By Elvina Nawaguna
WASHINGTON (Reuters) - The Postal Service has abandoned its cost-cutting plan to end Saturday delivery of first-class mail, the agency's board of governors said on Wednesday, citing congressional opposition.
The retreat demonstrates how difficult it will be for the financially strapped Postal Service to tame its costs and modernize its operations.
Although the independent government agency relies on sales of stamps and other products rather than taxpayer dollars to fund its operations, Congress keeps tight control over the agency.
Frustrated by a lack of movement in Congress to restructure the agency to make it more nimble, Postmaster General Patrick Donahoe announced in February that the Postal Service would switch to a five-day schedule starting in August.
He said the move would have saved $2 billion annually when fully implemented. The agency would have continued delivering packages and pharmaceutical drugs on Saturdays.
But that plan, which had strong public support, caused a fallout between the Postal Service and several trade groups who said it was against the law and that the new schedule would hurt their businesses.
Congress thwarted the plan by including last month a provision in federal government funding legislation that prevented the Postal Service from reducing delivery service.
"The board believes that Congress has left it with no choice but to delay this implementation (of the curtailed delivery schedule) at this time," the board said in a statement.
The board said it had directed managers to seek to re-open negotiations with postal unions to lower total workforce costs.
Lawmakers who have been supportive of a Postal Service overhaul such as Democratic Senator Tom Carper of Delaware and Republican Representative Darrell Issa of California said they were disappointed in the decision to backtrack on the plan.
Issa, who had previously instructed the Postal Service to move forward with plans despite the new spending resolution, said in a statement that the Postal Service had given in to pressure.
"Despite some assertions, it's quite clear that special interest lobbying and intense political pressure played a much greater role in the Postal Service's change of heart than any real or perceived barrier to implementing what had been announced," Issa said in a statement.
The Postal Service has said it loses $25 million each day and could soon run out of money if Congress does not allow it more flexibility to modify its business model and become more profitable.
The vast majority of USPS' losses come from heavy mandatory payments into its future retirees' health fund, but it has also suffered as more Americans communicate by email and the Internet.
Carper said in a statement that the Postal Service's move on Wednesday shows the "urgent need" for the Obama administration and Congress to work together to save the Postal Service.
Virginia Democratic Congressman Gerald Connolly who has been critical of the plan to switch to five-day schedule applauded the reversal.
"The USPS finally admitted it had no legal justification to circumvent existing law and unilaterally implement a change in delivery service that many believe will not only disrupt mail service, but also exacerbate USPS revenue losses and contribute to the decline of this constitutionally mandated service to all Americans," he said in a statement. "I hope this quells the fervor of those in Congress, the Postal Service, and in the media who encouraged the Postmaster General to ignore the rule of law."
(Reporting by Elvina Nawaguna and Deborah Zabarenko; Editing by Karey Van Hall and Cynthia Osterman)