Today the U.S. Postal Service will fail to make a $5.5 billion Congressionally mandated payment to cover health care costs for future retirees. At post offices around the country, everything will function normally. Postal trucks will be on their routes, and the mail will get delivered. But it’ll be one of the most important days in recent memory for the financially troubled service.
This day has been coming for a while. Postmaster General Patrick Donahoe has been trying to warn anyone who would listen ever since he started heading up the postal service in October 2010.
Six years ago Congress mandated that the U.S.P.S. start prefunding health benefits for current employees for the next 75 years, and it told the postal service that it had to set aside at least $5.5 billion or more a year to do so. At the time, the post office was doing fairly well. Mail volume was steady, and the recession was a couple years away.
And for a while, the post office was able to make those payments. So far the post office has set aside more than $20 billion in the preretiree fund. (Its deficit was around $25 billion during that same period.)
But over the last several years, the U.S.P.S. has been hemorrhaging money as mail volume rapidly declined and things like online bill pay became more popular.
While the post office will have to undergo serious transformations to fully adapt to a digital world, the $5.5 billion mandate is what’s truly breaking the U.S.P.S.’s back.
The postmaster general has been asking Congress to restructure the pre-retiree health plan, as well as approve 5- instead of 6-day delivery and the closing of thousands of post offices. Congress made a half-hearted attempt at alleviating the post office’s problems last April, when the Senate passed a measure that would’ve given the U.S.P.S. $11 billion to avoid default. A House committee also passed a plan last year that would allow the postal service to close thousands of facilities and renegotiate labor contracts. But the House isn’t likely to take up the measure until next month.
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So, the postal service will default today on a $5.5 billion payment to the U.S. Treasury, where it would normally be placed into an escrow account that is invested in special-issue Treasury securities.
It’s unclear what will happen after a default, but some reports say that postal officials are already looking into delaying an upcoming $1.5 billion payment due to the Labor Department as well as interest payments to the Treasury.
It’s clear that the post office’s path is unsustainable. Congressional action is necessary. But all that’s unlikely until fall at the earliest, just in time for the post office to default on its next payment of $5.6 billion due Sept. 1.