By Emily Stephenson
(Reuters) - The U.S. Postal Service has more mail-processing facilities, staff and equipment than it needs as mail volumes drop, a government watchdog said in a report calling on Congress to pass legislation that helps the agency address its dire financial situation.
"It is now abundantly clear that the postal business model must be fixed given the dramatic and estimated decline in volume, particularly for First-Class Mail," the Government Accountability Office said in the report published on Thursday.
"If Congress prefers to retain the current delivery service standards and associated network, decisions will be needed about how USPS's costs for providing these services will be paid."
The Postal Service, which does not receive taxpayer money to fund its operations, has grappled with plummeting mail volumes as consumers increasingly send e-mail and pay bills online. High costs, including an annual payment to fund future retiree health benefits, have weighed heavily on its finances.
The agency lost $5.1 billion in fiscal year 2011, and officials say they need to cut annual costs by $20 billion by 2015.
GAO said the Postal Service has already reduced costs by about $2.4 billion since 2006 by closing redundant facilities and consolidating some mail-processing operations.
Mail volumes are projected to continue falling, while automation improvements have made mail sorting more efficient. In addition, many businesses now drop off mail in the area where it will be delivered, bypassing most USPS processing, the report said.
These shifts mean the agency's network, including facilities and employees, is larger than is needed, GAO said. The Postal Service offered no comments, according to the report.
Postmaster General Patrick Donahoe has proposed closing or consolidating more than 200 processing centers, which would eliminate up to 35,000 jobs, and shuttering thousands of unprofitable post offices.
Other proposed actions, such as raising postage rates beyond inflation, ending Saturday mail delivery, or using a retirement-fund surplus to encourage early retirements, would require approval from a deeply divided Congress.
The GAO in its report reiterated the "urgent need" for Congress to pass legislation that would allow the Postal Service to cut costs or find new revenue streams. It also acknowledged that many lawmakers, business mailers and USPS employee organizations oppose closures and consolidations.
Business mailers, particularly periodicals, argue the planned end of next-day mail delivery would raise their costs or cause them to lose subscribers.
Postal unions have adamantly opposed facility closures, which they said could erode mail volumes by reducing service to customers. Union leaders point to the prefunding retiree payments imposed by Congress in 2006 as the main cause of the agency's losses.
Many lawmakers reacted angrily to plans to close processing facilities and post offices in their states and districts. The Postal Service agreed to delay closings until mid-May, but members of both parties have continued to protest the consolidation efforts.
Senator Barbara Mikulski, a Democrat, last month placed a procedural hold on the leading Senate postal bill to protest the planned closure of a processing center on Maryland's Eastern Shore.
The National Association of Letter Carriers planned to hold rallies across the country on Thursday to oppose the bill, which would allow the agency to end Saturday mail delivery after two years and restructure rather than eliminate the prefunding payment.
A vote to begin debating the Senate postal bill failed last month before Congress left for recess. The bill is expected to come up again after senators return next week.
The leading House of Representatives bill would allow the Postal Service to designate mail delivery holidays and create a commission fashioned after the military's base-closings process to close postal facilities. It was approved in committee months ago but has not reached the full House.
(Read the GAO report here: http://gao.gov/assets/600/590081.pdf)
(Reporting By Emily Stephenson; Editing by Philip Barbara)