Summer of discontent at Postal Service

The Postal Service is consolidating 46 plants over the next six weeks.

WASHINGTON (CNNMoney) -- Mail processing plants are shrinking, thousands of postal workers are moving and thousands more are retiring. And there's the possibility of a default on a payment due to the federal government in two weeks.

The U.S. Postal Service is in the midst of a difficult summer, and its problems might not get resolved any time soon.

The service is in a financial bind, having reported several quarters worth of multi-billion-dollar losses due to the recession, declining mail volume and a congressional mandate to prefund retirement health care benefits for future retirees.

To deal with the crisis, the service has introduced a list of 46 plants to be consolidated over the next two months. Nineteen of the plants on the list are located in Midwest states and another five are in California.

The Postal Service has said about 5,000 workers will be displaced starting in August. If the moves go like others, workers will be offered other jobs, but some of those jobs will require moves to other cities or states.

The Postal Service has also offered retirement incentive packages, and about 4,000 of 21,000 eligible local postmasters and 3,000 of 45,000 eligible mail handlers want to take the deal, according to the agency.

Postal Service officials maintain that the wave of retirements and plant consolidations won't slow down first-class mail, the most common type of the mail sent by consumers.

To prevent delays, postal officials are staggering retirements from August through October, said Mark Saunders, a spokesman for the Postal Service.

However, a recent review of a Maryland postal plant closure last November suggests that mail delays can happen despite the best of intentions, according to a Postal Service Office of Inspector General report.

The inspector general's office reported "significant delayed mail and declines in service and customer experience," during the closure of the Frederick, Maryland plant.

Part of the problem was that the closure took place just before the holiday season, the busiest time of year for the service. Bad planning and high turnover were also blamed.

For customers such as Julie Maynard, the Frederick plant closure was a major headache. As editor and owner of the weekly Brunswick Citizen and Valley Citizen newspapers, she lost an entire issue of both publications.

"They did turn up a month later," Maynard said.

The closure also meant her papers were regularly getting to readers a day or two later than usual. She had to push up her deadlines by a day, from Wednesday to Tuesday, to ensure the papers and advertisements arrived before weekend shopping trips.

"That's not good, because we're a day less timely and we can't cover some things," Maynard said.

To top it off, the Postal Service is on the verge of defaulting on a $5.5 billion payment covering retiree health care due Aug. 1.

Unions say the Postal Service's problems are caused by the mandate that the agency prepay health care benefits for retirees. They want Congress to repeal the mandate, and stop service cuts and plant consolidations.

"These cuts will be bad for service to the American people and very bad for the Postal Service," said Sally Davidow, spokeswoman for the American Postal Workers Union, which represents many plant workers.

The Senate passed legislation to help the Postal Service in April, but the House has yet to act -- with less than two weeks until an August recess. House aides say no decision has been made about taking up a bill.

While default would be a first for the Postal Service, it's largely symbolic with few immediate implications. The service would prioritize bills, ensuring employees and subcontractors get paid, according to spokesman David Partenheimer.

And the agency doesn't have to worry about a default impacting its credit score with private lenders, since by law, the Postal Service must borrow directly from the U.S. Treasury. Right now, the agency has a $12.7 billion loan from Treasury, although it normally doesn't use tax dollars for operations.