By Emily Stephenson
WASHINGTON (Reuters) - In just a few weeks, the U.S. Postal Service expects to be insolvent, barring intervention by a divided Congress bogged down by partisan sniping.
The quasi-independent agency, which delivers almost half the world's mail and employs more than half a million Americans, lost $3.1 billion in its most recent quarter and expects to default next month on a massive health benefits payment after reaching its $15 billion borrowing limit.
The Postal Service, which receives no taxpayer funds to pay for operating costs and relies on sales of postage and other products, has struggled with a precipitous decline in mail volumes as consumers increasingly use e-mail and pay bills online. The drop-off was exacerbated by the economic recession.
The mail carrier has asked Congress to approve major structural changes, including the elimination of Saturday mail delivery, as well as relief from its immediate cash crisis.
It has proposed cutting 220,000 jobs, or more than a third of its full-time staff, by 2015, and is studying about 3,650 of its 32,000 offices for potential closure.
But Congress is in recess until September 6, and the Democratic-led Senate and Republican-led House of Representatives have fought bitterly on policy issues from health reform to raising the national debt ceiling.
At a time when lawmakers face another deficit-reduction fight and the 2012 election campaign is heating up, analysts say a drastic postal overhaul is unlikely any time soon.
"Something really needs to happen, but I just don't quite see the dynamics falling in place to make it happen," said Gene Del Polito, president of the Association for Postal Commerce, which represents businesses and groups that use the mail.
"I do not yet see the temperament that's needed to be able to say, 'I may have to hold my nose and come to some compromises in order to keep the system alive.'"
If Congress does not step in, it is unclear what will happen. More billion dollar-plus obligations are nearly due. Congressional staffers, postal experts and agency officials could not say with certainty when the cash will run dry.
The Postal Service said in its most recent financial report it was unlikely lawmakers would allow it to close.
Louis Giuliano, chairman of the Postal Service Board of Governors, said at a recent meeting that educating lawmakers on the agency's financial challenges had become "a full-time job" due to "the environment in Congress."
The debt ceiling stalemate trumped all other issues for weeks, and consensus on postal reforms seems a long way off.
Analysts say a bill from House Oversight Committee Chairman Darrell Issa, a Republican, is probably the starting point for postal legislation. It would end Saturday mail delivery and set up groups to guide post office closings and overhaul the agency if it defaults, including renegotiating labor agreements.
The agency says five-day delivery would save $3 billion a year. But some prominent lawmakers have not signed on.
Susan Collins, ranking Republican on the Senate Homeland Security and Government Affairs Committee, contends cutting Saturday mail would disproportionately hurt rural communities.
A Democratic staffer said laying off workers and breaking collective bargaining agreements would face resistance from union members. Efforts to close offices often draw fire from lawmakers seeking to protect jobs in their districts.
SHORT-TERM CASH FIXES
While Congress considers overhauling the Postal Service's infrastructure, the agency expects to default on a $5.5 billion health benefit prepayment next month. Congress let the agency defer that annual payment once, in 2009, but is unlikely to do so again.
Several lawmakers from both parties have proposed allowing the agency to access money it says it overpaid to a federal retirement fund.
But Issa opposes that fix.
His office says the surplus was a temporary projection that could turn to deficit, and letting the Postal Service off the hook for the health prepayment could lead to a taxpayer bailout in several years if the agency cannot afford to cover benefits.
His bill would let the Postal Service borrow an extra $10 billion, with its property as collateral.
"If I had to say who's really got most of the cards in his hand, it's Issa," Del Polito said. "He says, 'No,' things come to a screeching halt."
The Postal Service has been introducing some of its own solutions, including a proposal to take over running its health and retirement programs. Postmaster General Patrick Donahoe has said that could save $400 million annually.
Congressional staffers said they needed more details to determine if the proposal could be feasible.
Donahoe told Reuters last week he hoped for a deal in Congress by the end of September to give the mail agency more control over its finances and payrolls.
But in its recent financial filing, the agency attached a big caveat: "There can be no assurance that the requested adjustments ... or any other legislative changes will be made in time to impact 2011, or at all."
(Read the financial document here: http://r.reuters.com/met33s)
(Additional reporting by Malathi Nayak and Lily Kuo; Editing by Peter Cooney)