And with no congressional action, a year from now, next August or September, the post office could run out of money to pay salaries and contractors, hampering its ability to operate, Donahoe said.
"We do not want taxpayer money," Donahoe said, "We have got to get our finances in order."
Committee Chairman Joe Lieberman, I-Conn., said: "We must act quickly. The U.S. Postal Service is not an 18th century relic, it is a 21st century national asset, but times are changing rapidly now and so too must the post office."
Sen. Susan Collins, R-Maine, noted that the post office supports a $1.1 trillion mailing industry employing more than 8 million people in direct mail, periodicals, catalogs, financial services and other businesses.
Sen. Tom Carper, D-Del., noted several proposals have been put forward to improve postal operations and said that Congress needs to work on areas where agreement can be found. Both Carper and Collins have introduced bills to reform postal operations, and measures have also been introduced in the House.
Donahoe and his predecessor John Potter have warned for months that without changes in the law governing postal operations the Postal Service will be unable to make advance payments to cover future retiree medical benefits.
Staggered by the economic downturn and the massive shift from first-class mail to email, the post office lost more than $8 billion last year and is facing losses at least that large this year, despite having cut 110,000 jobs over the last four years and making other changes, including closing smaller, local post offices.
Instead, postal officials want changes in the way they operate, including relief from the requirement that it prefund medical costs. No other federal agency has to prefund retiree health benefits, but because of the way the federal budget is organized the money counts as income to the government, so eliminating it would make the federal deficit appear larger.
Also, the post office wants to reduce mail delivery to five days-a-week; close 3,700 offices; further cut workforce by up to 220,000; to withdraw from federal retire systems and set up its own and it seeks the return of $6.9 billion overpaid into retirement funds.
Contracts with its employee unions currently strictly limit layoffs and closing post offices riles local communities who complain to their members of Congress.