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updated 2/9/2011 2:09:33 PM ET 2011-02-09T19:09:33

The post office continues to lose money at a rapid pace thanks to a requirement that it make advance payments to cover expected health care costs for future retirees.

The agency said Wednesday it had a loss of $329 million for the first quarter of the fiscal year — Oct. 1 to Dec. 31, 2010.

That was up from a $297 million loss in the same period the year before, which ended with a total loss of $8.5 billion.

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Without the requirement for advance health care payments, the post office would have had a net profit of $226 million for the quarter, the agency announced.

Congress has proposed easing the upfront payments, which are not required of any other government agency.

"The Postal Service continues to seek changes in the law to enable a more flexible and sustainable business model," Postmaster General Patrick R. Donahoe said in a statement.

The post office has sharply cut staff and reduced other expenses, and is considering closing smaller post offices to further trim costs.

However, the agency said current financial projections indicate it will have a cash shortfall, and reach its statutory borrowing limit, by the end of the fiscal year. That means it could be forced to default on some of its financial obligations to the federal government on Sept. 30, 2011.

The post office, which does not receive tax money for its operations, has been hurt financially by the combination of the recession and the switch of millions of pieces of mail to the Internet in recent years.

The recession does seem to be easing, and total mail volume increased 707 million pieces, or 1.5 percent, for the first quarter of 2011, compared to the first quarter of 2010. Total mail volume, however, remains well below the 2006 peak.

While mail volume increased in the first quarter, revenue from mail declined $520 million because the growth took place in advertising mail, while first class items, which generate more income, remained down.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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