WASHINGTON, D.C. – At a Senate subcommittee hearing Thursday, Senator Susan Collins expressed concern about the deteriorating financial health of the U.S. Postal Service, saying its proposals to reduce delivery days and to close branches may not solve its long-term fiscal problems.

“Is that really the right response to this crisis?” she asked a panel of witnesses that included Postmaster General John Potter. “The Postal Service cannot expect to gain more business if it is reducing service.” 

Senator Collins, the Ranking Member of the Senate Committee on Homeland Security and Governmental Affairs, warned of a ripple effect should the Postal Service enact its plans to cut delivery from six days to five, dropping its Saturday service, and close too many branch offices in local communities. Such moves would severely impact consumers and other businesses, which could be forced to respond with economic adjustments of their own, she said.

And that “could contribute to an even more perilous condition for the Postal Service,” Senator Collins said. “Why?  Because when businesses reduce their costs, they also cut mailing expenses.  And that leads to a further erosion of the Postal Service’s shrinking mail volume, which will in turn prompt more proposals for postage rate hikes and renewed calls for truncated delivery services.

“It is a vicious cycle that has no good outcome.  We must prevent this death spiral.  We all must put our shoulders to the wheel and accomplish the difficult task of transforming the Postal Service.”

New figures released Wednesday show the USPS lost $2.4 billion in the third quarter. And the Service projects a loss of some $7 billion this fiscal year.

Senator Collins noted that just two-and-a-half years ago, she and Senator Tom Carper, (D-Del.), authored a sweeping postal reform law “that rescued the Postal Service from the Government Accountability Office’s ‘high risk’ list,” a designation it earned by having severe financial problems. Carper is chairman of the subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security, which held the hearing.

“Today, the Postal Service is once again in a financial crisis, and once again, it is on the “High Risk” list,” Senator Collins said. “It is most disappointing to once again be discussing the dire financial condition of the U.S. Postal Service.”

She said the Postal Service is key to the American economy. “It is the linchpin of a $900 billion mailing industry that employs nine million Americans in fields as diverse as direct mail, printing, catalog production, paper manufacturing, and financial services.”

The Postmaster General has offered three major proposals for Congress to consider:  adjusting payments to the Retiree Health Benefits Fund; eliminating six-day-a-week mail delivery; and closing or consolidating postal facilities. 

“The Postal Service is reviewing 677 of its 3,200 stations and branches nationwide for closure or consolidation,” Senator Collins said, including one in Portland, Maine.

However, even if all those branches were to close, it would only save about “six-tenths of one percent (0.6%) of overall Postal Service operating costs. That’s right: if they closed all these facilities – which is not the plan – the non-personnel cost savings would be only a small percentage of the Service’s overall costs,” Collins said. “And while there may be some small gains associated with personnel costs, the Postal Service has not yet calculated the revenue that would be lost due to these closings.” The Postal Service does not require that all 677 facilities would be closed or consolidated, further reducing any cost savings.

She urged the subcommittee to work with other stakeholders to restructure and transform the U.S. Postal Service, which has been buffeted by the recession and by the growth of e-commerce and e-mail. Those twin forces – the economic downturn and the technology revolution –  have combined to force overall declines in mail volume. In the past quarter, for example, the Postal Service handled 41.6 billion pieces of mail, which is a 14.3 percent drop — or roughly 7 billion pieces of mail — compared to the same period in 2008.

“Today, we are trying to rescue an institution dating to the early days of our nation,” she said. “We simply cannot allow the Postal Service to fail because it is too fundamental to our economy. But there is no question that we do have to act.

“It will take everyone – Postal Service employees and management, members of the mailing community, and Congress and the Administration – to contribute to the solution.  We must work together to find that lasting, fiscally responsible solution.”

Among those who testified was Mark Suwyn, executive chairman of NewPage Corp., of Rumford, Me.,  the nation’s largest producer of coated paper, which is used primarily in print advertising. Suwyn  urged the postal service to reduce its labor costs, seek ways to enhance its revenues and work with partners to promote the value of mail.