By Christopher Lee
Washington Post Staff Writer
Wednesday, March 24, 2004; Page A19

Congress and the White House bumped chests yesterday over what needs to be done to revamp the troubled U.S. Postal Service, even before a single bill has been filed.

In a joint House-Senate committee hearing, members of both parties pressed Treasury Secretary John W. Snow about the Bush administration's opposition to two measures that many lawmakers believe are necessary to put the Postal Service on a sound financial footing.

One would restore from the Postal Service to the Treasury Department an obligation to pay some postal workers about $27 billion in retirement benefits related to their military service. The other would release to the Postal Service in fiscal 2006 about $3 billion in pension-payment savings that under current law must remain in a special account.

Both situations are the result of provisions in a law Congress passed last year to allow the Postal Service to scale back payments into its overfunded pension accounts. The move provided a financial boost to an agency that has lost billions of dollars in recent years.

Sen. Susan Collins (R-Maine), chairman of the Senate Governmental Affairs Committee, noted that in six Senate hearings nearly every witness agreed such steps were crucial to turning the Postal Service around.

"The administration is a pretty lonely voice on those two issues," Collins said to Snow.

Lawmakers, administration officials and a presidential commission all have declared the need to reorganize the Postal Service into a leaner, more nimble operation so it can stay solvent.

But Snow said switching the retirement cost burden to the Treasury, which pays such costs for many other federal agencies, would amount to shifting postal pension costs from users of the Postal Service to taxpayers in general. That is inconsistent with the requirement, established in 1970, that the Postal Service, an independent federal agency, be self-financing and fund operations from the revenue it generates rather than with tax dollars, Snow said.

He suggested that the Postal Service find the $27 billion "through greater efficiencies and perhaps in phasing in [postal rate] increases over time."

Several lawmakers said other agencies and private businesses do not have to pay their employees' military service retirement benefits, and the Postal Service should not have to either.

"The Postal Service cannot and must not bear the military service retirement payment obligation," said Rep. Danny K. Davis (D-Ill.).

As for the $3 billion, Snow said that because of federal budget accounting rules, "if these monies were allowed to flow out, they would be charged to the deficit and add $3 billion to it. That's the basic issue."

He said the administration would lift its objection to releasing the $3 billion if spending cuts of $3 billion could be found elsewhere in the federal budget.

Rep. Thomas M. Davis III (R-Va.), chairman of the House Government Reform Committee, said the best course would be simply to make the money available, rather than using it to "mask the deficit."

"It's phony baloney," Davis said. ". . . . It seems more honest to say these are postal dollars and we're going to release them and let the chips fall where they may."

Postmaster General John E. Potter told lawmakers that, without access to the $3 billion, postal officials would have to seek an additional postal rate increase of 5.4 percent in the next couple of years. Lawmakers said such a move would hurt the economy and trigger job losses in the $900 billion mailing industry, which employs 9 million people.

"That's a job killer," Davis said.