By Ed O'Keefe
Washington Post Staff Writer
Thursday, August 6, 2009; A15
The U.S. Postal Service lost $2.4 billion in the quarter that ended June 30 and forecasts a $7 billion loss for the fiscal year, according to figures released Wednesday. Mail volume dropped 12.6 percent over a nine-month period, continuing a sharp decline fueled by the economic recession that began in 2007 and by wider use of the Internet.
Though attention in recent months has focused on the potential closure of hundreds of post offices or the elimination of Saturday mail delivery to narrow the budget gap, most of the Postal Service's financial woes are tied to labor costs, especially billions of dollars in required payments to prefund future retiree health benefits. The cost of funding current and future retirees is likely to top $7 billion this fiscal year.
The payments will contribute to an expected $700 million cash shortfall when the Postal Service's fiscal year ends Sept. 30, according to Postmaster General John Potter. The Postal Service will not make prepayments to the retiree fund if it faces a shortfall next month, he said, reiterating his displeasure with the requirement.
"If we were part of the federal government and treated as an agency, we would not be paying prefunding to a retirement benefit trust," Potter said at a news conference Wednesday announcing the financial situation. "On the other hand, if we were in the private sector, we would not be prefunding these retirement payments. So therein lies a bit of a dilemma."
Congress mandated the pre-payments in 2006 when it passed a postal reform bill. The Postal Service's balance sheets were in better condition at the time, and lawmakers sought to have it prepay retiree benefits because they knew that its financial condition would probably worsen as mail volume dropped with the increase in Internet use.
The House and the Senate will consider competing measures to relax that requirement after the August congressional recess, but the bills would provide only temporary relief. Potter called on lawmakers and the Obama administration to begin serious, long-term discussions about the future of American mail delivery.
"The Postal Service does not want to do anything that would disrupt this economy," he said. "Over a trillion dollars moves through the mail in any given year, and we are a hub of an industry that employs some 8 million Americans. We have no intention of doing anything that would disrupt the flow of mail."
That flow has slowed in recent years, to an average of 4.1 pieces of mail a day delivered to each address, down from 5.9 pieces in 2000, according to Postal Service figures. The decline has contributed to losses in 11 of the past 12 fiscal quarters.
In response, the Postal Service has implemented hiring and salary freezes and has dramatically cut its workforce -- by 37,000 employees in the past year, to a total of 630,000, down from a peak of 802,000 in 1999. It recently renegotiated more than 300 service contracts, saving $200 million.
The financial numbers follow last week's classification of the Postal Service as a "high risk" government agency and come just days after it released a list of almost 700 post offices it will consider closing.
The list once included as many as 3,000 facilities, and some postal officials privately acknowledge that no more than 200 locations, most of them in downtown urban areas, are likely to close. The varying figures have raised the ire of lawmakers concerned that mail service will be trimmed in their districts with little notice.
At a House hearing last week on postal matters, Rep. Dennis J. Kucinich (D-Ohio) said the Postal Service made cuts in his Cleveland area district with little or no input from him or community leaders.
Rep. Gerald E. Connolly (D-Va.) told postal officials that unannounced reductions in operating hours at Northern Virginia post offices mean his constituents with long commutes cannot get to the post office before closing time.
"I'm afraid the Postal Service leadership has leapt to the conclusion that the only way to keep the Postal Service solvent is to cut back on hours of operation," he said.
Potter would not commit to an exact number of post office closures but said some urban facilities are likely to consolidate certain operations while others will vacate expensive locations so the Postal Service can sell the properties.
He embraced the attention and concern provoked by the closure list.
"If this happened and no one reacted to it, I think I'd be concerned as the postmaster general that people really didn't have a need for the Postal Service," Potter said.