updated 11/16/2009 4:40:03 PM ET 2009-11-16T21:40:03

The Postal Service reported a loss of $3.8 billion last year, despite a reduction of 40,000 full-time positions and other cost-cutting measures.

The loss was $1 billion more than the year before despite job cuts and other efforts designed to save billions of dollars, postal officials said Monday.

"Our 2009 fiscal year proved to be one of the most challenging in the history of the Postal Service," Chief Financial Officer Joseph Corbett said.

"The deep economic recession, and to a lesser extent the ongoing migration of mail to electronic alternatives, significantly affected all mail products, creating a large imbalance between revenues and costs," he said.

The post office has been struggling to cope with a decline in mail volume caused by the shift to the Internet as well as the recession that resulted in a drop in advertising and other mail. Total mail volume was 177.1 billion pieces, compared to 202.7 billion pieces in 2008, a decline of almost 13 percent.

For the fiscal year that ended Sept. 30 the agency had income of $68.1 billion, $6.8 billion less than in 2008. Expenditures were down $5.9 billion to $71.8 billion.

Postmaster General John Potter is seeking permission from Congress to reduce mail delivery from six days a week to five, a move that could save the agency $3.5 billion annually.

Potter has said the post office does not plan to raise rates next year on the items most commonly used by the public such as first-class mail.

"We realize our customers are facing the same economic challenges," said Potter.

In addition the agency is consolidating mail facilities, looking to close some offices and looking for new sources of income.

The post office is required to make an annual contribution of about $5 billion to pay in advance for medical benefits for future retirees. Congress reduced that by $4 billion for 2009, but that change was for one year only.

The agency's independent auditor, Ernst & Young, questioned whether the post office would have enough money to make the next payment on Sept. 30, 2010, when $5.5 billion will be due.

For the current fiscal year, the post office estimated it will have a further decline in income of $2.2 billion and a net loss of $7.8 billion even with expected cost reductions of more than $3.5 billion. It expects a reduction in mail volume of another 11 billion pieces.

While there are signs of economic recovery, Corbett said the post office tends to lag two quarters behind the economy. In addition, he said, economists say the recovery is likely to be slow to add jobs and mail volume generally rises when more people are working.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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