Washington, D.C. (AP) - Teetering on the brink of bankruptcy, the U.S. Postal Service's quarterly loss ballooned to $3.3 billion amid declining mail volume and the soaring costs of health benefits for future retirees.

From October through December 2011, losses were $3 billion more than the same period a year ago, even though that quarter is typically the strongest due to increased holiday shipping. The mail agency said that at this rate, it will run out of money by October.

The Postal Service is seeking new leeway from Congress to eliminate Saturday mail delivery, raise stamp prices and reduce health and other labor costs.

Also at stake are roughly 100,000 jobs, part of a postal cost-cutting plan to save up to $6.5 billion a year by closing 252 mail processing centers and up to 3,700 post offices. At the request of Congress, the cash-strapped agency agreed to wait until mid-May to begin closures so lawmakers would have time to stabilize its finances first.

Prospects for immediate congressional action remain uncertain.

"Passage of legislation is urgently needed that provides the Postal Service with the speed and flexibility needed to cut costs that are not under our control, including employee health costs," said Postmaster General Patrick Donahoe.

He said the post office must cut $20 billion in annual costs by 2015 so it can reach profitability, rather than becoming a "long-term burden to taxpayers." The agency forecasts a record $14.1 billion loss by the end of this year.

If the post office were to run out of money, officials said, they would prioritize what mail services to provide. Private companies such as FedEx and UPS could handle a small portion of the material the post office moves, but they do not go everywhere. No business has shown interest in delivering letters everywhere in the country for a set rate of 45 cents for a first-class letter.

"We have a Postal Service that essentially is living from paycheck to paycheck, which is a very risky proposition for the American economy and the 8 million private sector workers whose jobs rely on the mail," said Art Sackler, coordinator of the Coalition for a 21st Century Postal Service, a group representing the private sector mailing industry. "Each day Congress fails to enact postal reform, this problem grows more difficult and perhaps more expensive to resolve."

Overall, the post office had income of $17.7 billion from October through December, the first quarter of its 2012 fiscal year. That was down $200 million from the same period last year. Expenses were $17.5 billion.

In addition, the Postal Service had costs stemming from yearly advance payments of roughly $5.5 billion to a future retiree health-benefit fund. Because the agency is low on cash, Congress agreed to extend the legal deadline for last year's payment until this fall, when this year's payment will also be due.

In its financial statement, the post office spread the total $11.1 billion in costs over 12 months, creating additional quarterly debt of more than $3 billion. Without those annual payments - not required of other government agencies - the post office would have posted a profit in most recent years and had a loss of roughly $200 million in the last quarter.

The Postal Service also has been rocked by declining mail volume as people and businesses continue switching to the Internet in place of letters and paper bills. The number of items mailed during the last quarter was 43.7 billion pieces, a 6 percent decrease, much of it in first-class mail.

On the positive side, postal shipping services such as express and priority mail had an 8 percent increase in income to $3.2 billion, with package volume in the holiday period nearly double that of FedEx and UPS, according to postal officials.

Separate proposals passed last year by House and Senate panels would either scrap or provide temporary relief from the annual health prepayment, but they differ widely on financial oversight and a reduction to five-day-a-week delivery. The Senate initially planned action earlier this month but stalled as some lawmakers pushed for changes that would delay decisions on closings and delivery cuts for at least two more years.

"Record productivity and the strong growth in the shipping business show that the Postal Service can be a successful organization," said Fredric Rolando, president of the National Association of Letter Carriers, which opposes broad-scale cuts. "These results reveal the need for Congress to remove the crushing burden of the pre-funding payments."

On Thursday, Donahoe said reducing the size of its postal network was critical to its efforts to reduce costs. Closure of mail-processing centers were still planned to begin after mid-May. He said the mail agency was revising some of its proposals to accommodate the needs of rural communities, which rely more heavily on postal service for the delivery of newspapers, prescription drugs and other services.

As part of the changes, the mail agency plans cuts to first-class mail that would slow delivery and, for the first time, virtually eliminate the chance for stamped letters to arrive the next day.

"We have to make sure we are taking actions that are swift to maintain our liquidity and pay our bills," said chief financial officer Joe Corbett, warning that large losses will continue without changes. "This is no way to run a business."

Last year, postal losses totaled $5.1 billion.

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Online:

http://www.usps.gov