Can the Postal Service be Saved?

This story was written by CBSNews.com political reporter Brian Montopoli.

The quasi-government agency announced this week that it lost $3.8 billion in the most recent fiscal year, which ended September 30th. It also delivered less mail - 26 billion fewer pieces less, a nearly 13 percent drop from the previous year. The bad news follows losses totaling $7.8 billion in 2007 and 2008.

The Postal Service, as it is quick to point out, is legally prohibited from taking tax dollars. But in order to stay afloat, the agency has been actively borrowing from the U.S. Treasury: At last count, according to Postal Service spokeswoman Yvonne Yoerger, it owes the government $10.2 billion.

Federal law dictates that the Postal Service can borrow up to $3 billion per year - but the debt cannot grow beyond $15 billion. That means that while the agency, which had revenues of $68.1 billion last year, could potentially borrow another $3 billion in 2010, it will soon no longer be able to legally borrow billions from the government.

Meanwhile, the Postal Service is estimating that without significant changes, it will lose another $7.8 billion in the coming year - and deliver another 11 billion fewer pieces of mail.

Which raises the question: Could the Postal Service be doomed?

"I don't think the Postal Service is in danger of going away totally," said Yoerger, the Postal Service spokeswoman. "But our current business model needs to be reviewed and revised to come up with a sustainable model so that we can get back to profitability while still continuing to meet our mission of serving all of the country with affordable, universal Postal Service."

Yoerger told CBSNews.com that the Postal Service is seeking "flexibility to better manage our business." Translation: We may technically be a government agency, but we're also a business -- and we want the government to get out of the way.

The agency cut $6 billion in expenses over the past year, eliminating 40,000 of its roughly 750,000 jobs and slashing overtime hours. But it says that isn't enough. And it's pushing for two major changes that it suggests could help get it back into the black in 2010.

The first is freedom from a government-mandated requirement that the agency pay more than $5 billion per year into a fund to cover its retired employees' future health benefits over a ten-year period. The government allowed the agency to forgo $4 billion of that obligation this past year, but the requirement remains on the books.

The second goal, critics say, is a fundamental threat to the identity of the Postal Service: The end of Saturday mail delivery. The Postal Service has suggested cutting Saturday service could save 3.5 billion per year, though the Postal Regulatory Commission (PRC), which regulates the Postal Service, puts that figure at $2 billion.

The head of the PRC, Ruth Y. Goldway, urged "caution" about cutting Saturday service in Congressional testimony earlier this month. She said such a move could undermine "the vitality of the mail system" and the justification for its mail monopoly.

"From a market perspective, the Postal Service could lose its greatest strategic advantage - ubiquity," she said. "Reducing service is detrimental to mail growth and to public perception of the value of the mail system."

Illinois Democratic Rep. Danny Davis, a member of the Congressional subcommittee that oversees the Postal Service (and, until recently, its chairman), told CBSNews.com in an interview that the agency "is between a rock and a hard place."

"It's just not generating the money that you need in order to keep operating," he said.

Davis said he was open to cutting Saturday service - perhaps on a rolling basis, so that certain communities would lack Saturday delivery once or twice a month - as well as loosening the health benefit requirements. He also backed a government bailout for the embattled agency if that's what it takes to keep it afloat.

"We've bailed out a lot of things, and I think the Postal Service is probably as important in one sense as some of the other places where we have put public money," he said.

Added Davis: "I'm not afraid of spending public money to keep money flowing."

Another way to increase revenue, at least in theory, would be to raise the cost of postage, which remains exceedingly low compared to other countries. But that move is bitterly opposed by the businesses (such as catalogues and credit card companies) whose mailings now make up a major portion of what the postal service handles. (In June, a Gallup poll found that two in three Americans would prefer to cut Saturday delivery if it meant keeping postal rates low.)

At the heart of the debate is the question of what the Postal Service means to America. Its mission is to bind the country together - to connect "every American household, business and institution through its universal service network," in the words of PRC chair Goldway, who told Congress that the agency is "literally part of the fabric of the nation."

But its identity, in this technological age, has become increasingly uncertain. Most Americans today communicate not by mail but by cell phone, e-mail and instant message; the notion that the Post Office provides a vital connection to the outside world seems increasingly quaint to anyone with an Internet connection.

Of course, not everyone does - and the private companies that would theoretically step in if the Postal Service were to disappear would not be mandated, as the Postal Service is, to serve every address in the country. For a small group of Americans, a mailbox is a lifeline - and the Post Office is a resource that can't easily be replaced.

"We need the Postal Service," says Davis, who says the agency keeps "that link" between people "alive." How to keep if from going the way of the Pony Express, however, remains an open question.

"We're like Humpty Dumpty on the wall," he said, suggesting the agency is teetering on the brink of disaster. "We haven't come up with anything that I know is actually a solution to the postal crisis."