Post office near default? Losses mount to $5.1B

[November 16, 2011]  WASHINGTON (AP) -- The U.S. Postal Service said Tuesday it has lost $5.1 billion in the past year, pushing it closer to imminent default on a multibillion-dollar payment and to future bankruptcy as the weak economy and increased Internet use drive down mail volume.

The financial losses for the year ended Sept. 30 came despite deep cuts of more than 130,000 jobs in recent years and the closing of some smaller local post offices.

Losses will only accelerate in the coming year, Postmaster General Patrick Donahoe warned, citing faster-than-expected declines in first-class mail. He implored Congress to take swift, wide-ranging action to stabilize the ailing agency's finances as it nears a legal deadline Friday to pay $5.5 billion into the U.S. Treasury for future retiree health benefits.

Congress is expected to grant a reprieve, but that will only delay the day of reckoning for an agency struggling for relevance in an electronic age. Based on current losses, the Postal Service says it will run out of money -- or come dangerously close -- next September, forcing it to halt service.

"We are at a point where we require urgent action," Donahoe said.

In the event of a shutdown, private companies such as FedEx and UPS could handle a small portion of the material the post office moves, but they do not go everywhere. No business has shown interest in delivering letters everywhere in the country for a set rate of 44 cents for a first-class letter.

For the fiscal year ended Sept. 30, the post office had income of $65.7 billion, down $1.4 billion from the previous year. Expenses totaled $70.6 billion.

The loss of $5.1 billion was less than a previous estimate of $10 billion, but only because the $5.5 billion payment -- originally due Sept. 30 -- was deferred until Nov. 18 with the approval of Congress.

In 2010, losses totaled $8.5 billion.

Mail volume this past year totaled 168 billion pieces, compared with 171 billion in 2010, a decline of 1.7 percent. At the same time volume was declining, the post office was required to begin service to thousands of new addresses to accommodate population growth and new businesses.

The Postal Service, an independent agency of government that does not receive tax money for its operations, is not seeking federal funds.

Instead, postal officials want changes in the way they operate so they can save money. They have asked Congress for permission to reduce mail delivery to five days a week, which many lawmakers oppose, and to eliminate or reduce the annual payments of about $5.5 billion to prefund retiree health benefits. The agency also wants the return of at least $6.9 billion it says was overpaid into federal retirement funds.

The service also seeks more layoffs, which are barred by current contracts with its employee unions, and the authority to negotiate with unions on a possible alternate health care system that would cost less.

Postal Service losses have been mounting over the past few years as more private mail and bill payments have been switched to the Internet, and the recession has hurt returns on advertising and other business mail.

Of particular concern has been the decline in lucrative first-class mail, largely consisting of personal letters and cards, bills, payments and similar items. First-class mail volume fell 5.8 percent in 2011, 6.6 percent in 2010, 8.6 percent in 2009 and 4.8 percent in 2008. Traditionally, this mail has produced more than half of total revenue.

Volume for standard mail -- advertising and similar items -- improved somewhat, indicating some signs of economic recovery. But it generates less income.

The Postal Service has struggled to find its role in an Internet age but insists it can eventually return to profitability with legislative changes. It recently launched a TV advertising campaign that pokes at the vulnerabilities of email or online payment, noting that documents posted on a refrigerator or cork board won't get "hacked" or attacked by a virus. "Give your customers the added security a printed statement or receipt provides -- with mail," the ad says.

A postal default on billions of dollars in federal payments wouldn't cause immediate repercussions. There are no criminal or civil penalties for failure to pay, and the health account already contains more than $40 billion so no retiree's benefits are at near-term risk. In June, the Postal Service defaulted on a separate, legally required payment into an employee retirement fund but now says it will make the $1 billion in accumulated payments following a Justice Department review.

Separate proposals recently passed by House and Senate committees would alter or scrap the annual payment requirement while differing widely on points including financial oversight and a reduction to five-day-a-week delivery. Congress is expected to pass a stop-gap spending measure this week that would extend Friday's payment deadline until mid-December.

The Postal Service has said a short-term delay of the $5.5 billion payment won't change its grim forecast of possible bankruptcy next year. Officials also said Tuesday that the proposed legislation currently falls short in reducing health care costs and authorizing immediate five-day-a-week delivery.

"We're hoping for long-term, comprehensive legislation that will solve the issue and make other changes so the Postal Service can be profitable again -- not have more delays that just kick the can down the road," postal spokesman David Partenheimer said.

Last month, the post office said it will increase postage rates on Jan. 22, including a 1-cent increase in the cost of first-class mail, to 45 cents. But the rate increase, which is tied to the rate of overall inflation, will make only a small dent in financial losses. The Postal Service hasn't ruled out the possibility of further stamp price increases based on its dire financial circumstances.

The agency is also considering additional layoffs and reviewing about 3,600 underused post offices around the country for closing, many of them in rural areas.

A recent Quinnipiac poll found that registered voters were broadly in favor of ending Saturday deliveries to help with the agency's financial problems, with 79 percent supporting it. Smaller majorities favored raising stamp prices -- 60 percent -- or closing local branches, about 53 percent.

"The Postal Service is in a tailspin," said Art Sackler, coordinator of the Coalition for a 21st Century Postal Service, which represents the private-sector mailing industry. "Without congressional action, there is a strong likelihood the Postal Service will have to shut down sometime next summer, dealing another critical blow to the economy and the 8 million private sector jobs that still depend on the mail."

[Associated Press; By HOPE YEN]

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