By Emily Stephenson
WASHINGTON (Reuters) - The Postal Service, struggling to cut costs and conserve cash, said on Thursday it wants to end overnight delivery of letters and postcards and will study about 250 processing sites for possible closure.
The agency, which lost more than $3 billion last quarter, has said it must downsize drastically or will be forced to stop delivering mail by the end of next summer. Overseen by Congress and a regulator, it funds its services with postal-related revenue and does not get any taxpayer dollars.
Delivering First Class mail in two to three days instead of one to three days could save about $3 billion by 2015, the agency said. The change would allow it to close facilities, cut back on overnight work and eliminate about 35,000 jobs.
"Our entire network was designed based on a requirement that we maintain the capability to deliver First Class mail the next business day," said chief operations officer Megan Brennan.
"This has enormous implications for the way we process mail ... and it's why we currently maintain so many mail processing locations," she said. "Our plan is to rebuild our network based on a two- to three-day standard for First Class mail."
The Postal Service has struggled to offset falling mail volumes as consumers correspond by email and pay bills online. Personnel costs for its half a million employees are among the factors driving the agency out of business.
In June, the agency stopped making biweekly payments into a retirement fund and, in July, it said it was considering more than 3,600 post offices for potential closure. It also wants to stop Saturday delivery to save cash.
While the agency has some ability to consolidate and cut costs, officials are relying on Congress for serious structural reforms. The Postal Service said Thursday's proposal would not require congressional approval but it would still need broader changes to get on a path toward financial health.
The agency will study more than 300 of its 500 processing facilities -- about 60 were already under review -- and close sites that handle low volumes or could be consolidated with others, Postmaster General Patrick Donahoe said on Thursday.
The studies will take about three months and include meetings with affected communities. The agency expects to reduce mail processing payrolls by about 20 percent, mostly by not filling jobs when workers retire, Donahoe said.
"It is no exaggeration to say that we are radically realigning the way that we process mail, the way that we deliver mail and the way that we operate our retail network," he said.
Business mailing group The Coalition for a 21st Century Postal Service said on Thursday its members backed the plan.
But a spokesman for the National Association of Letter Carriers said "willy-nilly proposed cuts" should not be the solution to the agency's financial problems.
The plan to close facilities could also face resistance from members of Congress, who have proposed a range of ways to overhaul the agency but are often less amenable when closings and job cuts are proposed in their districts.
There is little consensus on legislation to overhaul the agency, which could include cutting Saturday delivery, allowing the agency to dip into an estimated surplus in a retirement fund or raising its borrowing limit.
The House of Representatives, in its continuing budget resolution this week, included an extension that would give the Postal Service until mid-November to make a $5.5 billion payment for retiree health benefits the agency says it cannot afford.
The White House is working on its own overhaul proposal. The plan is expected to be introduced next week, sources said.
(Reporting by Emily Stephenson; Editing by John O'Callaghan)