The U.S. Postal Service could become insolvent if Congress doesn't approve five-day mail delivery and change the way the agency funds its retiree health benefits, according to the agency's top financial official.

"We will need [some assistance from Congress] or we will have difficulty paying all of our obligations this year," said Joe Corbett, the Postal Service's chief financial officer. "And going into next year, we might not have enough cash to operate. ... We are dangerously close to running out of cash."

The Postal Service posted a $297 million loss for the first quarter of fiscal 2010, which ended Dec. 31, 2009. Mail volume for that period fell by 8.9 percent. But that was an improvement over the previous quarter, when volume fell by 12.4 percent; and over the first quarter of 2009, when volume dropped 9.3 percent.

But the bigger financial picture for the Postal Service remains grim: Mail volume has dropped from a peak of 212 billion pieces in 2006 to 167 billion pieces today. And Corbett said the agency, which has faced multibillion-dollar deficits in the last few years, is running out of ways to cut costs.

Managers have already slashed 28 million work hours in fiscal 2010, and they're on pace to cut 93 million in total this year — the equivalent of about 52,000 full-time employees. Those cuts come on top of the 115 million work hours that were cut in 2009. The Postal Service doesn't plan any layoffs; Corbett said those cuts will come through attrition.

The largest cuts in the first quarter came from mail processing positions, where work hours are down 14.2 percent compared with 2009, and customer service jobs, where hours are down 12.5 percent. City and rural delivery hours are down 5.8 percent and 4.6 percent, respectively.

To further reduce delivery costs — which account for nearly $30 billion in annual expenses — Corbett said the Postal Service needs Congress to approve a switch to five-day delivery, which could save roughly $3 billion in annual expenses.

"If we had full freedom on five-day delivery ... we could save a lot more money and a lot more hours than we are today," Corbett said. "But given the constraints we're operating under, our staffing is where it needs to be."

Legislators have generally resisted that switch, though, and President Obama's 2011 budget request calls on the Postal Service to continue six-day delivery: It states "that 6-day delivery and rural delivery of mail shall continue." Corbett dismissed that as "template language" — "it's the same language that has been in the appropriations bill each year," he said — but he acknowledged that the White House isn't on board with five-day delivery yet.

Corbett said the Postal Service can't cut many more employees without jeopardizing six-day universal service. The current full-time workforce is about 599,000, down from 623,000 in 2009.

But postal experts say the agency needs to do a better job of explaining its personnel needs to Congress and the administration.

Still, analysts acknowledge the Postal Service doesn't have much more room to cut expenses. Labor costs account for nearly 80 percent of the agency's annual expenses.

"There's only so much overtime you can cut; there's only so much savings that can come from reducing delivery costs," said one congressional analyst. "There's a certain number of fixed costs in there."

Awaiting congressional help

Postal managers also hope Congress acts this year to reduce their retiree health care obligations. The Postal Service is required to contribute roughly $5.5 billion this year into a fund for future retiree health care. But the agency can't afford to make that payment — and a recent study from the Postal Service's inspector general said it probably doesn't need to make the payment: The Postal Service will overpay nearly $75 billion into the fund over a 10-year period, according to the study.

Congress provided relief last year by passing a bill to reduce the Postal Service's payment from $5.4 billion to $1.4 billion. Postal officials are hoping for at least a similar level of relief this year.

Corbett said the agency needs both changes — five-day delivery and a retiree health care change — to pay its bills.

What's more, even with a switch to five-day delivery and a substantial change in the retiree health benefits program, the Postal Service still wouldn't be profitable.

"Break-even is not the goal. We're going to have $15 billion in debt next year," Corbett said. "We need to start repaying that debt."

The Postal Service expects to hit $13.2 billion in debt by the end of this year — and it will likely reach its congressionally imposed $15 billion debt ceiling sometime in fiscal 2011. The interest payments alone on that debt will top $300 million, Corbett said, and could grow if short-term interest rates — currently at historic lows — rise.

Despite the prognosis, Corbett said he was pleased to see the pace of decline slowing in the last quarter.

"It's the beginning, we hope, of a trend," Corbett said at a breakfast last week with a small group of reporters. "We're still seeing a decline in mail volumes, but the decline has abated somewhat in the fourth quarter of 2009, and also significantly in the first quarter [of 2010]."

The Government Accountability Office is scheduled to release a report next month assessing possible changes to the Postal Service's business model. Rep. Edolphus Towns, D-N.Y., chairman of the House Oversight and Government Reform Committee — which oversees the Postal Service — plans to hold several hearings on the subject this year.