Post office $2.8 billion in the red

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By RANDOLPH E. SCHMID

The Postal Service ended its fiscal year $2.8 billion in the red, battered by a faltering economy that cut the amount of mail being sent.

Postmaster General John Potter said the agency is making sharp cuts in hours and overtime, but added there are no plans for layoffs. The mail being sent dropped by 9.5 billion items.

"We expect the new fiscal year to be another difficult one," Potter said, adding: "We're not panicking here."

By cutting back on spending the post office had a net operating income of $2.7 billion in 2008, but still ended up in the red because of the requirement for a $5.6 billion payment to a health benefit fund for retirees.

Even so, the $2.8 billion loss was well short of last year's $5.1 billion postal deficit.

The Postal Service does not receive a tax subsidy for its operations

Potter welcomed recent reductions in the cost of fuel — a major expense for the post office — and said his agency is continuing to cut overtime and working hours as it seeks to increase efficiency.

He said the agency reduced working hours by 50 million in 2008 and hopes to double that to 100 million hours cut this year.

"We are working hard to do everything that we possibly can to avoid layoffs," Potter added in an interview following the board meeting.

The post office has been offering early retirement, which has been accepted by 3,685 workers.

Asked about the possibility of cuts in service, Potter was emphatic in saying no: "When you're in tough economic times, the last thing you want to do is back away from your customers."

The cost of First Class postage went up to 42 cents in May and Potter said the annual increases for letters will continue to occur in May, with the new price being announced 90 days in advance. The increase is based on the rate of inflation.

For packages, however, rates will increase in January so the post office will be in step with its major competitors, which generally announce new rates in January, he said.

Planned rate increases are Express Mail, 5.7 percent; Priority Mail, 3.9 percent; parcel select, 5.9 percent; parcel return service, 5.3 percent and international shipping, 8.5 percent.

Potter said the agency plans to ask Congress to restructure the way it handles payments for retiree health care. A 2006 law requires the post office to create a fund to cover retiree health care, contributing several billion dollars annually for 10 years. At the same time the agency is paying about $2 billion annually for retiree health care.

The postmaster general said the agency would like to start funding retiree health care from the new account, which it will continue to build up. But it would like to eliminate the need to pay the extra $2 billion for current costs.

Standard mail, mostly advertising and the largest mail category at 99.1 billion items, was down 4.3 percent in 2008. First class mail dropped 4.8 percent to 91.7 billion cards and letters and periodicals fell 2.2 percent to 8.6 billion.

Overall, the post office had revenue of $74.9 billion, operating expenses of $72.1 billion and a health benefit fund payment of $5.6 billion for a net loss of $2.8 billion. The fiscal year began Oct. 1.

"This has been a very challenging year for the Postal Service," chief financial officer H. Glen Walker told the agency's governing board on Thursday.