Postal reform bill passes at last

Jan 01, 2007 10:30 PM  By

In the waning hours of the 109th Congress — and after 11 years of failed attempts — legislators passed a historic postal reform bill just before 4 a.m. on Dec. 9.

The bill that passed, H.R. 6407, wasn’t even introduced until Dec. 7, by Rep. Tom Davis (R-VA), who chairs the House Committee on Government Reform. But the legislation’s key points mirror those of the original bill, H.R. 22. The Senate had passed a similar bill, S. 622.

The new bill — also known as the Postal Reform and Accountability Act — was necessary because the bipartisan conference committee whose goal was to create consensus on H.R. 22 and S. 622 could not agree on some minor issues. So the conference committee introduced a “clean bill,” a compromise bill that the legislators agreed upon.

At press time, the bill was scheduled to be signed into law on Dec. 20. If approved, H.R. 6407 will be the first major overhaul of the U.S. Postal Service since the Postal Reorganization Act of 1970, which transformed the Post Office Department, a cabinet-level division, into today’s quasi-governmental agency.

What’s new?

Among the features of H.R. 6407 are a rate-increase cap that ties future postage increases to the rate of inflation and strict criteria regarding conditions for emergency rate increases. As a result, mailers will be free from the double-digit postal hikes, such as the 25% average increase introduced in 1988, the 42% increase of 1991, and the 14% hike of 1995. Rates can be raised only once a year.

What’s more, under the new system, the USPS will be able to set new rates more quickly than they can under the current process, which takes at least nine months. The rate case process will be overseen by the Postal Regulatory Commission, currently the Postal Rate Commission (PRC). The commission will have the power to revise rate caps and systems, will hear complaints, and will deal with new postal classifications and negotiated service agreements (NSAs). Under the current system, the PRC had the power to file rate cases, but its recommendations could be overruled by the USPS’s nine-member Board of Governors.

The ability of the Postal Service to offer discounts through NSAs is another change introduced by H.R. 6407. Proponents argue that by being able to craft customized, mutually beneficial agreements with individual customers, as private carriers such as United Parcel Service and FedEx do, the USPS will be better equipped to compete in the marketplace.

In addition, H.R. 6407 shifts liability for military service time of postal employees’ retirement payments from the USPS to the U.S. Treasury. The cost of these retirement payments is estimated to be as much as $27 billion.

Then there’s the escrow account that the USPS was required to prefund annually for retiree heathcare benefits. The Postal Service couldn’t spend the accumulated dollars without congressional approval. Last year alone the USPS was required to put $3.3 billion in the postal retiree account. In fact, “it’s the sole reason why the USPS filed the current rate case to increase stamp prices,” says Bob McLean, executive director of the nonprofit Mailers Council. “Without the escrow, the next increase would likely have been delayed another year.” H.R. 6407 relieves the USPS of this expense, enabling it to save $78 billion over 60 years.

Given the savings that the Postal Service will enjoy upon approval of H.R. 6407, some may wonder if the USPS will cancel, delay, or modify its pending rate case, which was introduced in May 2006 and was expected to be implemented in May 2007. Industry observers highly doubt that the reform legislation will affect the current rate case, however. Once the bill is enacted, the Postal Regulatory Commission has 18 months to establish the regulations, and no one expects it to rush to do so. (For more on the pending rate case, see “Cleaning up” on page 19 and “A new dimension in packaging” on page 42.)

Shock and awe

Upon hearing the news, some mailers were downright shocked. “I never thought this would happen,” says Chris Bradley, president of Portland, ME-based bedding cataloger Cuddledown and the leader of a grassroots postal reform campaign. Bradley had helped persuade Sen. Susan Collins (R-ME) of the importance of postal reform at a May 2002 meeting; Collins subsequently became a key proponent of the reform legislation.

“Postage has always been the wild card when it comes to planning our business,” says Bradley. “Without postal reform, I thought that we were heading for a situation where increasing postage rates would fundamentally be jeopardizing catalog companies as a business model.”

Jeff Largiader, vice president of sales and marketing for Shrewsbury, NJ-based software distributor Wayside Technology Group, says his company was thrilled by the news. “We can build our budgets out and maintain a healthy, profitable business. Who wouldn’t want predictable rate increases?” — Additional reporting by Jim Tierney