Financial Woes Continue to Haunt USPS

Despite the passage of postal reform legislation a little over two years ago, the U.S. Postal Service remains steeped in financial problems.

It's anybody's guess how much, if any, financial assistance the USPS will get from Congress — whether or not it's part of President Barack Obama's economic stimulus package.

The major issue continues to be how the postal service will cope with its nearly $5.8 billion annual obligation to pay healthcare costs for retired postal employees.

All this comes at a time when the USPS reported a loss of $384 million for the quarter ended Dec. 31, 2008 and projected that mail volume would fall even further, to some 12 billion to 15 billion pieces, for the year ending this Sept. 30.

Even with these losses, the Postal Accountability and Enhancement Act (PAEA) mandates that the USPS can raise rates every year — but only in accordance with the rate of inflation specified in the Consumer Price Index.

And so the postal service announced last month that standard mail and nonprofit rates will increase an average of 3.8% on May 11.

Catalog or flat rates will rise by 2.5%. But some standard hikes are going to exceed the average.

“It looks like standard rate parcels went up an average of 16%,” says Jerry Cerasale, the Direct Marketing Association's senior vice president for government affairs. “Our initial response is that it's just going to depress volume more.”

Under the new rate schedule:

• Standard mail regular automation letters with five-digit ZIP codes that weigh 3.3 ounces or less will cost 23.3 cents to mail.

• Standard mail regular automation letters with three-digit ZIPs will be priced at 25.1 cents.

• In the standard mail regular nonautomation category, machinable automated area distribution center letters weighing 3 ounces or less will now cost 25.6 cents.

Meanwhile, the industry is hoping the USPS can remain solvent given its fiscal woes.

The PAEA allowed the postal service to file an “exigent (i.e., urgent) rate case” if the conventional CPI-based hike would leave it with insufficient operating funds.

But Postmaster General Jack Potter said in testimony before the Senate Subcommittee on Federal Financial Management, Government Information, Federal Services, and International Security in late January that the USPS doesn't believe it's “appropriate” to ask for an exigent rate case.

“This would be counterproductive, particularly in an environment where mailing activity is already severely contracted,” he testified.

Early last month, a coalition of 40 mailers and trade groups wrote a letter to National Economic Council director Lawrence Summers, Office of Management and Budget director Peter Orszag and OMG deputy director Robert Nabors, asking that any forthcoming stimulus bill include an amendment from Sen. Thomas Carper (D-DE) that would allow the USPS to pay retired postal employees out of a separate retiree health benefits fund and not from general postal revenue.

The letter argued that “The U.S. Postal Service confronts a severe economic challenge that, if not addressed in an effective way, could cause serious and disruptive changes to its structure and services, and the estimated 9 million jobs it supports throughout the mailing community. Because the Service remains an essential and fundamental part of the nation's communications and commerce infrastructure, and because of the vast network of jobs it supports, we believe that action must be taken swiftly. …This is vital legislation that will preserve or restore up to a million jobs in the mailing sector.”

Before the groups wrote that letter, Potter asked the Senate panel for changes in the law that would permit the postal service to cut back its delivery schedule to five days a week, and also requested assistance with the USPS' healthcare obligations. His proposal received, at best, a lukewarm response among the senators.

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