Postal Service can't deliver payments (BLOG)

The Postal Service has two massive payments this year that it simply doesn't have the money for, and it's expecting to default for...

The Postal Service has two massive payments this year that it simply doesn't have the money for, and it's expecting to default for the first time.

The service owes a $5.5 billion payment due Aug. 1 that was deferred from fiscal 2011, The New York Times reports. Then it has $5.6 billion payment due at the end of September.
The payments are for future retiree health benefits, part of the Congressional requirement that the Postal Service pre-fund the benefits for future retirees. The mandate has become too expensive for the Postal Service to meet while fulfilling all of its other obligations.

The Postal Service isn't declaring bankruptcy, nor will it stop functioning on Aug. 1. But this is an issue that lawmakers must take action on, because it isn't going away.

The U.S. Senate passed a bill in April that returns $11 billion the service has overpaid into one of its pension funds, the Times reports. The bill also gives the service more years -- about 40 -- in which to make its payments, thus dropping the annual total to $2.5 billion. It also delays for two years the inevitable move to five-day delivery.

But House republicans hate the bill, which is one reason they have put off a vote on it indefinitely. Rep. Darrell Issa, R-Calif., has offered another proposal that breaks union contracts and gives the service a fast deadline by which it must make drastic cuts to Saturday service and its plants and locations.

Labor unions hate both bills, but they especially hate Issa's proposal. They say the fix here is to end the mandate to pre-fund retiree benefits.

Without any sort of legislative solution, Congress can keep putting short-term bandages on the Postal Service. And an eventual bankruptcy keeps getting closer.

The Postal Service, meanwhile, has told FedEx (FDX -1.10%) that it will seek bids for new partners after its longtime contract with the company ends next year. FedEx has provided service for the USPS since 2001 and received an estimated $1.5 billion in revenue last year in the contract.

Instead of renewing with FedEx, the Postal Service will make the company compete for a new contract. Rival UPS (UPS -0.71%) is already preparing to bid, Reuters reports.