Postmaster: Money woes behind rate hike request

By ANDREW MIGA
Associated Press

WASHINGTON (AP) -- Postmaster General Patrick Donahoe said Thursday the Postal Service had no choice but to ask for an emergency rate hike given the agency's dire finances.

One day after his cash-strapped agency proposed raising the first-class stamp price to 49 cents, Donohoe urged swift action by Congress to overhaul the Postal Service and fix its finances.

The post office expects to lose $6 billion this year. It wants to raise stamp prices by 3 cents next year. The request must be approved by the independent Postal Regulatory Commission.

"We did not want to take this step, but we had no choice due to our current financial position," Donahoe said.

Donahoe appeared before the Senate Homeland Security and Governmental Affairs Committee to press for approval of bipartisan legislation that would allow his agency to end Saturday delivery after one year and cease door-to-door delivery for new residential and businesses addresses. Many lawmakers and postal worker unions say the delivery changes would inconvenience customers.

"The choice is simple: greater flexibility and authority now, or massive taxpayer exposure and service degradation later," Donahoe said.

Donahoe noted that his agency's request for a price hike probably won't be decided for three months, a delay that he said hampers the Postal Service's ability to run an efficient and competitive business. "That's not a good environment to be in when you are fighting for your life," he said.

The Senate bill also would provide greater flexibility for the Postal Service to set prices on its own. Under federal law, the post office cannot raise its prices more than the rate of inflation unless it gets approval from the commission. The Senate proposal would have the inflationary rate cap expire in 2016.

For years, the Postal Service has struggled with declining mail volume and a 2006 congressional requirement that it make advance payments to cover expected health care costs for future retirees.

The bill would change how health costs for future retirees are calculated. The Postal Service is seeking to reduce its $5.6 billion annual payment for future retiree health benefits. It missed two of those payments in 2012, deferred one from the previous year and is expected to miss another at the end of this month, when its fiscal year ends.

Wrapping supplementary insurance plans around Medicare and other changes could help to reduce the Postal Service's health care costs by up to $8 billion annually, Donahoe said. That could help ease pressure on the agency to raise its postal rates, he added.

John F. Hegarty, national president of the National Postal Mail Handlers Union, said the post office's fiscal woes were a result of the health care payments for future retirees.

"Most losses in the last few years have nothing to do with the failed business model or the obsolescence of postal services," Hegarty said.

Sen. Kelly Ayotte, R-N.H., said the postal office needs to keep customer service high on its list of priorities.

"In order to run a business, you would also make sure your customers are still there for you," Ayotte said.

The panel's chairman, Sen. Tom Carper, D-Del., said that if Congress acts quickly "the collapse of the Postal Service is avoidable."

The committee's top Republican, Sen. Tom Coburn, R-Okla., who co-sponsored the bill with Carper, said he was optimistic that the Senate could agree on compromise legislation.

Postal officials have said they would reconsider the agency's rate hike request if Congress passes comprehensive postal overhaul legislation.

"If that happens, the rate request will go away," said Carper, who said he's pressing to pass a bill by year's end in the Senate.

The House Oversight and Government Reform Committee approved a bill this year that would allow the Postal Service to gradually shift from door-to-door delivery to cluster box and curbside delivery. No Democrats voted for the measure.

The bill, introduced by the chairman, Rep. Darrell Issa, R-Calif., also would end Saturday delivery and change how pension and retiree health costs are calculated.

The National Association of Letter Carriers says ending Saturday delivery would in particular hurt small businesses along with rural residents and the elderly, who depend more heavily on the mail for prescription drugs and other goods.