Postal Service Sees ‘Breathing Space’ in Obama Plan, Deputy Says

The U.S. Postal Service may gain “breathing space” to reduce costs over the next two years as part of President Barack Obama’s deficit-reduction plan, Deputy Postmaster General Ronald Stroman said.

The service should be allowed to stop delivering mail on Saturdays and be refunded $6.9 billion it paid into a federal retirement program, the administration said yesterday. The proposal would also allow the agency to enact a one-time rate increase of 5.6 percent.

The plan gives the Postal Service time to carry out planned cost cuts, Stroman said. The Washington-based service is seeking to close as many as 252 mail-sorting plants and 3,700 post offices and eliminate 220,000 jobs.

“We desperately need cash,” Stroman said yesterday in a telephone interview. “What the administration proposal does is give us a short-term infusion of cash.”

The service says it won’t be able to make a $5.5 billion payment for future retirees’ health care that’s required by Congress by Sept. 30 as it reaches its $15 billion debt ceiling.

Obama’s plan aims to give the Postal Service $20 billion over “several years” and reduce the federal deficit by $19 billion over 10 years.

The postal changes are part of the $3 trillion deficit- reduction plan Obama sent to the congressional committee, whose job is to cut at least $1.5 trillion from the federal deficit. The Postal Service has said cutting Saturday mail delivery would save $3.1 billion a year.

Paying Later

Obama proposed deferring $13.8 billion in retiree health benefit payments for the next two years so that they can be used for postal operating expenses, said an administration official who declined to be identified because full details of the plan haven’t been released.

The administration estimates that ending Saturday delivery will save least $2.5 billion a year once fully implemented, or $19.4 billion over 10 years, the official said. A 5.6 percent average rate increase may bring in $1 billion a year in additional revenue and $9.5 billion over 10 years, the official said.

The Postal Service last year unsuccessfully asked its regulator for permission to raise rates by an average of 5.6 percent. The agency has sought Congress’s permission for all of the proposed changes.

“There’s going to be a need for longer-term solutions, without question,” Stroman said. “Our big cost item that’s not dealt with is the retiree health payment.”

The service is trying to talk with all 12 members of the congressional committee that will consider Obama’s recommendations, the deputy postmaster general said.

Additional Steps

While the proposal provides some “running room,” the agency would need additional steps for longer-term relief, said Art Sackler, coordinator of the Coalition for a 21st Century Postal Service.

The group, whose members include Verizon Communications Inc. (VZ) and FedEx Corp. (FDX), says the measure would help, and supports the changes except for raising rates faster than inflation, Sackler said.

Representative Darrell Issa, a California Republican and sponsor of a bill with proposals to save at least $10.7 billion annually in postal spending, said in an e-mailed statement that Obama’s postal plan is a “bailout” and fails to seek “fundamental reform.”

Issa, Ross

The bill sponsored by Issa and Representative Dennis Ross, a Florida Republican, will be considered by the House subcommittee that oversees the Postal Service tomorrow. The measure proposes leaving mail at the curb or the end of the driveway instead of delivering it to the door, saving at least $3.5 billion annually.

That change is “worth considering,” Stroman said. “A lot of the things in the bill are worth considering. We have not taken a position on it.”

The Postal Service’s mail volume has dropped 22 percent since 2006, including the 2 percent decline that Postmaster General Patrick Donahoe forecasts for the fiscal year ending Sept. 30. The fastest decline is in first-class mail, which includes letters and some business correspondence and is the most profitable type of mail.

To contact the reporter on this story: Angela Greiling Keane in Washington at agreilingkea@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

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