USPS Defaults on $5.5 Billion Obligation

Posted on by Larry Riggs

What if a cherished and necessary public institution defaulted – and life went on as usual?

As expected, the U.S. Postal Service couldn't cough up a $5.5 billion obligation due on Wed. Aug. 1 to pay for the healthcare benefits of future retirees. On top of that, it's likely to fall short of another $5.6 billion bill due Sept. 30.

"Everybody's been expecting [the default] so it comes as no surprise," says Larry Davis, vice president of marketing at jewelry cataloger Ross-Simons. The Rhode Island based company, which mails out a total of 20 million catalogs per year, doesn't see much change coming to its mailing plans.

Like many other catalogers, Ross-Simons has cut its mailing quantity in half over the past 10 years or so and only half of its catalogs are paper-based now. But he's not at all ready to give up on the postal channel.

Davis does think this whole financial debacle could help speed up USPS cost-cutting moves like closing post offices and other facilities. This could make the USPS a little more efficient and stall off potentially unpalatable postage rate increases.

Nonprofit mailers—many of whom are very dependent on direct mail—aren't expecting anything out of the ordinary either, reports Tony Conway, executive director of the Alliance of Nonprofit Mailers.

The USPS has been in serious financial trouble for a long time, reporting a $3.2 billion loss for the quarter ended March 31 with no signs of turning itself around. 

Much of this is due to those healthcare obligations, which ironically were part of the 2006 postal reform law,

A few months ago, the Senate passed S.1789, a bill that went part of the way to fixing the USPS but not far enough in the eyes of some mailers.

Meanwhile, a more far-reaching proposal sits in the House and isn't likely to see the light of day anytime soon. That bill, H.R. 2309, co-sponsored by Reps. Darryl Issa (R-CA) and Dennis Ross (R-FL), seeks to create a financial control board for the postal service and cut costs much more aggressively than the Senate version.

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