Tuesday, August 30, 2011

Putting the Postal Service in Receivership

The Postal Service is broke.  It cannot pay its bills, even ones that no one disputes that it owes.  In the private sector, a firm in this position would shut down unless creditors believed that putting it in receivership gave them a better prospect of repayment then liquidation.  

The Postal Service's insolvency will have real consequence for its federal government creditors that it plans not to pay this fall. Reuters reported that the Department of Labor stated in a letter to Representative Darrell Issa, that it will not be able to make worker compensation benefit payments to more than 2 million non-postal Federal employees if the Postal Service does not pay its $1.2 billion bill due this fall.  The Postal Service's failure to pay either its non-PAEA or PAEA payments for retiree health benefits adds another $7 to 8 billion in  to the budget cuts that the budget super committee has to find.   [Correction made 8/30 pending further information on the Postal Service's cash position on September 30, 2011]

The Federal government creditors do not have the ability to demand liquidation or receivership , but they can put pressure on both the Obama administration and Congress to take action so that the Federal Government does not default on its own payments.

Congress and the Obama administration know that the Postal Service cannot be liquidated, cannot be shut down. The political and economic consequences are too great.  Approving major changes in Postal operations is the political equivalent of walking into a mine field blindfolded.  The $1.1 billion trillion in sales and over 8.4 million jobs that depend on the existence of the Postal Service cannot be put at risk in a struggling economy.

Receivership is therefore the only option.   It would allow the Postal Service to continue operating while allow management either current or new, makes decisions to streamline operations, cut services, lay off employees, and raise prices that under normal conditions would be impossible.  At the same time receivership would give management access to additional borrowing authority to pay bills and cover the transition costs of a leaner organization only if the actions that it proposes to improve Postal Service finances are approved by the receiver.

The bill introduced by Congressmen Darrell Issa and Dennis Ross recognized that the Postal Service needed more borrowing authority and that outside non-Congressional oversight is required to ensure it is used wisely.   Their bill however is severely flawed in two critical respects.  
  • First, it does not recognize that the PAEA obligations cannot be covered through either postage revenue or increased debt without making the final problems worse in just a few years.  
  • Second, it does not put within the scope of the financial receiver's power, the power to develop with the Postal Service  a network of processing facilities and retail outlets.  It makes little sense to separate restructuring the Postal Services finances from overseeing the Postal Service's network.    
There is another approach which was used to oversee the federal government takeover and restructuring of seven bankrupt Northeast railroads, that were later known as Conrail.  A single receiver, the United States Railway Association (USRA) had the broad responsibility that a receiver required because fixing Conrail required additional debt to fund its transition to become a viable enterprise  that required approval of the USRA before it could be issued.

The USRA was created as part of Regional Rail Reorganization Act, H.R. 9142 of the 93rd Congress.  (Public law 93-236)

The following is the Congressional Research Service's summary of of this bill the creation of USRA, the creation of Conrail, streamlines abandonment regulatuibs, a new role for the Interstate Commerce Commission regarding determining the need for rail service a process for abandoning rail lines, a specification of labor law provisions and a subsidy program for local rail service.  Parallels between these provisions and the financial, network, labor, and service quality issues facing the Postal Service are clearly apparent.,

Regional Rail Reorganization Act  (Public law 93-236)

Title I: General Provisions 
States the congressional findings and declaration of purpose and defines the terms used in this Act.

Title II: United States Railway Association
Establishes a Government Nonprofit Corporation to be known as the United States Railway Association, which shall maintain its principal office in the District of Columbia and shall be deemed for the purposes of venue in civil actions to be a resident thereof. Authorizes the Association to plan and assist, in the form of loans, rail service and facilities in the northeast region.

Directs the Association to: (1) prepare a survey of existing rail services in the region, including patterns of traffic movement; traffic density over identified lines; pertinent costs and revenues of lines; and plant, equipment, and facilities (including yards and terminals); (2) prepare an economic and operational study and analysis of present and future rail service needs in the region; the nature and volume of the traffic in the region now being moved by rail or likely to be moved by rail in the future; the extent to which available alternative modes of transportation could move such traffic as is now carried by railroads in reorganization; the relative economic, social, and environmental costs that would be involved in the use of such available alternative modes, including energy resource costs; and the competitive or other effects on profitable railroads; (3) prepare a study of rail passenger services in the region, in terms of scope and quality; (4) consider the views of the Office and of all Government officials and persons who submit views, reports, or testimony under this title or in the course of proceedings conducted by the Office; (5) consider methods of achieving economics in the cost of rail system operations in the region including consolidation, pooling, and joint use or operation of lines, facilities, and operating equipment; relocation; rehabilitation and modernization of equipment, track, and other facilities; and abandonment of lines consistent with meeting needs and service requirements; together with the anticipated economic, social, and environmental costs and benefits of each such method; (6) consider the effect on railroad employees of any restructuring of rail services in the region; and (7) make available to the Secretary, the Director of the Office, and appropriate committees of the Congress all studies, data, and other information acquired or developed by the Association.
Establishes in the Interstate Commerce Commission a new office to be known as the Rail Services Planning Office. States that the purpose of the Office shall be to solicit, study, and evaluate the views with respect to present and future rail service needs of the region from Governors of States within the region; mayors and chief executives of political subdivisions within such states; shippers; the Secretary of Defense; and other interested parties; and to assist States and local transportation agencies in making determinations whether to provide rail service continuation subsidies to maintain in operation particular rail properties.

Provides for judicial review of this Act.

Requires, within 300 days after the date of enactment of this Act, the Association to adopt and release a preliminary system plan prepared by it on the basis of reports and other information submitted to it by the Secretary, the Office, and interested persons in accordance with this Act and on the basis of its own investigations, consultations, research, evaluation, and analysis pursuant to this Act. Requires the Association to invite and afford interested persons an opportunity to submit comments on the preliminary system plan to the Association within 60 days after the date of its release.

Authorizes to be appropriated to the Secretary for purposes of preparing the reports and exercising other functions to be performed by him under this Act such sums as are necessary, not to exceed $12,500,000, to remain available until expended.

Authorizes to be appropriated to the Commission for the use of the Office in carrying out its functions under this Act such sums as are necessary, not to exceed $5,000,000, to remain available until expended.

Authorizes to be appropriated to the Association for purposes of carrying out its administrative expenses under this Act such sums as are necessary, not to exceed $26,000,000, to remain available until expended.

Title III: Consolidated Rail Corporation
Establishes a Consolidated Rail Corporation. States that such Corporation shall be a for-profit Corporation and shall not be an instrumentality of the Federal Government. Sets out the powers and duties of the Corporation.

Provides that rail service on rail properties of a railroad in the region which transfers to the Corporation or to profitable railroads operating in the region all or substantially all of its rail properties designated for such conveyance in the final system plan, and rail service on rail properties of a profitable railroad operating in the region which transfers substantially all of its rail properties to the Corporation or to other railroads pursuant to the final system plan may be discontinued to the extent such discontinuance is not precluded by the terms of the leases and agreements if: (1) the final system plan does not designate rail service to be operated over such rail properties; and (2) not sooner than 30 days following the effective date of the final system plan the trustee or trustees of the applicable railroad in reorganization or a profitable railroad give notice in writing of intent to discontinue such rail service on a date certain which is not less than 60 days after the date of such notice; and (3) the notice required by paragraph (2) of this subsection is sent by certified mail to the Governor and State transportation agencies of each State and to the government of each political subdivision of each State in which such rail properties are located and to each shipper who has used such rail service during the previous 12 months.

Provides that rail properties over which rail service has been discontinued may not be abandoned sooner than 120 days after the effective date of such discontinuance.

Allows rail service to be discontinued and rail properties to be abandoned notwithstanding any provision of the Interstate Commerce Act or the constitution or law of any State or the decision of any court or administrative agency of the United States or of any State. Prohibits rail service from being discontinued or abandoned pursuant to this Act: (1) after 2 years from the effective date of the final system plan or more than 2 years after the final payment of any rail service continuation subsidy is received, whichever is later; or (2) if a shipper, a State, the United States, a local or regional transportation authority, or any responsible person offers specified subsidies.

Title IV: Local Rail Services
Requires that the Secretary of Transportation provide financial assistance for the purpose of rail continuation subsidies. Authorizes the Secretary to provide loans to state or local transportation authorities for the purpose of aiding in the purchase of rail properties or for rail modernization.
Title V: Employee Protection
Provides that the Corporation and the Association shall be subject to the provisions of the Railway Labor Act.

Provides for: (1) collective bargaining agreements; (2) compensation allowance for displaced
employees; (3) contracting out; (4) arbitration; and (5) payment of benefits.

 Title VI: Miscellaneous Provisions
Sets forth miscellaneous provisions dealing with the applicability of antitrust laws, the Interstate Commerce Act, and the Bankruptcy Act.

Directs the Interstate Commerce Commission to expedite proceedings which will eliminate discrimination against the shipment of recyclable materials.

1 comment:

Anonymous said...

$1.1 TRILLION in sales, Alan. Not billion.