The amount of funds we can borrow is limited by the amount of debt authorized by the Board of Governors and by certain statutory limits on borrowing. Our total debt outstanding cannot exceed $15 billion. The net increase in debt for any fiscal year cannot exceed $2 billion for capital purposes and $1 billion to defray operating expenses ($3 billion maximum annual limit).

Our liquidity will be comprised of the cash that we have entering 2006, the cash flow that we can generate from operations, and the $3 billion that can be borrowed if necessary. We do not expect cash flow from operations to supply enough cash to fund both the escrow requirement and our capital investments in 2006. Consequently, we anticipate increasing debt by at least $1 billion. However, this projection is not without risks, and unfavorable events would cause a re-evaluation of the planned 2006 year-end levels of debt.

P.L.108-18 requires that we create an escrow, or restricted cash account of approximately $3.1 billion by September 30, 2006 in the event that Congress has not yet decided how to deploy the savings from change in the retirement funding provisions.

Other Developments
Pending Legislation

POSTAL REFORM

On July 26, 2005, the House of Representatives passed its postal reform bill, H.R. 22, the Postal Accountability and Enhancement Act. On June 22, the Senate Homeland Security and Governmental Affairs Committee approved its bill, S. 662, the Postal Accountability and Enhancement Act. At press time that bill was pending full Senate action. The full text of the proposed legislation can be found at the website http://thomas.loc.gov/

On August 2, 2005 the Board of Governors again addressed postal reform. The Statement of Chairman Miller, USPS Board of Governors, regarding postal reform legislation can be found on usps.com under News Releases.

On September 13, 2005, the Postal Service Board of Governors wrote letters to the bipartisan leadership of the Senate Committee on Homeland Security and Governmental Affairs and to the House Committee on Government Reform, to clarify the Board’s position on postal reform.

The Board expressed its concern that the financial relief provided by the escrow and military provisions of both the House and Senate reform bills was threatened by the Administration’s Statement of Administration Policy, which stated that the President’s senior advisors would recommend that the President veto any enrolled bill that was not budget-neutral. The Board stated that budget-neutral legislation could jeopardize the Postal Service’s ability to maintain universal service at reasonable rates. Although both bills provided much needed financial relief through their escrow and CSRS provisions, the Board maintained that neither bill provided the requisite flexibility or authority necessary for the Board to accomplish its mission. Under such circumstances, the Board believed that the Postal Service would be better positioned to build upon its recent success in generating revenue and controlling costs under current law.

SEMIPOSTAL LEGISLATION

On September 27, 2005, the Senate passed S. 37, a bill to extend the sale of the special postage stamp for breast cancer research for 2 years. On October 27, the full House passed S. 37 by voice vote, clearing the measure for the President’s signature. The President signed the bill into law on November 11, 2005. The bill extends sales of the Breast Cancer Research semipostal stamp through December 31, 2007.

FREE MAILING PRIVILEGES FOR SERVICE-MEMBER FAMILIES

On September 30, 2005 the House Committee on Government Reform approved H.R. 923, a bill to establish a program to provide for free postage on certain mail matter sent to members of the armed forces serving in Iraq and Afghanistan. Under the provisions of the bill, the Secretary of Defense, in consultation with the Postal Service, is required to establish a one-year program under which qualified service members will receive a monthly voucher redeemable to pay for postage for one item, not to exceed 15 pounds in weight, to be mailed to the service member. The service member may send the voucher to an individual of their choosing for this purpose. The bill authorizes an appropriation to the Department of Defense to reimburse the Postal Service for the cost of this free mail benefit. At press time there had been no Senate action on a bill to establish a program to provide for free postage on certain mail matter sent to members of the armed forces serving in Iraq and Afghanistan.