The current postal rate case calling for a 5.4% across-the-board increase will likely be settled, predicted Gene Del Polito, president of the Association for Postal Commerce.
But he warned that the U.S. Postal Service probably was going to file another case in 2006 that could run as high as 8% to 10%.
Speaking at a Direct Webinar sponsored by Quebecor World Inc. earlier this month, Del Polito said the USPS was holding back on proposing changes in mail classification and other matters in order to get back money it lost as a result of the expiration in January of Public Law 108-18.
Also speaking at the Webinar was Quebecor World’s vice president of postal affairs Anita Pursley, who explained in detail how postal rate cases work and why they last 10 months from filing to implementation.
To put together a rate case, the USPS determines which costs are institutional (that is, overhead) and which are attributable to given rate classes.
In late 2002, the U.S. Office of personnel management discovered that the USPS had overpaid the federal Civil Service Retirement System fund by more than $70 billion.
The industry lobbied Congress, which then passed that law and which in turn transferred the payment obligations to the U.S. Treasury. But the measure also required that the USPS place the money it would have spent on those obligations into an escrow account. The $3.1 billion the USPS needs to cover the CSRS escrow payments is an institutional cost, Pursley noted.
Some classification changes that might come in a 2006 rate case probably wouldn’t be as extensive as those that took effect in 1996, when third class mail became Standard Mail. They probably will involve fine-tuning such things as periodical and parcel rates, delivery point sequencing and tightening requirements for list hygiene, said Del Polito.
The size and scope of the 2006 rate case probably depends on what postal reform bills, if any, are passed this year, he said. At present, H.R. 22 and S. 662 are pending in both the House and Senate. H.R. 22 has been marked up and reported out of the House Government Reform Committee. S. 662 is still pending in the Senate Homeland Security and Governmental Affairs Committee.
For the past 11 years postal reform bills have been introduced in Congress, spearheaded mainly by Rep. John McHugh (R-NY). He proposed the latest version of H.R. 22 in January.
Last year, postal reform measures failed to pass either the House or Senate, although direct marketers generally were encouraged that the bills got as far as they did.
Overall, the proposals seek to fundamentally remake the USPS for the first time since it was formed in 1970.
As currently constituted, both bills vary slightly, said Del Polito. One area where they seek change is in the offering of market-competitive products. Both chambers differ in their approaches right now.
For example, H.R. 22 treats single-piece parcels as competitive products while S. 662 does not. Both houses agree that first class letters and cards, Standard Mail, periodicals, media mail, library mail and bound printed matter should remain market-dominant.
The bills also call for a new Postal Regulatory Commission to replace the existing Postal Rate Commission. The House version would determine the methods for the new PRC to regulate the postal service and would set prices based on the Consumer Price Index.
The Senate measure doesn’t specify a method of regulation but requires the revamped PRC to limit annual increases according to the CPI.
Neither bill addresses the issue of negotiated service agreements in which high-volume mailers cut their own deals with the USPS.
Both bills differ on labor issues, which make up 78% of the postal service’s costs, said Del Polito. While H.R. 22 doesn’t address the matter, S. 662 calls for a three-day waiting period before an employee can receive workers’ compensation pay. More importantly, the Senate bill establishes a process for settling labor disputes, requiring mediation before parties go into arbitration.
Finally, regarding the CSRS, health insurance and military issues, both bills scuttle the escrow account and mandate that the U.S. Treasury Department pick up the pension costs for postal employee military service. But the proposals differ on how the postal service will fund retirees’ health obligations.
Other factors like rising fuel costs also may play a role.
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