US Postal Service 2011 Annual Report Download - page 37

2011 Report on Form 10-K United States Postal Service - 35 -
 Studying underutilized Post Office locations for
potential consolidation, closure or conversion to a
contract unit or a Village Post Office.
 Enhancing and expanding alternate access sites,
including Village Post Offices and
http://www.usps.com, and exploring franchising.
 Modifying service standards which will allow for
longer operating windows and will reduce the
requirements for equipment, facilities, and work
hours.
These efforts are expected to help us to reduce labor and
benefits costs. Current Postal Service projections
anticipate a decrease of approximately 100,000
employees over the next three years, with potential
annual savings of approximately $6.5 billion. The service
standard changes related to these plans require that we
request a non-binding advisory opinion from the PRC,
which we expect to file in December 2011. The PRC is
allotted a minimum of 90 days from the date of filing to
render a non-binding opinion.
As previously noted, our ability to execute strategies to
increase efficiency and reduce costs by adjusting our
network, infrastructure, and workforce, and to retain and
grow revenue, is currently constrained by contractual,
statutory, regulatory, and political restrictions. As a result
of these restrictions, our efforts to positively impact cash
flow will not be sufficient, either individually or in the
aggregate, to avoid a cash shortfall. Absent significant
changes in the law, we will default on the $5.5 billion
prepayment due to the PSRHBF by November 18, 2011,
and on the $5.6 billion prepayment due by September 30,
2012. Additionally, even if legislative changes defer or
eliminate the $11.1 billion of prefunding payments
currently due to the PSRHBF in 2012, the $15 billion debt
ceiling will likely be reached in October 2012, thereby
exhausting our external funding ability.
POSTAL LEGISLATIVE REQUESTS
Even if legislation is enacted to address shorter-term
liquidity matters such as the PSRHBF prefunding payment
schedule and FERS overfunding, the Postal Service will
continue to face financial stability concerns. We have
taken, and continue to take, specific actions to address
those elements under management’s control. Despite
these changes, the financial outlook continues to show
the necessity of the following legislative changes, which
we have already asked Congress to make:
 Resolve the retiree health benefits prefunding
requirement which currently calls for $33.9 billion
of additional prefunding payments from 2012
through 2016.
 Address the inequities in the current Civil Service
Retirement System (CSRS) pension liability
allocation methodology which has led to
overfunding by the Postal Service by as much as
$75 billion.
 Refund the FERS overfunding of $6.9 billion
which according to OPM’s latest calculation has
grown to $10.9 billion as of September 30, 2010,
the latest actual data available, and is projected
to grow to $11.4 billion by September 30, 2011,
assuming all employer contributions are made.
 Grant the Postal Service the authority to
determine delivery frequency.
 Allow the Postal Service to offer non-postal
products and services.
 Allow the Postal Service to restructure its
healthcare systems.
 Develop a more streamlined governance model
for the Postal Service that would allow for quicker
pricing and product development decisions than
currently exists within the regulatory framework.
Due to the gravity of the financial situation, more than a
half-dozen different postal reform-related bills have been
introduced in Congress in the past year, in addition to a
plan proposed by the Administration. These plans
address some of the short- and long-term issues that we
are facing.
There can be no assurance that any legislative changes
will be made in time to impact 2012, or at all.
MITIGATING CIRCUMSTANCES
Our status as an independent establishment of the
executive branch which does not accept tax dollars for our
operations presents unique requirements and restrictions,
but also potentially mitigates some of the financial risk that
would otherwise be associated with a cash shortfall.
Despite falling mail volume, the Postal Service is still
widely recognized as providing an essential service to the
American economy, and there are a wide variety of
potential legislative remedies that could resolve the short-
term liquidity concerns. Therefore, it is unlikely that, in the
event of a cash shortfall, the federal government would
cause or allow us to significantly curtail or cease
operations.
The Postal Service continues to inform the Administration,
Congress, the PRC, and other stakeholders of the
immediate and longer-term financial issues the Postal
Service faces and the legislative changes that would help
ensure the availability of sufficient liquidity on September
30, 2012, and beyond. However, there can be no
assurances that the requested adjustments to the
PSRHBF prefunding payment schedule, or any other
legislative changes, will be made in time to impact 2012,
or at all.