Postal Service chief on proposed postage rate hike: "We have little choice"

Postmaster General Patrick Donahoe told senators Thursday that the cash-strapped Postal Service had "little choice" in proposing to raise the price of mailing a letter to 49 cents.

Donahoe's appearance Thursday before the Senate Homeland Security and Governmental Affairs Committee came one day after the post office said it wanted to raise the price of a first-class stamp by 3 cents. He's pressing lawmakers to act quickly on legislation to fix his agency, which expects to lose $6 billion this year.

"We did not want to take this step, but we have little choice due to our current financial condition," Donahoe told a Senate panel considering bipartisan legislation to overhaul the Postal Service.

Bill McAllister, Washington correspondent for Linn's Stamp News, told CBS Radio News that without congressional relief the Postal Service could run out of money next month.

"If the Postal Service can't pay its suppliers and pay its workers, I think then you do have a really major crisis that has to be acted on by Congress immediately," McAllister said.

The Postal Service's Board of Governors, in its rate hike request, cited the agency's "precarious financial condition" and the uncertain prospects for postal overhaul legislation in Congress.

"Of the options currently available to the Postal Service to align costs and revenues, increasing postage prices is a last resort that reflects extreme financial challenges," the board's chairman, Mickey Barnett, wrote customers.

The rate proposal must be approved by the independent Postal Regulatory Commission. If the commission accepts it, the increase would become effective Jan. 26.

Under federal law, the post office cannot raise its prices more than the rate of inflation unless it gets approval from the commission. In seeking the increase, Barnett cited "extraordinary and exceptional circumstances which have contributed to continued financial losses" by the agency.

As part of the rate increase request, the cost for each additional ounce of first-class mail would increase a penny, to 21 cents, while the price of mailing a postcard would also rise by 1 cent, to 34 cents. The cost to mail a letter to an international destination would increase 5 cents, to $1.15.

Many consumers won't feel the increase immediately. Forever stamps bought before an increase still would cover first-class postage. The price of new forever stamps would be at the higher rate, if approved.

The Postal Service also said it would request price increases totaling 5.9 percent for bulk mail, periodicals and package service rates, according to a filing to be made with the commission Thursday.

Media and marketing businesses that rely on postal services say a big increase in rates could hurt them and lower postal volume and revenues.

Rafe Morrissey, the Greeting Card Association's vice president of postal affairs, said the rate increases were "no substitute for common-sense, structural reforms" and the group hoped they would be rejected.

The post office is seeking help from Congress to turn around its finances.

Barnett said the increases, if approved, would generate $2 billion annually for his agency. The agency last raised postage rates on Jan. 27, including a penny increase in the cost of first-class mail to 46 cents.

The Postal Service unsuccessfully sought an emergency 5.6 percent rate increase in 2010, citing the recession. The commission acknowledged that the recession had hurt revenues but said the rate request was more of an attempt to address long-term structural problems.

Barnett said the post office would reconsider its rate request if Congress passes legislation to put the agency's finances back on track. But prospects in Congress are unclear.

A bipartisan bill in the Senate would end Saturday mail delivery after one year and cease door-to-door delivery for new residential and business addresses. The agency says ending Saturday mail delivery would save $2 billion each year. But many lawmakers, along with postal worker unions, have resisted such changes, saying they would inconvenience customers.

The Postal Service supports the proposed delivery changes. It also is seeking to reduce its $5.6 billion annual payment for future retiree health benefits. It missed two of those payments in 2012, one deferred from the previous year, and is expected to miss another at the end of this month, when its fiscal year ends.

The Senate bill would change the method by which the retiree health costs are calculated, as well as allow the agency to ship alcoholic beverages and compete with private shippers.

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.

Issa said that the proposed rate increases were merely a short-term solution and that the agency's "costly, inefficient delivery" system needs to be fixed. Such increases could hurt businesses that rely on the post office, he said.

The Postal Service is an independent agency that receives no tax dollars for its day-to-day operations but is subject to congressional control.