Postal Service may face tough times

Having fought its way out of the red over the past year, the Postal Service could once again be looking at some tough financial times.

Agency projections indicate that First Class mail volume could decline by nearly 2 billion pieces by the end of the year. During recent years, the number of single pieces of mail-letters and cards-have been dropping. But now the agency is seeing a decline in so-called workshare mail. This includes bills and other items that are presorted by companies and dropped off at Postal Service distribution plants.

Based on assumptions that the economy would have turned around by now, the agency had projected that mail volume would grow by 2.9 percent during the first quarter of 2003 and 1.5 percent in the second quarter. Compared with the first quarter of fiscal 2002, mail volume grew by just 1.5 percent in the first quarter of this year. There was no growth for the second quarter of 2003 compared with the same period in fiscal 2002. Agency officials do not expect mail volume to increase over the summer, which is typically the slowest mailing season.

Nonetheless, the Postal Service finished the first half of the year in the black. Revenue for the first two quarters was $32.8 billion and expenses totaled $31.1 billion, resulting in a net income of $1.65 billion.

Ambitious cost-cutting measures, such as a significant reduction in work hours, kept expenses at bay. In fact, expenses are $559 million less than planned.

But Richard Strasser, the agency's chief financial officer, told the Postal Service Board of Governors Tuesday that he is "not optimistic" that holding the line on expenses will continue to offset the drop in mail volume. Additionally, the agency must absorb rising fuel costs. Currently, Strasser expects that the agency will finish the year with $1 billion in net income, due mainly to cost savings.

Still, agency officials are pressing Congress to act quickly on legislation that would alter how much money the agency pays into the Civil Service Retirement System. The legislation would generate nearly $2.9 billion in savings for the agency this year alone. If enacted, the Postal Service could hold mailing rates steady until 2006. Without the legislation, rates would have to increase next year.

The Office of Personnel Management last November discovered that under current statute, the Postal Service would overpay its obligation to cover the costs of CSRS enrollees' pensions by $78 billion.

In a thinly veiled threat to Congress, Board of Governors Chairman David Fineman said the agency is working on a new rate case and will continue to do so until Congress acts. "It is our obligation to plan for a rate case, especially given the uncertain economy," Fineman said.

The House is expected to vote on the legislation, H.R. 735, Thursday.