A penny hike in the cost of a first class stamp will help the financially-strapped U.S. Postal Service bring in $888 million a year but it’s not enough to save many jobs, according to a Cornell University management expert.

Rick Geddes, an expert on the Postal Service, tells Breaking Gov that the price hike is just a small part of massive changes the agency must undergo as it tries to solve its budget deficit and huge loss of mail volume since 2007. The Postal Service will still have to close rural offices and big sorting centers to downsize to today’s mail economy.

“The rate increase might save some jobs but I don’t think it can avoid layoffs completely,” Geddes said.

The Postal Service will have to do a lot more in its cost structure to deal with reduced revenues, he added.

“It’s going to have to downsize the workforce by attrition,” Geddes said.

Beginning Jan. 22, it will cost 45 cents to mail a letter anywhere in the United States. Postcards will increase three cents to 32 cents and other types of mail will see price hikes, too, including periodicals and international letters.

The rate increase might save some jobs but I don’t think it can avoid layoffs completely.” – Rick Geddes

“The overall average price increase is small and is needed to help address our current financial crisis,” Postmaster General Patrick Donahoe said in a statement.

Donahoe said the Postal Service is taking a number of aggressive steps to cut costs as the agency faces insolvency, but still needs the help of Congress.

“To return to sound financial footing, we urgently need enactment of comprehensive, long-term legislation to provide the Postal Service with a more flexible business model,” he said.

Donahoe is proposing a series of radical steps: Ending Saturday mail; closing up to 3,700 post offices, most of them in small towns; laying off 120,000 workers and eliminating another 100,000 people through attrition out of a workforce about a half million people. All of these fixes must be approved by Congress.

These measures are just part of what will be needed to bring the beleaguered Postal Service into the 21st century as it faces high overhead costs and competing forces ranging from electronic communications to private delivery services.

And then there’s a bigger problem – a 2006 law requiring the Postal Service to prefund the health care benefits of future retirees to the tune of $5.5 billion a year for the last four years. This has accelerated the agency’s financial nose dive.

Mohammad Adra, assistant inspector general in the Postal Service’s Office of Inspector General, said the penny increase to mail a letter will “reduce the deficit,” but certainly will not solve the bigger problems. He said mail volume is down 22 percent in the last four years, costs are rising and major adjustments must be made to match reality.

“The Post Office needs to shrink its footprint, downsize it and that would potentially save lots of costs. They may not need 36,000 post offices and 500 plants,” Adra said.

He said the biggest challenge is identifying the role of the post office in the digital age, a challenge not unique to the U.S. A lot of people are corresponding and paying bills online. And where does that leave the Postal Service?

It leaves the 200-year-old agency with an urgent need to find better and cheaper ways to deliver the mail, trim its unprofitable ventures, cut labor costs and engage in new commercial enterprises. Among many ideas, the Postal Service is considering saving money by opening posts in stores like Wal-Mart and sharing space in government offices.

Both houses of Congress are working on legislation to deal with the Postal Service’s financial problems, including the pension prepayment requirement that has been a major drain on resources.

“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,” said Sen. Joe Lieberman, I-Conn., chairman of the Homeland Security and Governmental Affairs Committee.