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Postal chief warns of service cuts

Economic downturn has caused a steep decline in mail volume, postmaster says.

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By Julianne Pepitone, CNNMoney.com contributing writer

What is hurting you the most?
  • Housing meltdown and foreclosures
  • Job cuts and unemployment
  • Cutbacks in government services

NEW YORK (CNNMoney.com) -- The U.S. Postal Service may be forced to eliminate a day of mail service because the economic downturn has led to plummeting volume and revenue, the postmaster general said Wednesday.

Postmaster General John E. Potter, in testimony before a Senate subcommittee, warned of a possible worst-case scenario: eliminating the requirement to deliver mail six days a week to every address in America.

If the recession continues to hammer at USPS revenue, six-day delivery may not be possible, Potter said. Federal law has mandated the six-day schedule since 1983.

In fiscal 2008, total mail volume fell by more than 9 billion pieces - 4.5% -compared to the previous year, Potter said. And the agency suffered a greater-than-expected net loss of $2.8 billion last year, he added.

"The real problem is that the Postal Service needs reform," said Michael A. Crew, professor of regulatory economics at Rutgers University, whose 2009 book "Handbook of Postal Reform" argues for USPS privatization.

"The Postal Accountability and Enhancement Act of 2006 was supposed to make the agency competitive and bring regulations into the 21st century," Crew added. "But it just painted over the cracks, and they're still struggling."

USPS is "a vital economic engine in our national economy," Potter said, noting that USPS is the country's second-largest employer and the mail affects both jobs and commerce.

"We could experience a net loss of $6 billion or more this fiscal year," Potter told the subcommittee. That shortfall would exceed the Postal Service's credit limit under current law.

"We believe that legislative relief is necessary to preserve the nation's mail system," Potter said.

Could a five-day schedule kill demand?

But cutting a day of delivery is just one option, and it may not be the most beneficial one, Crew said.

"Six-day delivery is much more attractive than five days," he said. "If that change affects demand, it could hurt volume even more."

Still, Crew noted the postal systems in other countries like Canada already operate on a five-day schedule.

Another option: Instituting the abbreviated schedule in the high-cost rural areas and maintaining six days in high volume areas, instead of cutting a day across the board, Crew said.

Health benefits

Potter also asked Congress to change the payment schedule for funding its retirees' health benefits. In 2008, total retiree health benefits costs came to $7.4 billion - almost 10% of the annual operating budget, he said.

The Postal Law of 2006 requires accelerated prepayment of future retiree health care costs. USPS "is the only public or private entity required to prepay health benefit premiums at these extremely high levels," Potter said.

Potter said a modified schedule of payments would allow USPS to focus on its financial problems. The proposed change would neither increase the health benefit premiums paid by current or future USPS retirees, nor would it affect their benefits, he said.

Crew predicted USPS will receive help with their "ambitious schedule."

USPS has tried to cut operating costs over the last few years, Potter said, but the recent decline in economic conditions is too steep for the agency to be able to respond.

He added the agency has reduced its work force by more than 120,000 employees since 2002.

"Many people are getting bailouts now, so who knows?" Crew said. "Even if it's not everything USPS is asking for, I think they will get some type of relief." To top of page

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