Postal Service loses $5 billion in third quarter
The U.S. Postal Service lost $5.2 billion in the third quarter of fiscal 2012, $2.1 billion more than the same period last year, according to the agency’s latest financial report.
Of the $5.2 billion USPS lost from April to June, the agency’s obligation to prefund retiree health benefits ate up $3 billion.
The third quarter numbers mean the Postal Service is in the red for $11.6 billion and counting for the year compared to $5.7 billion during the same period in fiscal 2011. The agency’s obligation to prefund retiree health benefits have accounted for the lion’s share of the Postal Service’s expenses so far in 2012. USPS defaulted on its $5.5 billion prefunding payment on Aug. 1 and won’t be able to pay another $5.6 billion due on Sept. 30, absent legislative changes, postal officials said during a briefing on Thursday. Even though it cannot pay its debt related to that 2006 congressional mandate, the Postal Service still must account for the expenses in its books.
“Current projections show very low levels of cash, and no remaining borrowing capacity, at the end of the current fiscal year and through October 2012,” the agency said in a statement. Postal officials reiterated that USPS will continue to prioritize payments to employees and suppliers during its fiscal crisis. Acting Chief Financial Officer Stephen Masse said the agency could lose a total of about $15 billion in fiscal 2012, which is the agency’s annual debt ceiling.
Congress has been unable to agree on legislation to reform the financially ailing postal service. The Senate passed its postal reform bill four months ago, but the House version hasn’t reached the floor yet. Postmaster General Patrick Donahoe said he hopes both chambers can hammer out a deal during the lame duck session of Congress after the November elections.
Among other things, the Senate’s postal reform bill restructures the agency’s retiree health care prefunding obligation. The House bill, which the Oversight and Government Reform Committee has approved, would require USPS to pay $1 billion of its fiscal 2011 prepayment obligations and make up the remainder in fiscal 2015 and 2016. At the end of June, the prefunded retiree health benefit fund balance was $45.3 billion.
Donahoe said Congress has to step up and pass reform legislation soon. “We’ve reduced head count by one-third and work hours by one-third,” he told reporters during a conference call. “We can only do so much.”
The Postal Service has managed to cut nearly $14 billion from its annual cost base during the past five fiscal years, in part through reducing work hours and offering buyouts to thousands of postal employees. The Federal Times reported earlier this month that nearly 3,800 postmasters accepted buyouts or early retirement to leave the Postal Service as of July 31, and hundreds more plan to join them in the coming weeks. USPS, through its five-year strategic plan released in May, also is moving ahead with consolidating mail processing facilities. The agency’s compensation costs for employees fell slightly at the end of the third quarter from the same time last year.
Shipping and packaging services remain a bright spot for USPS, even as the volume of first-class mail continues to decline. Shipping services and package revenue totaled $3.3 billion in the third quarter, a 9 percent increase from the same time last year. Overall, revenue in that category for the last nine months ending June 30 was $10.6 billion, a 9.9 percent increase from the same period in 2011. Still, that success is not enough to offset the Postal Service’s significant costs related to prefunding retiree health care, officials said.
Despite the agency’s ongoing financial woes, the public remains highly satisfied with the Postal Service’s performance. Megan Brennan, USPS chief operating officer and executive vice president, said 89 percent of residents surveyed for the agency’s customer experience measurement were pleased with the Postal Service in the third quarter, an increase over last year’s third quarter. Eighty-four percent of small and medium-size businesses gave the agency a thumb’s up for the third quarter of fiscal 2012.
The Postal Service’s broke status doesn’t seem to have hindered its ability to deliver the mail on time. The National Bureau of Economic Research released a working paper this month that concluded the agency was very good at its job. Economists from several universities tested the efficiency of the postal systems in 159 countries by mailing letters to nonexistent addresses around the world. USPS had the quickest and most effective service, returning the test letters within 16 days on average. It topped other high-income countries tested, including Canada, Norway and the Czech Republic.