Postal Service Says It Will Exhaust Cash Without Help
The U.S. Postal Service said it will temporarily run out of cash in October unless Congress allows cuts that include ending Saturday delivery and its requirement to pay for future retirees’ health benefits in advance.
Most of the service’s $3.2 billion loss in the quarter ended March 31 came from a requirement to prepay the future health costs. Postmaster General Patrick Donahoe has said the service, which last made a quarterly profit in 2009, will become a taxpayer burden unless Congress answers its pleas to let it make cuts.
“We cannot continue to run a business with a cash balance that’s expected to be zero,” Chief Financial Officer Joe Corbett said yesterday on a conference call with reporters, noting it would reach that point at the start of what’s historically the service’s strongest quarter. “We need to put ourselves on solid financial footing.”
The 10th consecutive quarter of losses may spur the U.S. House to consider its version of legislation intended to overhaul the service, which is supposed to be self-sufficient. The Senate has passed a bill that didn’t give the service all the changes it requested, including permission to end Saturday delivery.
The service forecasts losing $9.1 billion for the 12 months ending Sept. 30. That compares with a $14.6 billion loss at automaker Ford Motor Co. (F) and a $72 billion loss for mortgage backer Fannie Mae (FNMA) in their worst years.
The forecasted loss doesn’t include a required, unmade $5.5 billion payment from last year for future retirees’ health benefits. The service said it won’t have the cash to make that payment or one for this year that’s due Sept. 30.
The Postal Service, losing $25 million a day, said it can right itself financially with a plan announced in February to cut $22.5 billion in annual operating expenses by 2016. It needs legislation to make those cuts.
Fannie Mae, the biggest backer of U.S. home loans, began a turnaround after it was seized by the government in 2008 following mounting losses. Fannie and smaller cousin Freddie Mac have taken almost $190 billion in U.S. aid since they went into conservatorship. Washington-based Fannie reported a profit of $2.7 billion in its first quarter in what officials called a turning point.
Ford, the only one of the three biggest U.S. automakers to not receive a U.S. government bailout, recovered to earn $20.2 billion in 2011. The company is based in Dearborn, Michigan.
The latest Postal Service loss highlights the need for legislation, said Oklahoma Republican James Lankford, a member of the House Oversight and Government Reform Committee that oversees the service.
“We have just been piddling around and haven’t solved this; it’s not going to get better ignoring it,” he said in an interview. “We’ve patched the Post Office for a long time. To me they are the poster child of all the mandates and none of the money.”
The service had $2 billion remaining in borrowing authority on March 31, Corbett said. The Postal Service, allowed to borrow only from the U.S. Treasury, has a debt limit of $15 billion.
“The Postal Service can’t afford to continue hemorrhaging money like this,” Senator Tom Carper, a Delaware Democrat who co-sponsored the Senate bill, said in an e-mailed statement. “Congress can’t stand idly by and allow it to continue to creep towards collapse. The Postal Service supports a trillion-dollar mailing industry and over 8 million jobs.”
Representative Darrell Issa, a California Republican who is co-sponsoring the House proposal, said the report shows the seriousness of the Postal Service’s situation.
“The USPS needs responsible legislative action to restore long-term solvency, preserve delivery of mail and protect taxpayers from footing the bill for a bailout,” he said in an e-mailed statement.
The Postal Service, which lost $3.3 billion in its first quarter, had forecast a record $14.1 billion loss for this fiscal year including last year’s retiree health benefit payment.
“We are aggressively pursuing new revenue streams and reducing costs in areas within our control,” Donahoe said in the statement. “These actions are not enough to return the Postal Service to profitability.”
The service wants to eliminate as many as 220,000 jobs and close mail-processing plants to reduce costs. It said yesterday it can save $500 million annually by cutting hours of operation at as many as 13,000 small-town post offices.
That strategy was a reversal from a plan announced last year to close as many as 12 percent of post offices to save $200 million annually. Congress members including Scott Brown, a Massachusetts Republican, and Carper had asked the service to keep post offices open.
In the second quarter, the service cut its expenses by $400 million to $34.1 billion as it pared work hours. Labor cost cuts were offset by increases in fuel and benefits costs.
Mail volume, which has slid since peaking in 2006, fell 4.1 percent in the quarter as operating revenue declined 1 percent to $16.2 billion.
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