WASHINGTON D.C.-According to Postmaster General Patrick Donahoe, as he spoke at a Senate hearing Tuesday, the U.S. Postal Service is on the verge of financial collapse and "Failure to act could be catastrophic." He asked lawmakers to allow him to make radical changes in order to stave off defaulting on the institution's obligations.

Donahoe pointed out that the Postal Service was looking at a $10 billion loss this fiscal year and was very near its borrowing limit. He also made it known that the Service would most likely not be able to make a $5.5 billion payment to the retiree health fund due at the end of the month.

The United States Postal Service has been declining for years. Last year they only delivered 171 billion pieces of mail, this is a drop of 20% from four years ago. Much of this decline is due to the advent of email use. Other factors include competitive delivery companies such as FedEx and UPS. The Postal Service is due an additional fall of 2% this year.

As possible solutions, Donahoe said the Postal Service needs to eliminate Saturday deliveries, lay off 120,000 workers and close thousands of post offices as well as restructure its health plan. Donahoe put the blame for the current crisis on labor agreements and federal laws. He stated that 80% of the service’s expenses are labor costs. He also pointed towards the Service’s current contracts which contain a no-layoff provision.

Donahoe has also proposed a change in plans for new employees, that would offer a defined-benefit retirement plan. He also suggested that the Service sponsor its own employee health insurance plan and withdraw from the Federal Plan that is currently in place.

In response to that proposal, Cliff Guffy, the president of the American Postal Worker’s Union said, “I am at a loss for adjectives sufficient to the task of describing these actions by the Postal Service. Several that come close are outrageous, illegal and despicable.” The Postal unions have seen the ranks of employees fall by 130,000 in the last four years.

Others oppose these new solutions as well. Representatives of the newspaper and magazine industries have told congress that they must act carefully as they consider the elimination of delivery service on Saturdays as well as the elimination of rural post offices.

In a prepared statement, Tonda Rush, who is the director of public policy at the National Newspaper Association, said, “We are concerned that rural America is being thrown overboard by a postal system too eager to lavish its assets onto highly competitive urban areas. Within this context, the loss of Saturday residential delivery would be a major blow.”

The White House announced yesterday that Obama would propose a three month extension to pay the $5.5 billion that is due on September 30. The administration, however, did not endorse the payback of $50 billion said to have been overpaid into the federal pension plan. They did endorse the Postal Service’s push to recover $7 billion that was overpaid to another pension fund.