Postmaster General Patrick Donahoe says a Senate bill aiming to overhaul the Postal Service’s financial structure by providing the agency more flexibility to price its products is a good first step.

“The legislation that you’re considering is a great starting point to get us off the path to disaster and onto the path of continued financial stability,” Donahoe said at a Senate Homeland Security and Governmental Affairs Committee hearing Thursday.

Donahoe has been calling on Congress to approve comprehensive postal reform for much of the last two years.

In that time, the cash-strapped agency has posted losses of $20 billion and defaulted on more than $11 billion in payments to prefund retiree health care costs. USPS is set to default on a $5.6 billion payment due Sept. 30, Donahoe said. Meanwhile, cash liquidity remains “dangerously low,” he added.

Donahoe said the agency might have to ask the Postal Regulatory Commission for a special rate increase this year to keep the USPS afloat, he said.

“Unfortunately, because our financial condition is so precarious and the legislative process is so uncertain, we’ve reached a point that we have to consider to raise prices above the rate of inflation,” Donahoe said. The last postage increase — up 1 cent to 46 cents — went into effect in January.

Donahoe applauded the Senate bill’s provisions granting USPS more flexibility over products and pricing.

The marketplace for postal products and services is changing, Donahoe said and the Postal Service requires more flexibility across all of its business areas — similar to the flexibility Congress granted the agency in the 2006 Postal Accountability and Enhancement Act when it comes to package delivery.

“I want to make the point that legislation we are seeking is not merely about closing the large budget gap,” he said. “We want to be an organization that can readily adapt the changing demands of our customers,” he said.

But the bill has detractors as well.

Debate rages over rates, health care

The PRC has expressed misgivings about granting the USPS Board of Governors greater flexibility to price products based on the marketplace. Currently, postage rates are capped at the rate of inflation because of a provision in the 2006 law, which “sought to end the Postal Service’s reliance on unpredictable rate increases and concerns that the Postal Service was passing along the costs of less than optimally efficient operations to mailers through ‘cost-of-service’ rate-making,” according to PRC Chairman Ruth Goldway’s testimony.

Postal employee unions have also signaled disapproval with the bill.

Clint Guffey, president of the American Postal Workers Union, called the bill “fatally flawed” because it fails to do away completely with a requirement that the agency prefund retiree health care payments.

Currently, USPS is required to make massive fixed payment annually. Without those payments, the unions contend the Postal Service would actually be profitable.

The Senate bill seeks to ease the prefunding requirement by amortizing the payments over 40 years. Donahoe, for his part, has suggested negating the need for prefunding altogether by moving out of the Federal Employees Health Benefits Plan and creating its own health system for employees and retirees.

“While the Postal Service claims that it can lower health care costs and benefit plan, that is not true,” Guffey said. “What the Postal Service seeks to do is to shift costs from itself to employees and retirees and to Medicare. This is unacceptable. It is a desperate and ill-considered attempt to deal indirectly with what should be dealt with directly: the retiree health benefits prefunding requirement.”

The Senate bill would allow USPS to enter into negotiations with its unions about developing a new Postal Service health benefits plan.

Coburn: All sides must compromise

The Senate is set to take on the Postal Service’s healthcare benefits more broadly at a hearing next week.

Postal reform legislation is now working its way through both houses of Congress. The Republican-controlled House Oversight and Government Reform Committee approved its version of postal reform last month. But not a single Democrat voted for the bill.

Sen. Tom Carper (D-Del.), chairman of the Senate committee said he and Ranking Member Tom Coburn (R-Okla.) worked closely together on their bill because the stakes are so high.

“We find ourselves closer than we’ve ever been to losing the vital service that the Postal Service offers along with the 8 million or so jobs that depend on its continued vitality. … Absent legislative intervention, the Postal Service will likely limp along for a few months, unable to invest for the future and with its employees uncertain of what the future holds, it can only limp along this way for so long.”

Coburn said the committee’s bill represents a starting point in negotiations and that all sides and interests will have to compromise.

“There’s no bill till there’s a bill signed by the President,” he said. “But it’s going to have be to be balanced, and everybody’s going to have make a sacrifice if we’re going to solve this problem.”

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