Postmaster General John E. Potter testified today before a Senate subcommittee and said moving to five-day mail delivery is “absolutely necessary to ensure financial viability” of the U.S. Postal Service, “both now and into the future.”

Reducing the frequency of delivery is the “single most effective way for the Postal Service to substantially reduce operational costs—allowing us to reduce annual net costs by approximately $3 billion,” Potter testified. “It would greatly assist us with regaining a portion of our financial footing and help to ensure that affordable universal service is maintained nationwide.”

Potter testified before the Senate Subcommittee on Financial Services and General Government of the Committee on Appropriations. To reduce the number of mail delivery days, Congress needs to eliminate the 1983 provision calling for six-day mail delivery. Postal officials estimate five-day mail delivery would save the USPS about $3 billion per year.

The dismal financial situation for the USPS, which has lost $11.7 billion in the past three years, has many causes, according to Potter — a severe national recession that significantly affected the financial and housing sectors, which were important users of the mail; the powerful and rapid evolution of new technologies that have diverted mail to other channels; and the changing use of the mail to communicate and conduct business. “This situation could not have been avoided and no one is to blame,” he said. “No one could have envisioned the economic crisis that has rocked this country.”

What’s more, Potter outlined “limitations under which we operate,” including:

A statutorily mandated requirement to provide six-day a week delivery.

Accelerated annual payments to pre-fund a significant portion of our retiree health benefit obligation.

A restriction to not close Post Offices solely on an economic basis.

The requirement to submit to binding arbitration to finalize labor contracts.

Constraints on our ability to restructure and streamline our processing and distribution networks.

Restrictions on the types of products and services the Postal Service can offer.

A lack of clarity between the role of the Governors of the Postal Service and the Postal Regulatory Commission (PRC), and an oversight model that adds unnecessary burden and time to decision-making.

Absent critically needed fundamental changes, Potter said, the USPS expects significant losses in fiscal year (FY) 2010 and in each year into the near future. “Our FY 2010 financial plan estimates a revenue decline of roughly $2 billion and a net loss of approximately $7 billion. These projections assume there will be no changes this year in the number of mail delivery days per week or in the current retiree health benefits prefunding schedule. If we were not to react and simply move forward with business as usual, the Postal Service is likely to have a cumulative loss of $238 billion by 2020.”

In FY 2009, mail volume dropped 26 billion pieces, or 12.7% less than the previous year.

Potter says five-day mail delivery would “better reflect current mail volumes and customer usage.”

“No one solution is the answer to reversing our financial condition,” Potter testified. “And doing nothing—the status quo—is not an option.”

Potter said that the provision in the Postal Act of 2006 – requiring the USPS to prefund 73% of retiree health benefits in a 10-year period ending in 2016 – is not shared by other federal agencies or private sector companies. He said the aggressive schedule, a product of budget scoring rules, requires the Postal Service to make annual prefunding payments averaging $5.6 billion into the PSRHBF. What’s more, the law requires the USPS to make separate insurance premium payments for retirees that average $3.4 billion annually through 2016.

“The Postal Service recognizes its obligations to fund its retiree health benefits,” Potter testified. “However, our financial circumstances must be recognized. I would note that the trust fund holding the Postal Service’s payments had a balance of more than $35 billion at the end of FY 2009. Thirty-five billion dollars is sufficient to pay the premiums for all of our roughly 500,000 currently participating retirees through their expected life times.”

A restructuring of the payment obligation is urgently needed to allow the Postal Service to continue to fulfill its mission now and in the future, Potter said.

As for the proposed guidelines for five-day mail delivery, Potter said:

Residential and business delivery and collections would be discontinued on Saturday.

Post Offices that are usually open on Saturdays would remain open.

Post Office boxes would receive mail delivery on Saturday.

Express Mail would continue to be delivered seven days a week, including Saturday and Sunday.

Remittance mail (bill payments) addressed to Post Office Box and Caller Service customers would be made available to recipients seven days per week.

Firm hold outs (mail that a business picks up at the Post Office) would be available for Post Office Box addressed mail Monday through Saturday, nationwide.

No mail pick-up from blue collection boxes on Saturdays except for dedicated Express Mail collection boxes.

Acceptance and drop-shipping of destinating bulk mail would continue on Saturday and Sunday.

Alternate contract locations would remain open seven days a week on their normal schedules.

Access to all of our online services via usps.com would continue to be available 24/7.

If Congress lifts the provision that requires six-day a week delivery, Potter said “we intend to provide our customers with six months notice prior to implementing a change which we estimate would be no earlier than mid-2011. The impact on our employees would be minimal and it would occur through attrition, not layoffs.”

Even if Congress approves five-day mail delivery and restructures prefunding payments for retiree health benefits, Potter said those two factors alone would not be enough to make the Postal Service profitable. “The Postal Service must address the fact that mail volume is declining, especially First-Class Mail volume which has historically made a substantial contribution to support the overall network. Therefore, we need the flexibility to adjust our operations network to reflect this rapid decrease in today’s mail volume, which will continue to decline for sometime into the future.”