Post office near default? Losses mount to $5.1B

HOPE YEN

Asso­ci­ated Press

WASHINGTON — 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.”

Posted by AP News on Nov 15 2011. You can follow any responses to this entry through the RSS Feed. Comments can be made below.