11/21/2011 05:45 pm ET

Postal Service Cuts: Postmaster General Stumps For Closing Post Offices, Ending Saturday Delivery

WASHINGTON -- The United States postmaster general and the leader of a major postal workers' union offered competing views on Monday of how to deal with the pressing financial problems of the U.S. Postal Service, an agency that seems almost destined for service cuts in the face of large operating losses.

Patrick Donahoe, the postmaster general, argued at a National Press Club luncheon that the agency needs to be given the ability to shed a large portion of its workforce, renegotiate labor contracts, close lower-volume post offices, and eliminate Saturday delivery in order to regain stable financial footing.

"We're in a deep financial crisis because we have a business model that is tied to the past," Donahoe said. "We are expected to operate like a business but we do not have the flexibility to do so. Our business model is fundamentally inflexible."

Calling the postal service "part of the bedrock infrastructure of the U.S. economy and society," Donahoe said that the agency must undergo significant cuts in order to save itself as mail volume continues to drop, thanks in part to the Internet and online bill pay. Donahoe added that first-class mail volume has already fallen by 23 percent and is expected to fall by another 20 percent in coming years. He also said that 25,000 of the postal service's roughly 32,000 post offices are operating at a loss.

"Will the postal service be able to get ahead of the cost curve or will we be doomed for future losses?" Donahoe asked. "We can be profitable and self-sustaining."

Donahoe's recipe for solvency was immediately challenged by that of Fred Rolando, president of the National Association of Letter Carriers (NALC), a union representing roughly 300,000 postal workers. At a press conference on the heels of Donahoe's speech, Rolando said that while "reports of the postal service's demise have been greatly exaggerated," the proposed cuts would devastate the agency and send it into a tailspin of weakened services and a diminished customer base.

"Recklessly reducing service will irreparably damage [the] most valuable asset -- the postal service's comprehensive delivery network -- thus making it harder and less efficient for customers to use the mail," Rolando said. "We need Congress to understand that reducing and degrading our network or the services that the postal service provides to the American people -- like going to 150 million addresses six days each week -- is not the way to save the postal service."

Rolando did not dispute that the postal service finds itself in the red, as the agency recently logged a loss of $5 billion for fiscal year 2011. But like other traditional postal service boosters, he argued that the agency can be partly restored to financial health by eliminating the requirement that it pay $5 billion each year to pre-fund retiree health care, which it's been doing since 2006. And though he wouldn't provide details, Rolando said the union and its consultants -- the financial consulting firm Lazard and former Obama Administration official Ron Bloom, who helped engineer the restructuring of the auto industry -- also plan on putting forth "a new approach to health benefits" that could save up to $20 billion over the next decade.

"Congress must resist poorly thought-out and radical downsizing plans and reform the pre-funding burden," Rolando said.

The union and its allies are facing a difficult battle. The prevailing public perception of the postal service seems to be that of a large and cumbersome agency hobbled by an outdated business model. Misinformation spread among talk of a financial crisis has not helped. Lawmakers such as Rep. Darrell Issa (R-Calif.) have warned of an impending taxpayer "bailout" of the postal service, even though the agency is not funded by tax dollars and relies instead on postage sales.

Both the House and Senate have been working on legislation to address the financial problems, though neither Donahoe nor the unions seem entirely pleased with any one bill. Donahoe argued that further delay from Congress will only increase the agency's operating losses. He said the postal service has not defaulted on any of its obligations yet, though it could within months.

He also said that the agency has been selling off real estate and ending some of its leases in an effort to cut costs, and that it's hoping many of the 155,000 postal workers now eligible for retirement will choose to hang it up.

NALC and the postal service are in the middle of negotiations over a new contract. The current contract was set to expire Sunday night, but the two sides agreed to extend their talks until at least Dec. 7. Donahoe said that workers generally should be prepared to make sacrifices due to the agency's financial outlook.

"I don't think there's that much animosity between management and the unions," Donahoe said. "The bottom line is [workers] will have to give some things up in some cases. Everybody's got to be able to give a little bit."

The union appears willing to meet management halfway, with Rolando noting that whatever the new contract looks like, it will "recognize and deal with the new realities of postal volume and finances." But as far as service cuts go, Rolando ultimately made an appeal to the American public to see that the agency isn't diminished.

"Don't give up on the postal service," he said. "Give us a chance to reinvent this valuable national treasure."