Money Woes May Doom Saturday Mail Delivery

Facing huge financial losses, the U.S. Postal Service will consider canceling Saturday mail delivery and shutting down some of its vast network of 38,000 post offices.

The agency’s board of governors Tuesday ordered a 90-day study of the drastic money-saving measures that might be needed to cope with a deficit that could reach $3 billion this fiscal year.

Congress in the past has rejected any proposals to curtail six-day-a-week service, but the Postal Service is raising the issue again to focus attention on its severe financial problems. Although a rate increase was granted in January, with the price of a first-class letter rising a penny to 34 cents, the Postal Service plans to seek another increase this summer for an unspecified amount. If approved, that rate hike would take effect next spring.

Soaring energy costs and increases in salaries and health insurance costs for the postal work force of nearly 800,000 are deepening the budget deficit in the short run. The long-term outlook is even more bleak, experts say, as more businesses and individuals turn to electronic commerce to pay their bills.

The Postal Service is a “high-risk” agency, according to testimony expected today by officials of the General Accounting Office, the investigative arm of Congress. The hearing will take place before the House Committee on Governmental Reform.

Congressional and business reaction to the possible cutbacks and post office closings was swift and critical.

“The post office should get its financial house in order before it proposes reductions in service to the public,” said Sen. Fred Thompson (R-Tenn.), chairman of the Senate Governmental Affairs Committee, which has jurisdiction over postal legislation.

“In most cities in America, if you cut Saturday delivery, Monday for most postal employees will be a . . . nightmare,” said Robert McLean, executive director of the Mailers Council, which represents newspaper and magazine publishers, the banking industry, advertisers and other large mailers.

Proposed rate increases also are unacceptable, he said.

“The business mailing community has spent a significant amount of time and energy trying to explain how it cannot absorb another increase on top of what we had in January,” McLean said. If rates rise again soon, he said, businesses will start rushing to use electronic commerce for billing, he said, resulting in a financial “death spiral” with the post office losing even more revenue, forcing it to raise rates repeatedly.

The Postal Service’s financial problems “should be no surprise to anyone who has watched the industry,” said Dana Johnson, deputy chief of staff for Rep. John M. McHugh (R-N.Y.), a member of the House Governmental Reform Committee and former chairman of the Postal Service subcommittee. The Postal Service needs more flexibility on products and pricing, she said, and it must give up some of its special privileges.

The Postal Service operates independently from the federal government in raising and spending money, but Congress still oversees its activities. It could not cut delivery or close large numbers of postal facilities without congressional approval.

“The reality of the marketplace is that the 30-year-old statutory model that governs the Postal Service is in need of change to protect universal service at affordable rates,” S. David Fineman, vice chairman of the service’s board of governors, said Tuesday.

Salaries and benefits account for 76% of total costs, and there is “neither a mechanism to control wage rates nor to adjust postage rates quickly in response to market changes,” Fineman said.

The order to postal management to consider cutbacks in delivery comes just one week after the Postal Service announced it wants to reduce total spending by $2.5 billion by 2003. There are plans to trim administrative activities by 25% and transportation costs by 10%.

There will be a freeze on new construction projects.

The threat to cut Saturday delivery “is a ploy to get another rate increase,” said Edward Hudgins, director of regulatory studies for the libertarian Cato Institute. “From a political perspective, members of Congress will get the message, and this will help [the Postal Service] get the rate increase.”

Rate matters are handled by an independent panel, the Postal Rate Commission.

From a congressional standpoint, a rate increase could prove more acceptable than the political furor that could arise from cutbacks. The reaction would be “quite loud,” Hudgins predicted.