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Postal Labor Contract ‘Falls Short’ of Savings, Issa Says

April 5 (Bloomberg) -- The U.S. Postal Service, which negotiated a contract with its biggest labor union that would save $3.8 billion over 4 1/2 years, won’t save enough under that agreement, the agency’s top House overseers said.

The contract with the American Postal Workers Union won’t return the agency to profitability, House Oversight and Government Reform Committee Chairman Representative Darrell Issa, a California Republican, said today.

“This contract falls short,” Issa said at a hearing about the Postal Service’s labor costs. “We have deep concerns that some of the provisions of the contract may in fact be the wrong direction, to less flexibility, less ability to trim the workforce and less ability to in the future make the kinds of investments we need to make.”

The Postal Service, which has reported losses for five consecutive quarters, said yesterday the contract wouldn’t reduce labor costs to less than the current 80 percent of total costs. The Postal Service has said it will run out of cash unless Congress permits it to delay a $5.5 billion payment, due Sept. 30, for health benefits for future retirees. The labor costs include payments for those benefits.

Compensation and benefits accounted for 60 percent of operating expenses at United Parcel Service Inc., the largest employer of Teamsters union members, in the last fiscal year, and 43 percent at FedEx Corp., which uses independent contractors for deliveries in its ground unit.

‘Best Possible Outcome’

“While it is the nature of negotiations that neither side got everything they wanted, I will tell you this is the best possible outcome we could have achieved given the legal framework in which we operate,” Postmaster General Patrick Donahoe told the panel. “This is a responsible agreement.”

The agreement, which must be ratified by the American Postal Workers Union members, would apply to the labor group’s 202,000 employees and would freeze wages for the first two years of the 4 1/2-year contract.

“Assuming all these savings are achieved, it hardly makes a dent in projected USPS deficits,” said Representative Dennis Ross, the Florida Republican who leads the oversight subcommittee that focuses on the Postal Service. “It is unclear how this deal, which could serve as a template for deals with other USPS unions, will give USPS the ability to immediately reduce workforce costs and maintain solvency.”

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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