Feb. 7 (Bloomberg) -- The U.S. Postal Service, demonstrating the depth of its financial abyss, set up a possible showdown with Congress by saying it will stop mail service on Saturdays regardless of whether lawmakers approve.
The Postal Service has called for cutting a day of delivery since 2009, when it was coming off a $2.8 billion loss the previous year. After waiting three years for Congress to pass postal reform legislation, and seeing losses rise to $15.9 billion last year, Postmaster General Patrick Donahoe is relying on a new interpretation of the law to declare he doesn’t need Congress’s permission.
While three top Republicans on postal oversight panels said they support the move, Representative Jose Serrano, a New York Democrat on the House Appropriations Committee, said it would be illegal. Frank Lautenberg, a New Jersey Democrat who heads the Senate appropriations subcommittee with jurisdiction over the agency, said it “circumvents the will of Congress” and the National Association of Letter Carriers union’s president said Donahoe should resign.
“It’s an assertion of leadership on the postmaster general’s part: ‘We’ve got to do this or we risk destroying the enterprise,’” said Rob Atkinson, president of the Information Technology and Innovation Foundation.
Donahoe yesterday said the service plans to stop Saturday mail the week of Aug. 5, to avoid running out of cash in October as it previously projected.
He said the service decided it can ignore language, first placed in appropriations law in 1981, requiring it to deliver mail six days a week, because it receives its money from Congress differently than other U.S. agencies do. The Postal Service is supposed to support itself through postage sales and other services while Congress provides less than 0.1 percent of the postal budget.
The post office’s losses have widened and are estimated at $25 million a day. Mail volume is down 26 percent from its 2006 peak as individuals and businesses have shifted toward e-mail and e-billing. The service, which has 521,000 career employees, exhausted its $15 billion borrowing authority last September and has defaulted on more than $11 billion in required payments to prefund future retirees’ health care.
The service said it would continue six-day package delivery, deliver mail to post-office boxes and keep open retail locations that now operate on Saturdays.
The change would lead to the elimination of 22,500 full-time equivalent jobs and reduce costs by as much as $2 billion a year, Donahoe said. Job cuts can be made by attrition and buyouts, he said at a news conference in Washington.
Lawmakers have called on the service to cut costs while prohibiting an elimination of Saturday mail and pressuring the service to drop a plan to close thousands of post offices. Congress also hasn’t acted on the service’s pleas to relieve it of the retiree health-care funding mandate.
Opponents of Donahoe’s move would have to show why Saturday mail delivery is needed, said Gene Del Polito, president of the Association for Postal Commerce, whose members include JPMorgan Chase & Co. and Conde Nast Inc.
“Are you really going to sit home on Saturday and wait for a bill?” he said in an interview. “Are you going to sit home on a Saturday and wait for a catalog? No, you’re going to sit home on Saturday and wait for a package.”
Large postal customers such as EBay Inc. and Amazon.com Inc. won’t be hurt by the change because they mostly ship packages, said Gil Luria, an analyst at Wedbush Securities Inc.
“I think this could actually increase the opportunity for EBay and Amazon to expand their same-day delivery pilots,” Luria said in an e-mail.
Magazine publishers may have to close work on magazines earlier to get them to subscribers before the end of the week, which could increase costs, said Jerry Cerasale, senior vice president of government affairs for the Direct Marketing Association, based in New York.
“We’ve been anticipating these changes for a while and we will make adjustments in our operations to minimize the impact to our customers,” said Teri Everett, a spokeswoman for Time Inc., the largest U.S. magazine publisher. “Our all-access and digital subscribers can already get our magazine content on tablets as early as Thursday.”
While opponents have cited a need for prompt delivery of mail-order prescription drugs as another reason to keep Saturday delivery, Jonathan C. Roberts, CVS Caremark Corp. executive vice president, said on a conference call yesterday that the change would have “a small impact overall, maybe an extra day.” CVS is the largest U.S. provider of prescription drugs.
Netflix Inc., the video delivery service with 8 million paying U.S. subscribers, got 50 percent of its fourth-quarter operating profit from its DVD-by-mail business while Chief Executive Officer Reed Hastings tries to speed a transition to distribution by online streaming.
This year, DVD service will account for 20 percent of revenue, with the figure dwindling to 10 percent by 2015, said Michael Olson, an analyst with Piper Jaffray Cos. in Minneapolis.
“In other words, in two years DVD by mail will be even more of an afterthought than it has already become,” he said in an e-mail.
The Postal Regulatory Commission, the service’s regulator, may review the change, Chairman Ruth Goldway said in an interview yesterday.
Goldway, in a 2011 interview, said the revenue lost from cutting Saturday delivery wouldn’t be worth the savings. A commission review that year estimated cutting Saturday delivery would save $1.7 billion a year, not the $3.1 billion the Postal Service estimated at the time.
Congress has limited leverage against Donahoe’s move because the Postal Service largely funds itself, Norman Ornstein, resident scholar at the American Enterprise Institute, a policy research organization in Washington, said in an interview.
Lawmakers probably won’t succeed if they ask a court to bar it, he said.
“It sure seems to me the fiduciary duty of the Postal Service is to protect its financial viability,” he said.
House Speaker John Boehner said lawmakers need to have bipartisan conversations about the Postal Service’s future and take action.
“Trying to act in this postal area is pretty difficult,” the Ohio Republican told reporters yesterday. “Congress has tied their hands every which way.”
Representative Darrell Issa, a California Republican who leads the House Oversight and Government Reform Committee, which oversees post office operations, backed Donahoe’s proposal yesterday. Issa included elimination of Saturday delivery in a postal bill that didn’t come to a vote last year.
Issa and Oklahoma Republican Senator Tom Coburn, his party’s senior member on the Senate Homeland Security and Governmental Affairs Committee, sent a letter to Congress calling the change to five-day delivery “worthy of bipartisan support.”
Senator Tom Carper, a Delaware Democrat who heads the governmental affairs committee, said he’s “disappointed” by the Postal Service’s move. A Senate measure approved last year would have required the service to study Saturday delivery changes for two years.
“Despite my disappointment, it’s hard to condemn the Postmaster General for moving aggressively to do what he believes he can and must do to keep the lights on at the Postal Service, which may be only months away from insolvency,” Carper said in a statement.
The degree to which lawmakers object to the Postal Service’s move will probably depend on how many older citizens live in their states or districts, said John Pitney, a political scientist and professor at Claremont McKenna College in Claremont, California, in a telephone interview.
“For a lot of constituents, this is a big shoulder shrug,” he said. ‘The question is: Are they going to be hearing from older voters who look forward to the mail delivery?’’
President Barack Obama’s budget proposal last year called for cutting one day of mail delivery each week. The White House still supports changes including cutting a day of delivery that it released in late 2011, White House spokesman Jay Carney said yesterday.
Six-day delivery hasn’t been universal around the globe. Canada delivers five days a week, Australia delivers five days a week in most areas and as little as twice weekly in some, and New Zealand announced a three-day delivery schedule this year.
Americans, by an almost 4-1 majority, supported ending Saturday mail delivery in a 2011 national poll of registered voters by Quinnipiac University in Hamden, Connecticut.
Cutting Saturday delivery doesn’t eliminate the need for Congress to act to cut more costs, said James O’Rourke, a University of Notre Dame management professor.
“This is the first salvo in what will be a long and repeated series of exchanges between the Postal Service and the Congress,” he said in an interview.
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