By Jared Serbu
Reporter
Federal News Radio

The Postal Service will cut its labor costs by $3.6 billion over the next four-and-a-half years under a tentative contract agreement it reached last month with one of its largest unions, Postmaster General Patrick Donahoe said Monday.

Donahoe, speaking to reporters in advance of a Tuesday hearing called by lawmakers to scrutinize the labor agreement, said the contract with the American Postal Workers’ Union represented a responsible way forward for USPS, and was the latest example of a 10-year effort to cut its workforce and its costs in the face of declining revenues.

Leaders of the House Committee on Oversight and Government Reform criticized the deal shortly after it was announced. Committee chairman Darrell Issa (R-Calif.) said he doubted that the contract would improve USPS’s bleak fiscal situation.

“Unfortunately, this looks like a missed opportunity. The Postal Service must show Congress and the American people that it can pay its own way, because the numbers do not seem to add up,” Issa said in a statement.

Donahoe said he was prepared to defend the deal when he testifies Tuesday morning. “We have reduced the career-paid headcount by 30 percent since 2000,” he said. “We’ve taken 240 million work hours out of the system. If we did not have to prepay retiree health benefits like nobody else in the world did with a 20 percent downturn, we would have had $611 million in profit.”

Instead, the Postal Service, with current-year costs of $73 billion, projects it will lose $6.4 billion in 2011 and reach its statutory debt limit of $15 billion later this year. Donahoe said USPS needs to bring its costs down to $60 billion in order to return to profitability and begin to pay down its debt.

USPS and APWU say the deal achieves the savings through a 5 percent reduction in health care costs, which are being shifted to workers, a freeze on cost of living adjustments, and the creation of new, non-career flexible positions that will start new employees at lower salaries.

“What you end up with is an employee who comes in at a lower pay rate, and is also flexible in terms of hours worked,” he said. “If we don’t need them, we can let them go for the day. If we don’t need them because of big mail volume drops, we can let them go permanently.” Additionally, career employees would work under non-traditional work schedules under the proposed contract.

“Rather than taking the people who work five days [for] eight hours and try to address them through downsizing, what we’ve agreed to is to change those jobs to a very flexible schedule,” he said. “Anywhere between 30 and 48 hours in a week, with a lot of flexibility in where a person would work. You might work at three different offices. You might work two 12-hour days and one six-hour day, and that’s your 30 hours for the week.”

APWU represents 205,000 employees, including clerks, drivers, mechanics, custodians and administrative workers. Its rank and file members must vote to ratify the agreement before USPS and APWU can sign the deal. The Postal Service will begin negotiations with two other large unions later this year, but Donahoe said USPS would need to take other large cost saving measures in order to return to profitability.

He said Congress needs to relieve the Postal Service of its obligation to pre-fund retiree health benefits, and sign off on its proposal to eliminate Saturday delivery. USPS could switch to five-day delivery within six months of getting Congressional approval, he said.

“The major issue that we face with six-to-five day is the same one I face today,” he said. “First class mail volume is down, standard mail volume is up. We’ll deliver more mail this year than we did last year and make less in terms of total revenue. That is a problem. The mail mix problem going forward will not change. No matter what we do from a standpoint of our contractual agreements, we have to address delivery frequency too, because the cost of that sixth day is just something we can’t carry on going forward with the mail mix.”

USPS believes it will save $3.1 billion by eliminating Saturday delivery. The Government Accountability Office said in a report last week that the savings the Postal Service projects are possible, but only if it moves quickly and efficiently to realign its operations, and only if its estimates regarding the impact of five-day service on overall revenue turn out to be accurate.

The Postal Regulatory Commission, in a separate finding in March, said USPS had drastically overestimated the savings it would achieve, and that the cost reductions related to five day delivery would only amount to $1.7 billion.

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