REFILE-UPDATE 3-U.S. Postal Service will end Saturday mail delivery
* Weekend mail service to end by August
* Change would limit first class mail to 5-day delivery
* Packages would still be delivered on Saturdays
WASHINGTON, Feb 6 (Reuters) - The U.S. Postal Service plans to drop Saturday delivery of first-class mail by August in its latest effort to cut costs after losing nearly $16 billion last fiscal year, the cash-strapped mail agency said on Wednesday.
The plan would save about $2 billion a year, the Postal Service said. The mail agency will still deliver packages six days a week and will not change post office operating hours.
The Postal Service has been losing billions of dollars each year as it grapples with massive payments for future retiree health benefits and Americans' increasingly rely on online communications that drives down mail volumes.
The agency has been seeking congressional approval to get relief from those prepayments and for a larger restructuring to reduce costs. But with no short-term legislative fix in sight, the Postal Service is getting more aggressive in testing its own authority to make cuts.
"The Postal Service is advancing an important new approach to delivery that reflects the strong growth of our package business and responds to the financial realities resulting from America's changing mailing habits," Postmaster General Patrick Donahoe said in a statement.
The 237-year-old institution ran into its legal borrowing limit last year and defaulted twice on required payments to the federal government.
Postal officials have said for years that the agency needed to cut back on delivery days, as well as close underused facilities and reduce its workforce.
Officials previously contended they needed permission from Congress to make the changes, but now believe they may be able to take some actions without new legislation.
Congress includes a provision in legislation to fund the federal government each year that has prevented the USPS from reducing delivery service. Some lawmakers want to drop that provision when the current funding measure expires at the end of March.
The agency also believes that by retaining six-day delivery of packages, it has a way around that provision, according to a congressional source.
The Postal Service is already facing some pushback for moving forward with delivery schedule changes without permission from Congress.
"Today's announcement by Postmaster General Donahoe to eliminate six-day delivery is yet another death knell for the quality service provided by the U.S. Postal Service," said Jeanette Dwyer, president of the National Rural Letter Carriers' Association. "To erode this service will undermine the Postal Service's core mission and is completely unacceptable."
Elijah Cummings of Maryland, the top Democrat on the House of Representatives Oversight Committee, said delivery frequency should be determined by legislation "rather than through arbitrary action by the Postal Service."
But Republicans Representative Darrell Issa of California and Senator Tom Coburn of Oklahoma called the change a common-sense move and noted President Barack Obama has supported allowing the Postal Service to move to five-day delivery.
Lawmakers spent more than a year on postal legislation, including proposals to eliminate Saturday delivery, but were unable to agree on a bill. Donahoe told reporters on Wednesday that the laws governing the Postal Service do not allow it to adapt.
He said the changes would allow the Postal Service to continue benefiting from rising package deliveries as Americans order more products from sites such as eBay Inc and Amazon.com Inc.
Package deliveries were a bright spot in a bleak 2012 fiscal year, with package revenue rising 8.7 percent during the year. The agency has said it could face a cash shortfall this fall unless it makes significant cost-cutting changes.