April 11 (Bloomberg) -- The U.S. Postal Service, which is losing about $25 million a day even after cutting 25,000 jobs this year, is left with few cost-saving options short of a congressional overhaul after its board overruled plans to end Saturday mail delivery.
The board’s decision yesterday heightens pressure on Congress to allow changes in the service’s business model before it runs out of cash, which management has said will happen temporarily in October.
Without being able to cut back to five delivery days from six, the Postal Service will take its board’s advice and ask its employee unions to renegotiate multiyear contracts, consider asking regulators for an emergency rate increase and cut administrative costs, Postmaster General Patrick Donahoe said in an interview. He said he broached the notion of renegotiating union contracts with labor leaders yesterday.
“They know we’re in a fix in terms of our operating costs,” Donahoe said. “I’m hoping they’ll at least entertain the idea.”
The service’s two largest unions questioned the need to reopen their contracts, which don’t allow career employees to be fired without cause, saying they made concessions when those agreements were negotiated. The service, which lost $15.9 billion last year, estimated it would save $2 billion annually by ending Saturday mail deliveries.
“The board’s call to reopen and renegotiate the postal labor contracts is yet another sign that the Postal Service needs new executive leadership,” Fredric Rolando, the president of the National Association of Letter Carriers, said in a statement. “Asking the NALC to renegotiate a contract that was just settled in January is insulting and unnecessary.”
The reduction in the service’s workforce this year is almost equal to the employment of Mattel Inc., the maker of Barbie dolls and Hot Wheels toy cars. The service is down to about 497,000 career workers after offering buyouts. Still, that’s barely helped stanch the cash drain posed by operations.
Members of the American Postal Workers Union have already compromised, Sally Davidow, a spokeswoman for the union, said in an interview. They believe cuts should come from other places.
“The Postal Service saved $3.8 billion on account of compromises that the APWU made during negotiations,” she said. “APWU members have done their part.”
The postal board yesterday decided the service doesn’t have legal authority to end Saturday mail delivery without getting authorization from Congress, which it has sought. The board said plans to take that step in August must halt, absent action by lawmakers to allow it.
“It calls for us to act with some urgency,” Representative Elijah Cummings, a Maryland Democrat and the senior member of his party on the committee that oversees the mail service, said in an interview. “We need to get comprehensive legislation done.”
“What’s going to happen is the post office will continue to search for ways to be innovative,” Cummings said. “They’re trying to stay alive. We in Congress have to give them the tools to do that. And we can’t block them from going into the areas where they can raise their revenues.”
Lawmakers of both political parties have introduced bills to revamp the service. The Senate passed a measure in the previous Congress while the House didn’t. This year, leaders of both chambers said postal legislation would be a top priority.
“I hope it gives it more impetus,” Senate Majority Whip Dick Durbin, an Illinois Democrat, said in an interview. “It’s long overdue. The Senate bill went over to the House and then disappeared.”
The service and its unions have asked Congress to relax a requirement to pay about $5.5 billion a year to the U.S. Treasury for future retiree health-care costs. With barely enough cash to pay labor expenses, the service defaulted on the past two years’ payments without penalties from the Treasury.
Jeanette Dwyer, president of the National Rural Letter Carriers’ Association, said Congress should change the retiree health funding requirement and allow the Postal Service to find new sources of revenue, such as in same-day parcel delivery.
“Our Postal Service is in need of true reform, not just misguided attempts to slash service,” Dwyer said in a statement.
Authority to end Saturday delivery was included in a measure last year from Representative Darrell Issa, a California Republican who heads the Oversight and Government Reform Committee, which oversees the service. It was left out of the Senate-passed postal bill. Congress also hasn’t allowed the service to accelerate closings of rural post offices.
Congress first required mail deliveries six days a week in 1981. Lawmakers have authority over the service because it gets an appropriation to reimburse it for mail the law mandates it must process for free. Yet Congress provides less than 0.1 percent of the service’s annual budget.
The postal board’s action yesterday followed a Government Accountability Office opinion last month saying the service lacks the authority to stop delivering on Saturdays.
Donahoe has said he relied on a new interpretation of a law governing the service and the government’s temporary funding status to declare he didn’t need Congress’s permission to cut back delivery days to five a week.
Commercial customers are happy to have greater certainty to plan mailings for later this year, said Jerry Cerasale, senior vice president of government affairs for the Direct Marketing Association, based in New York.
The association doesn’t have an opinion on cutting Saturday delivery because its members don’t agree, he said, suggesting closing facilities as a way to cut costs.
“The Postal Service still has excess capacity; a lot of processing plants that are going to be scheduled to close,” Cerasale said. “They can speed that up and get a lot of capacity out of the system.”
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