Postal Service said to be on verge of collapse

The U.S. Postal Service is on the verge of financial collapse and should eliminate Saturday delivery, close thousands of local post offices, restructure its health plan and lay off 120,000 workers to survive, according to Postmaster General Patrick Donahoe.

Donahoe asked lawmakers to allow him to make “radical” changes to the centuries-old institution so it could avoid defaulting on its obligations. At a Senate hearing Tuesday, he said the Postal Service was all but certain to miss a $5.5-billion payment to its retiree health fund due at the end of the month. And that is only the beginning of the trouble, he said, warning that the postal system was heading toward a $10-billion net loss this fiscal year and was near its borrowing limit.

With operating cash running out quickly, trucks, mail processing centers and mail delivery could come to a halt by this time next year, Donahoe said.

“Failure to act could be catastrophic,” Donahoe told members of the Senate Homeland Security and Governmental Affairs Committee, which oversees the Postal Service.

The new proposals reflect heightened desperation at an agency that has been on the decline for years. The rise of email has dramatically curbed the mailing of old-fashioned letters, while competitive delivery companies have put the squeeze on the post office’s business model. Last year, the post office delivered 171 billion pieces of mail, down 20% from just four years earlier. Volume is on track to fall an additional 2% this year.

But Donahoe put the blame for the current crisis on federal laws and labor agreements that he said unduly restricted his agency’s ability to adapt and promised more than the Postal Service could deliver. Labor costs amount to 80% of the service’s expenses, and current contracts contain a no-layoff provision. Changes to the frequency of service or delivery areas require federal legislation.

The postmaster’s request arrived just as lawmakers returned from a summer break and appeared prepared to pick up where they left off — in a fierce partisan battle over government spending and job creation. The post office crisis is likely to get thrown into the mix.

Both Democrats and Republicans are quick to express their support for postal services, But even the short-term measures under discussion are likely to find opposition.

The proposed changes to mail service would probably draw the broadest opposition. Representatives of the newspaper and magazine industry, both dependent on mail subscribers, told Congress to act carefully in eliminating Saturday delivery and post offices.

“We are concerned that rural America is being thrown overboard by a postal system too eager to lavish its assets onto highly competitive urban areas,” Tonda Rush, director of public policy at the National Newspaper Assn., said in a statement. “Within this context, the loss of Saturday residential delivery would be a major blow.”

Postal unions also oppose much of Donahoe’s plan.

The unions have seen the ranks of Postal Service employees fall by 130,000 already in the last four years. The layoffs Donahoe has proposed would amount to about one-fifth of the workforce.

Current contracts were negotiated just months ago. Donahoe also has proposed that the Postal Service withdraw from the federal employee health insurance plan and sponsor its own. It would also offer a defined-benefit retirement plan for new employees.

“I am at a loss for adjectives sufficient to the task of describing these actions by the Postal Service,” said Cliff Guffey, president of the American Postal Workers Union. “Several that come close are outrageous, illegal and despicable.”

The Postal Service and the unions are pushing the administration to lessen the immediate crisis by giving the service between $50 and $75 billion they claim has been overpaid into federal retirement funds. The Obama administration has appeared reluctant to throw its support behind anything that could be labeled as another bailout.

John Berry, director of the government’s Office of Personnel Management, told the committee that the president would include long-term proposals for the Postal Service in a deficit reduction plan he has promised to unveil to Congress soon. Meanwhile, Democrats and Republicans in the Senate have proposed legislation. Rep. Darrell Issa (R-Vista), chairman of the House government oversight committee, has proposed an outside commission to craft a restructuring,

But Berry said Congress would have to act before his office would have the authority to return any money to the Postal Service that was allegedly overpaid to the retirement funds. Berry said Obama supported legislation that would defer the $5.5-billion payment for 90 days, giving Congress time to come up with other solutions.

“That’s not going to be a slam-dunk here in this Congress,” said Sen. Joe Lieberman (I-Conn.), chairman of the Senate committee holding the hearing. “And that’s not going to solve the problem for the long run.”

kathleen.hennessey@latimes.com