• on Jun 29th, 2009 in Finances: Cost & Revenue | 24 comments
    If you’re reading this blog, you likely have an interest in the Postal Service and its financial welfare. How can the Postal Service provide you and other stakeholders with the most appropriate financial information? When the Postal Accountability and Enhancement Act (the Act) was enacted on December 20, 2006, it made significant changes to the Postal Service’s financial reporting responsibilities and governance. Although the Postal Service is not subject to regulation by the Securities and Exchange Commission (SEC), the Act required the Postal Service to file with the Postal Regulatory Commission (PRC) a number of financial reports containing information prescribed by the SEC (i.e., information contained on SEC Forms 10-Q, 10-K, and 8-K). The Act also specifically required the Postal Service to report certain financial information concerning pension and postretirement health obligations in its SEC-type 10-K annual report based on data provided by the Office of Personnel Management. In addition, the PRC recently issued a Notice of Final Rule Prescribing Form and Content of Periodic Reports dated April 16, 2009, requiring the Postal Service to provide an annual Integrated Financial Plan, a Monthly Summary Financial Report, a monthly National Consolidated Trial Balance, and a monthly Revenue and Expense Summary. Why do you believe that each of the selected reports/documents is required for appropriate public disclosure? (Please explain in the comments below.) Why do you believe that those reports/documents not selected are inappropriate for public disclosure? (Please explain in the comments below.) This topic is hosted by the OIG's Financial Reporting directorate.
  • on Mar 30th, 2009 in Finances: Cost & Revenue | 15 comments
    As Pushing the Envelope noted 8 weeks ago, the Postal Service is facing a severe financial challenge. There are concerns the Postal Service could end this year without enough cash to pay all of its bills. The Postal Service attributes its problems to two major factors: (1) the long-term erosion of high-margin First-Class Mail volume because of electronic diversion and (2) drastic volume losses due to the current recession. The Postal Service has asked Congress to
    • Allow for a slower rate of funding of its retiree health benefits.
    • Give the Board of Governors the flexibility to move from 6-day to 5-day delivery.

    Other options for the Postal Service include

    • Raising the Postal Service’s debt limits — The law currently prevents the Postal Service from ending the year with more than $3 billion in additional debt. Moreover, the Postal Service’s total borrowing is limited to $15 billion. These debt limits were last raised in the early 1990s. If they were raised, the Postal Service could borrow additional money at very low interest rates from the Federal Financing Bank. If volumes continue to fall, however, would the Postal Service be able to pay back its debt in the future?
    • Raising rates — The Postal Accountability and Enhancement Act capped rates for most mail classes at inflation as measured by the Consumer Price Index. The Postal Service could file a special “exigency” rate case at the Postal Regulatory Commission to permit additional rate increases beyond the cap. Can the Postal Service raise sufficient additional revenue by raising rates or would higher rates simply accelerate volume loss and cause total revenue to decline even further?
    • Cutting costs — The Postal Service has undertaken to cut $5.9 billion in costs in FY 2009, yet some cost cutting measures such as closing post offices or consolidating facilities face political opposition. To what degree can the Postal Service cut costs without reducing service? Some private sector companies have started laying off workers, but many Postal Service employees are protected from layoffs under collective bargaining agreements.
    • Appropriations — Congress could provide the Postal Service with additional revenue to carry it through this difficult period, yet the federal budget deficit is rapidly expanding. There may be limited public appetite for providing the Postal Service with additional funds.

    What do you think? What are the best options for the Postal Service to meet its current financial challenge?

  • on Feb 2nd, 2009 in Finances: Cost & Revenue | 19 comments

    The Postal Service lost $2.8 billion in fiscal year (FY) 2008. This year, the Postal Service is concerned its loss could grow to $6 billion or more. Since the Postal Service is limited by law from borrowing more than $3 billion per year and the Postal Service started 2009 with only $1.4 billion cash on hand, there is a danger the Postal Service could face a liquidity problem as payroll and benefits alone are about $54 billion a year.

    Last Wednesday, Postmaster General Potter testified to the Senate subcommittee that oversees the Postal Service. (Click here to view that testimony.) The Postmaster General asked for two forms of relief:

    • Moderation of payments for retiree health care — Under the Postal Accountability and Enhancement Act (PAEA), the Postal Service must make annual payments (more than $5 billion each year) for the next 8 years into a special fund for future retiree health care benefits. In addition, the Postal Service must pay separately for current retirees. The Postal Service requested the ability to start paying for current retirees out of the retiree health care fund now rather than in 8 years as called for in the PAEA. The large annual payments into the fund would continue.
    • Optional 5-day delivery — The Postal Service would like the Board of Governors to have the option of reducing delivery from 6 days a week when circumstances warranted.

    What do you think of these options?

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