Would fixing the retiree health issue "solve" the liquidity problem?

A number of comments on my piece highlighting the problem of Postal Service liquidity suggested that fixing the retiree health issue would solve the liquidity problem.   This is easily evaluated by asking the following question. 

If one assumes that the Postal Service no longer had retiree health care payments, would its liquidity improve sufficiently to move it away from a range commonly found among firms that face bankruptcy in the private sector?

The following table answers this question.   It updates the liquidity measure contained in the previous post by eliminating retiree health care expenses as a current liability.

Removing the retiree health care expense improves the current ratio from 0.13 to 0.17.   It still is far below the ratios of firms that either went through bankruptcy proceedings or had the equivalent of a bankruptcy proceeding.

The current ratio is not the only way to measure liquidity.    Another way is to look at cash the Postal Service has already received for services not yet rendered and its available cash.   Given that the Postal Service is operating at a loss with retiree health expenses and break even without this expense, one can assume that the cost of providing the service in the future will equal or exceed the revenue already collected.   Here are the figures:

• $4.909 billion -- Revenue collected for services to be rendered   
  
• $1.014 billion -- Cash on hand
  
• $3.894 billion -- Cash shortfall to be born by future Postal Service customers

The decline in mail volume, and in particular high-margin First Class mail, exacerbates the problem of not having sufficient cash to provide the services already paid for.   As time passes, the Postal Service will need either even greater cost cuts or rate increases to build up its cash reserves to the point that it has the cash to cover the costs of services that it has already promised to deliver.

The liquidity problem should be a concern to all stakeholders.    The future of viable self-sufficient means of delivering the 150 billion pieces of hard copy communications and parcels expected to be sent in 2020 depend on solving this problem.