Something Happened

MANY MAILERS NO DOUBT thought they’d be telling their great-grandchildren to quit griping that postal reform still hadn’t gone through. “I was there when it began, sonny,” they imagined their wizened old selves scolding the young whippersnappers.

Well, kiss that scenario goodbye. Last month, the Senate finally passed its long-awaited version of postal reform legislation. But will this make a difference to the mailing community? Or will the White House continue to insist on leaving the U.S. Postal Service saddled with billions of dollars in pension costs that could spell rate increases every year until well into the second half of the 21st century — and possibly endanger the USPS’ survival?

Either way, the postal service is still expected to file a rate case with the Postal Rate Commission this spring.

MANY MAILERS NO doubt thought they’d be telling their great-grandchildren to quit griping that postal reform still hadn’t gone through. “I was there when it began, sonny,” they imagined their wizened old selves scolding the young whippersnappers.

Well, kiss that scenario goodbye. Last month, the Senate finally passed its long-awaited version of postal reform legislation. But will this make a difference to the mailing community? Or will the White House continue to insist on leaving the U.S. Postal Service saddled with billions of dollars in pension costs that could spell rate increases every year until well into the second half of the 21st century — and possibly endanger the USPS’ survival?

A lot depends on what the House-Senate conference committee and the White House do to resolve the issue of just who should pay for former postal workers’ costly civil service and military pensions.

In February the Senate unanimously approved its postal reform bill (S. 662), which then was sent to the House — Senate committee to work out differences between it and H.R. 22, the House measure passed last summer by a 410-20 margin.

But S. 662 carried a strong recommendation that it be “revenue-neutral,” or cost the federal treasury nothing, said Bob McLean, executive director of the Mailers Council, who feels this could be negotiated in committee.

Besides changing the way postal pensions are paid, reform legislation would:

• Modernize rate setting.

• Combine market disciplines with regulation.

• Limit the postal monopoly and non-postal products.

• Alter international mail rules.

At the same time, mailers expect the USPS to file its next rate case with the Postal Rate Commission this spring. It could be the last one permitted under existing laws and is expected to include several mail classification changes.

But an unfavorable final outcome to the reform issue could lead to a further erosion of the postal service as a sustainable market medium beyond this decade, warned Gene Del Polito, president of the Association for Postal Commerce.

“For years, the postal service has struggled with declining mail volume, increasing costs and an ever-expanding number of delivery points it must service,” echoed Jerry Cerasale, the Direct Marketing Association’s senior vice president for government affairs.

“In an era of increasing competition and changing technology, it’s a struggle for the postal service to remain economically viable while it’s being hindered by an operating structure that dates back to July 1971, when the last postal reform law was implemented.”

By far, the largest costs to the USPS are its obligations to pay more than $70 billion for former postal workers’ civil service and military pensions.

In 2002 the postal service discovered it substantially overpaid the Civil Service Retirement System fund that pays its retirees. But to allow the USPS to use this money for other purposes, legislation had to be enacted authorizing it to do so. So the following year Public Law 108-18 shifted the obligations to the Treasury, which set up an escrow account to pay for the pensions.

At the time it generally was thought this issue would be addressed in postal reform bills then in Congress. Since reform did not pass, 108-18 expired at the end of 2004, effectively relegating the pension costs to the USPS.

Then and now the White House opposed the reform bills, in part because it feels having the Treasury pay for postal pensions would add to the federal deficit.

“The pension issues will have to be resolved in the conference committee,” said McLean. “Otherwise, the postal service will have to pay them until 2071.”

At deadline, the Senate had named its committee members but the House had not.

McLean noted that the USPS escrow and military service obligations covered by the rates enacted in January came to $3.1 billion. In the rate case likely due this spring, that amount is expected to be about $3.3 billion. But he’s optimistic the White House can compromise with Congress over the pension matter.

“The administration sees the need for a strong postal service,” he said. “After all, it was they who came up with the idea of the commission.” (In 2002, President Bush established a commission to study the USPS. Its findings make up a substantial part of the congressional reform proposals.)

On top of that, mailers are hoping this committee will be able to iron out the many differences that still exist between the two bills.

“The [Senate] bill is not all things to all people,” said Ellenor Kirkconnell, acting executive director of the Alliance of Nonprofit Mailers. “That’s why we hope to work things out inconference.”

The other major issue confronting mailers is the upcoming rate case.

“For the 2007 rate case, we’re telling our members to expect a high single-digit increase and mail classification changes,” Cerasale said. He fears that too high an increase would further erode mail’s power as a commercial medium and drive more companies to the Internet for services like bill receipt and payment.

The classification revisions could include reducing the rate differential between letters and flats, fine-tuning periodical and parcel rates, delivery point sequencing and tighter list hygiene requirements, said Del Polito. He believes the modifications probably wouldn’t be as extensive as those made in 1996, when third class mail became standard mail and book rate became media mail.

Before it was passed, S. 662 faced other stumbling blocks, including last-minute opposition from the postal service itself. One thing the USPS doesn’t like is a provision that replaces the current Postal Rate Commission with a new, larger Postal Regulatory Board that would have more sweeping powers.

To that end, Postmaster General Jack Potter and four USPS governors sent a letter opposing the measure Jan. 24 to the bill’s main sponsor, Sen. Susan Collins, R-ME. The letter cited discrepancies between S. 662 and the presidential commission’s findings, warning it might be vetoed for that reason.

The next day, USPS senior vice president for government relations Tom Day said the current bill — coupled with Bush’s apparent intransigence on the pension issue — could raise stamp prices by 20% on top of the recent rate hikes to keep the postal service operating.

Some industry reports dismissed the USPS’ position, even suggesting it actually was lobbying against S. 662.

“The postal service thinks the bill gives the new Postal Regulatory Board too much power,” said Cerasale.

“The postal service is just whistling in the wind with its complaints,” added Del Polito.

Mailer groups differ over what effect S. 662’s passage will have on the next rate case.

Del Polito said legislative action may influence the case’s timing because, if postal reform passes this year, the USPS will have only one chance to file a rate case under current law. Consequently, it may need extra time to develop arguments for things like classification changes.

But Cerasale disagreed, saying the USPS probably wants its money as soon as possible.