UPDATE 1-US Postal Service Oct-Dec losses climb to $3.3 bln

Thu Feb 9, 2012 4:21pm EST

* USPS calls on Congress to pass relief legislation

* Agency could hit borrowing limit in fall

* Package business grew due to holiday shopping

By Emily Stephenson

WASHINGTON, Feb 9 (Reuters) - The U.S. Postal Service's losses shot up to $3.3 billion in the last three months of 2011, a tenfold jump from the same period a year before, as its customer base eroded with the growth of email and online billing.

The cash-strapped agency recorded the loss during its traditionally strongest period, the year-end holiday shipping season, as declines in mail volumes outweighed growth in shipping.

"Technology continues to have a major impact on how our customers use the mail," Postmaster General Patrick Donahoe said in a statement on Thursday.

"While it has helped us grow our Shipping Services businesses, it has had a significant negative impact on some of our much larger sources of revenue."

The agency reiterated its call for Congress to pass legislation giving the Postal Service flexibility to remake its crumbling business.

Postal officials want lawmakers to allow the agency to tap into a retirement-fund surplus and permit it to offer new services. It also wants to end Saturday delivery and eliminate a large annual payment to prefund retiree health benefits.

"The longer the Postal Service remains in a weak position, the more damage can be done to our business," Chief Financial Officer Joe Corbett said during a conference call with reporters.

"We need to change and get back to a point where we're financially stable so that our customers and our suppliers have faith in us."

The Postal Service lost $5.1 billion the last fiscal year, which ended on Sept. 30. Corbett warned the agency could hit its legally mandated borrowing limit this fall. A downturn in the economy or other unforeseen circumstances could cause a cash crunch that would force the agency to miss some payments in order to keep paying employees and suppliers, he said.

Total mail volume dropped 6 percent in the first fiscal quarter which ended on Dec. 31, the Postal Service said.

Declines in first-class and standard mail revenue outweighed a boost to the package business from increased online shopping during the holidays.

Total revenue fell 1.1 percent to $17.7 billion, the Postal Service said.

The Postal Service said it needs to reduce operating costs by $20 billion by 2015, and that it expects large losses to continue unless it sees results from a plan to close thousands of facilities, eliminate jobs and restructure its healthcare program, as well as action from Congress.

Lawmakers remain deeply divided on closing post offices, ending Saturday mail and eliminating the retiree health benefit payment. But the losses could pressure Congress to act.

"USPS has reached a new, deeper level of crisis," said Republican Representative Darrell Issa, author of postal legislation in the House of Representatives. "Congress must pass legislation that allows USPS to reduce its operating costs and realign its network in line with America's declining demand for paper mail."

The Postal Service, which relies on sales of stamps and other products rather than taxpayer dollars, said it expects to default on this year's retiree health prefunding payment.

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Comments (2)
GKMatter wrote:
The cost of a stamp has only increased 20 cents since President Reagan was in office, increasing just 1 cent every year or so.
Would it hurt if the went up a nickel instead? They need to think like a business if they wish to remain in business.

Feb 13, 2012 4:59am EST  --  Report as abuse
hrdcorefan wrote:
The U.S. Postal Service ended the first three months of its 2012 fiscal year (Oct. 1 – Dec. 31, 2011) with a net loss of $3.3 billion. Without the requirement to prefund retiree benefits, the net loss would have been a positive net gain of $200 million for the quarter ended December 31, 2011, compared to a net income of $226 million for the quarter ended December 31, 2010. It made a profit last year too, of slightly more, $300 million, although it’s hard to remember hearing anything about it when you take into account for the prefunding requirement.

Back in 2006, the last time it tried to save the post office, Congress wanted to make sure that there would be plenty of money to pay for the health care of retired postal workers. The Postal Accountability and Enhancement Act (PAEA) therefore required the Postal Service to pay about $5.6 billion a year over a ten-year period, 2007 through 2016, into a fund to cover retiree health care — for the next 75 years. That remedy has practically killed the patient.

The trust fund payments are the cause of the USPS losses since 2006. Without them, the USPS would have been profitable over that time period. All of the current USPS debt is money it has had to borrow from the Treasury so that it can then loan it back to the Treasury for the “trust fund”. It’s a shell game designed to take “off budget” postal revenues, and apply them to an “on budget” trust fund, artificially lowering the federal budget deficit.

The USPS Inspector General, David C. Williams, said that the fund is in better shape than comparable funds in any other government agency or private-sector business.

“Prefunding retiree healthcare is rare in the public and private sectors,” wrote the Inspector General. “We have been unable to locate any organization, either public or private, that has anything similar to the Postal Service’s required level of prefunding of retiree health benefits. The Postal Service is currently funded at 49% of its estimated current liability. The federal government does not prefund its retiree health benefits AT ALL, and the military is funded at a 35% level. Only 38 percent of Fortune 1000 companies who offer retiree health care benefits prefund the expense at all, and the median funding level for those organizations is 37 percent.”

Furthermore, Postal Service Inspector General David C. Williams said the programs are flush with funds. He said the Postal Service has “significantly exceeded” the amount that the federal government and the nation’s most profitable corporations have socked away for pension AND retiree health care. “The USPS has built a war chest of over $326 billion to address its future liabilities.”

No other company or agency has the same obligation to prefund retiree healthcare benefits.

Even if one accepts a need for some level of prefunding, the 2006 law was based on assumptions as to volume and workforce levels that no longer apply, yet no adjustments have been made to the payment levels. If the USPS had been allowed to run like a business since 2006 (i.e. without prefunding and Congressmen micro-managing its operations), it would be a profitable enterprise facing the recession with ample cash reserves.

Between the “mythical” trust fund with its very real $44.1 billion, and the undisputed $6.9 billion FERS overpayment, the supposedly “insolvent” USPS effectively has almost $51 billion. With this future retiree health benefit account earning 3.5 to 4 percent interest every year, it could be fully funded in the next 21 years without the need for additional funds.

Republicans refuse to drop the accounting gimmick that places USPS operations “off budget”, while its retirement funds are “on budget” This allows them to cry “BAILOUT” if the USPS asks for some of its own money to be returned to fund its operations.

Congress created the “crisis”, not the USPS unions or managers, and Congress needs to correct its mistakes before it destroys the US Postal Service.

Don’t blame the salaries of postal workers: their selection by high exam scores, training and accountability, plus good wages and benefits has produced high productivity and a low quit rate. The postal workforce has, in fact, shrunk from nearly 800,000 in 1999 to 550,000 career employees today. Most of those job cuts had to do with increased automation, but many have come at the price of service – despite the post office’s original constitutional mandate.

Let’s be clear: these short-term accounting efforts will not solve the long-term financial problems facing the U.S. Postal Service. In order to do that, the Postal Service needs to adopt an entirely new business model which makes it much more entrepreneurial, pro-business, and pro-consumer compared to where it is today.

Feb 13, 2012 8:49pm EST  --  Report as abuse
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