USPS prepares for second default in two months

The U.S. Postal Service will default this week on a $5.6 billion congressionally mandated obligation to prefund retiree health benefits, marking the second time in two months the cash-strapped agency has done this.

The Postal Service last month failed to pay $5.5 billion for its fiscal 2011 prepayment obligation, which originally was due September 2011 but was deferred by Congress until Aug. 1. That was the first time it ever defaulted on a payment to the Treasury Department. The $5.6 billion due this week, on Sept. 30, represents this fiscal year’s obligation.

Prior to this year, Congress helped USPS defer prefunding payments required by a 2006 congressional mandate. Postal reform has challenged this Congress. Lawmakers warn that when they revisit the issue after the November election they likely won’t reach agreement on as major an overhaul as some deem necessary. USPS lost $5.2 billion in the third quarter of fiscal 2012, $2.1 billion more than during the same time period in 2011.

Health care for current retirees is paid for from USPS’ general operating budget and will not be affected by the default. The agency’s inability to make its payments will not affect mail delivery or employee pay, said USPS spokesman David Partenheimer.

The Senate passed a postal reform bill this spring and its architects have derided the House for stalling on a vote on its version of the bill. The two bills have some similarities, but would address USPS’ retiree health care prepayment obligations differently. The Senate bill restructures the prepayments to make them more manageable; the House bill, which passed out of the House Oversight and Government Reform committee earlier this year, requires the agency to pay $1 billion of its fiscal 2011 prepayment obligations and make up the remainder in fiscal 2015 and fiscal 2016.

Rep. Darrell Issa, R-Calif., the chief architect of the House bill, wanted to include postal reform measures in the six-month continuing resolution passed by Congress last week, but the proposal failed to make it into the legislation.

Sen. Tom Carper, D-Del., a sponsor of the Senate bill, called that House effort a “piecemeal, short-term fix.” He also said the default this week further erodes confidence in USPS’ future.

“I urge the House to come together and pass a bill quickly so we can work out our differences in a conference committee and help achieve our shared goal of preserving the Postal Service for future generations,” Carper said in a statement provided to Government Executive.

Partenheimer said USPS continued to encourage comprehensive reform in the current Congress -- which is in recess. “Comprehensive reform of the laws governing the Postal Service is urgently needed in order for the Postal Service to fully implement its five-year business plan and return to long-term financial stability,” he said.