Lawmakers Get Conflicting Advice On Fixing US Postal Service

Lawmakers got conflicting advice Thursday on the best way to put the U.S. Postal Service on firmer financial footing, with postal customers and management suggesting aggressive cost-cutting measures that postal labor unions say may be ineffective and counterproductive.

The Postal Service's financial condition is so bleak that the Government Accountability Office added it this week to a list of "high-risk" operations that need a dramatic overhaul.

Mail volume has fallen so dramatically that the Postal Service may close hundreds of urban and suburban post offices, and wants permission from Congress to deliver mail five days a week rather than six. At a U.S. House postal service subcommittee hearing Thursday, Jordan Small, USPS acting vice president for network operations, said curtailed delivery is "the last big option" against a rising tide of red ink.

Even with a record $6 billion of cost savings this year, the Postal Service is likely to lose about $7 billion and doesn't expect to have enough cash from operations to make a mandated $5.4 billion payment for future retiree health benefits due Sept. 30, the GAO said. The Postal Service's debt to the U.S. Treasury Department likely will exceed $10 billion this year and the GAO said it is in danger of reaching its $15 billion Treasury borrowing limit in 2011.

Estimated annual savings from eliminating Saturday mail delivery service range from $1.9 billion to $3.5 billion, levels that opponents said may be inflated.

Moving to five-day delivery will only alienate customers and drive them to private alternatives, exacerbating the Postal Service's woes, National Association of Letter Carriers President Fred Rolando predicted.

CVS Caremark Corp. (CVS), which delivers 90% of its online prescription drug orders through the U.S. Postal Service, spending about $13 million a year, is among the companies whose customers would suffer by eliminating Saturday delivery, said Don Cantriel, president of the National Rural Letter Carriers' Association.

"Without good service, we have nothing to offer," said Mark Strong, executive vice president of the National League of Postmasters of the U.S., and Sun City, Ariz., postmaster.

Union officials also expressed skepticism about closing post offices, something the Postal Service said makes sense now that nearly 30% of stamps are sold elsewhere and alternatives such as online bill paying have cut into traditional mail use.

Mail demand is business-driven, so when the recession ends, "most of the mail will come back," Strong predicted.

William Burrus, president of the American Postal Workers Union, agreed, noting that Postal Service mail volume peaked at 213 billion pieces in 2006, when electronic alternatives already were widespread. He said cutting service during a recession would leave the Postal Service ill-prepared when business bounces back, as he expects it will.

Business mailers are less optimistic, saying a system built to process upwards of 300 billion pieces of mail needs to be cut to half that level. Volume is projected to decline about 14% this year, to 175 billion pieces.

Rethinking the postal system "is long overdue," said Arthur Sackler, executive director of the National Postal Policy Council, a trade association for about 30 businesses that spend $9.5 billion on postage each year. He told House lawmakers that the Postal Service is in a very deep hole and needs flexibility to do what needs to be done.

"Everything has to be on the table," as far as cost-cutting, said Jerry Cerasale, senior vice president of the Direct Marketing Association. He warned against any increase in postage rates, an idea the Postal Service hasn't floated, saying that would drive business away, putting the Postal Service into a deeper hole.

-By Judith Burns, Dow Jones Newswires, 202-862-6692; [e-mail]