USPS to run out of cash in 2012, even without federal payments
The US Postal Service looks set to run out of cash by October 2012, even if it refuses to pay its $11.1bn government obligation to prefund future healthcare benefits for its retirees. That was the warning from USPS chief financial officer Joe Corbett today as he commented on the Postal Service’s full-year results for the 2011 fiscal year.
The Postal Service recorded a $5.1bn loss this afternoon, which would have been $10.6bn had it not been for a two-month delay to its annual $5.5bn payment into its Retiree Health Benefit Fund.
Corbett said today that even if USPS continues to refuse to pay its prepayment obligations for this year and next, it was still looking like running out of cash by October next year.
He said: “Together with the 2012 payment, that’s $11.1bn – assuming we pay neither of those payments, we would still be looking at running out of cash by the end of next (fiscal) year. By mid-October we would get to the point where we would have plus or minus $100m in cash – that’s about four hours of operating cash for the Postal Service.”
Corbett said in a media conference call this afternoon that USPS was making significant cuts in its operating costs, but insisted that there are no plans to make cuts that will affect the quality of service.
He said: “We have a significant number of large payments due to the federal government, to the extent that we need to balance who gets paid and who doesn’t. We are paying our employees and our suppliers first, to ensure that we accomplish our mission, which is to protect the brand and deliver the mail.”
Corbett revealed today that USPS will have to resume its contributions into its federal pension fund, after receiving a Department of Justice ruling on its proposal to withhold payments since the fund has a $6.9bn surplus.
USPS chief financial officer Joe Corbett said he could not comment on the details of a letter sent by the DoJ regarding its ruling two weeks ago.
However, in a media conference call this afternoon, he said that in response to the DoJ, payments into the Federal Employees Retirement System (FERS) would resume as soon as early December, while the funds withheld since June would also be paid “as soon as is practicable”.
“Based on the input from the recent Department of Justice opinion, we’ve decided to begin paying the FERS payments on a bi-weekly basis, and will also pay slightly over $1bn of accumulated cash into the fund beginning next month,” Corbett confirmed.
The USPS CFO said the Postal Service would have enough cash to pay its pension contributions because of the extra mail volumes from the holiday season.
However, he said there was concern about how the Postal Service would cover its costs in the New Year, as volumes reduce once more.
The situation places an even greater importance on the passing of legislation by Congress to restructure the RHB fund prefunding and support for restructuring and downsizing at the Postal Service.
However, while the US Senate and House of Representatives have quite different proposals on rescuing the Postal Service, the US Deputy Postmaster General Ron Stroman told the press this afternoon that neither bill, in their current forms, would be enough to shore up the long-term sustainability of USPS.
Stroman said: “There are great elements in the bills moving through both the House and Senate, but it is fair to say that the cost reductions that we need to build solvency long-term neither of these bills gets us where we need to go. We are hopeful that we can work with both the House and Senate to move to where we need to go.”
In the mean time, widespread cutbacks in the USPS infrastructure will be made, including a massive downsizing in processing infrastructure and the closure of thousands of post offices.