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Postmaster general warns Congress about default, possible insolvency

From Paul Courson, CNN
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Will Postal Service get slashed?
  • The U.S. Postal Service faces "insolvency" by this time next year
  • A deadline looms this month for making a big payment to a retiree fund
  • Officials vow no interruption in payroll, mail or payments to suppliers
  • The agency is asking to run its own health care and retirement plans

Washington (CNN) -- Using strong wording to underscore what's at risk, the nation's postmaster general is telling Congress the Postal Service could face insolvency by this time next year, unless lawmakers grant dramatic financial reform.

In remarks prepared for delivery at a Tuesday afternoon hearing in the Senate, Patrick Donahoe warns that "without legislative change this year, the Postal Service faces default, as available liquidity at the end of this month will be insufficient to meet our financial obligations."

Donahoe believes the Postal Service will have to miss a September 30 deadline to pay $5.5 billion into a health care benefits fund for future retirees. He will tell lawmakers that part of his agency's financial crisis is because of those payments, mandated by Congress in 2006 -- payments he believes no longer match Postal Service revenue nor its smaller workforce.

The Postal Service Board of Governors previously decided to suspend employer contributions to a retirement fund because of critically low cash on hand. Although that fund currently has a surplus, Donahoe planned to testify Tuesday that his agency needs more control over health care and retirement costs, which are now fixed by regulation and agreements in labor contracts.

No mail on Saturday?

Running its own programs for health care and retirement benefits would save money, his testimony asserts.

Among the lawmakers planning to address the financial crisis at the Postal Service, Delaware Democratic Sen. Thomas Carper will tell the hearing the agency's "cash will be completely exhausted by next summer and the Postal Service, absent any lifeline from Congress or the administration, will likely be forced to close its doors."

Carper is on a Senate panel that has been monitoring the looming crisis at the Postal Service.

Donahoe planned to testify that the agency's long-term revenue prospects are bleak, but by cutting costs, the Postal Service could turn a profit within four years. Payroll and benefits comprise 80% of operating costs, he noted, and to at least break even, the Postal Service must cut more than 200,000 career positions by 2015.

Other possible money-saving reforms to the service include proposals to close smaller post offices and discontinue the delivery of mail on Saturdays.

How did the Postal Service lose its way? Among the reasons, Donahoe planned to highlight the rising popularity of electronic communications in his testimony Tuesday.

"Instead of buying stamps, many consumers pay bills online, send 'e-vites' to friends and family, and simply press 'Send' when they want to communicate," his prepared remarks said.

"These shifting customer habits will continue to add to the migration away from traditional First-Class Mail," he said, and the revenue it has represented.

Donahoe, in his pitch to allow the Postal Service to run its own health care plan and retirement system, planned to tell lawmakers that "even with growth in our package business, we cannot replace the profit contribution of First-Class Mail that has been lost over the past few years and will continue to decline in the future."

But even with the likelihood of a cash crunch in just a few weeks, Donahoe and other postal officials are not planning on any interruptions in deliveries, payroll, or paying suppliers of fuel, electricity and other services the post office needs to stay open.

In concluding his prepared testimony, the postmaster general summarized progress already under way to get the books balanced, and will say that "even with monumental expense reductions, we continue to maintain excellent service performance. That is quite an achievement -- one that belongs to every employee in the organization."

CNN's Alan Silverleib contributed to this report