Service has said for months that it could not afford to make the $5.5 billion payment for future retiree health benefits, which was originally due in 2011 but was delayed by Congress until Aug. 1.
The agency, which relies on sales of stamps and other products rather than taxpayer funds, has said the same about a second payment due at the end of the fiscal year in September.
Congress has so far made no significant push to delay the payment again. Missing the health prepayment, the first default in the agency’s history, would not cause interruptions in service or prevent the Postal Service from paying suppliers and employees, USPS spokesman David Partenheimer said in an email.
But trade groups, mailing industry lobbyists and some business owners said the approaching default raises questions about the Postal Service’s financial stability and Congress’ commitment to helping remedy the agency’s money woes.
How We Got Here
In 2006, Congress passed a requirement that the Postal Service set aside funds each year to use toward retiree health benefits years later, when the agency’s spending on benefits was forecast to balloon.
As Americans have increasingly turned to online communication, the Postal Service has steadily lost money each year and has struggled to meet the annual, multi-billion-dollar retiree benefit payment obligations.
The agency lost $5.1 billion in fiscal year 2011.
Lawmakers from both parties have said for more than a year that they planned to tackle legislation to overhaul the Postal Service and help return it to profitability, but the House of Representatives and the Senate do not appear close to a deal.
The Senate passed a bill in April that would spread the retiree health payments over more years, allow the Postal Service to end Saturday mail delivery, and let it use surplus funds in a retirement account to offer early retirement incentives as a way to reduce the workforce.
Source: Higgins Blog