US Postal Service 2012 Annual Report Download - page 51

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2012 Report on Form 10-K United States Postal Service- 50 -
in the current session of Congress, then the legislative process starts anew with new bills required to be introduced when
the 113th Congress begins in January 2013. Given the vital role that the Postal Service plays in the U.S. economy, we
are requesting that Congress promptly take the steps needed to enact legislative changes that will enable us to return to
financial stability.
A vital component of our five-year plan is the proposal that we sponsor our own health care program independent of other
federal health insurance programs. A Postal Service-sponsored health care program could achieve over $7 billion of
projected annual savings. The plan would allow for the elimination of the retiree health benefit prefunding obligation
established in the Postal Service Accountability and Enhancement Act of 2006, which would save us over $5 billion
dollars annually through 2016. The plan also proposes to transfer current retirees into the Postal Service-sponsored
health care program, an action that requires legislation. Our plan is expected to be more cost effective, is forecasted to
reduce health care costs significantly, and will result in equivalent or better coverage for the vast majority of retirees and
current employees.
MITIGATING CIRCUMSTANCES
Our status as an independent establishment of the executive branch that does not receive 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. The Postal Service is widely recognized as the provider of an essential
government service and is the epicenter of an almost $1 trillion mailing industry. There are 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.
We continue to inform the Administration, Congress, the Postal Regulatory Commission (PRC), and other stakeholders of
the immediate and longer-term financial issues we face and the legislative changes that would help provide financial
stability. Given the vital role we play in the U.S. economy, we are hopeful that Congress will promptly enact, and the
President will sign, legislation which will mitigate our short-term financial challenges and provide us with the authority to
make needed changes to ensure long-term financial stability. However, there can be no assurances that the requests to
restructure the PSRHBF prefunding payment schedule, or any other legislative changes, will be made in time to impact
2013, or at all.
CAPITAL INVESTMENTS
Given the financial and liquidity challenges facing the Postal Service, capital spending has been constrained below
average historical levels. Since 2009, priority has been given to projects: 1) needed for safety and/or health or legal
requirements; 2) required to provide service to our customers; and 3) initiatives with a high return on investment and a
short payback period.
At the beginning of 2012, there were 11 major projects in progress (i.e., greater than $25 million approved capital),
representing $3.1 billion in approved capital funding. During the year, three new projects were approved, which totaled
$324 million in additional capital funding. A total of three projects representing $356 million in approved capital funding
were completed. The year ended with eleven major open projects that amount to $3.1 billion in approved capital.
While the funding for a project is authorized in one year, the commitment or contract to purchase or build may take place
over several years. By year-end, approximately $2.5 billion had been committed to these eleven open projects. Actual
capital cash outlays will occur over several years. Through the end of 2012, approximately $2.3 billion has been paid for
these projects.
Capital commitments as of September 30, 2012 (including the major projects mentioned above), consisting of building
improvements, equipment and sustaining infrastructure investments, totaled $644 million. This is the lowest amount of
capital commitments since 1988.
At the beginning of 2011, there were 14 major projects in progress, representing $3.7 billion in approved capital funding.
During the year, two new projects were approved, which totaled $184 million in additional capital funding. A total of five
projects representing $786 million in approved capital funding were completed. The year ended with eleven major projects
in progress representing $3.1 billion in approved capital. The total capital commitments as of September 30, 2011 were
$881 million.