Postal reform: the saga continues

Postal reform will not go down in the history books as one of the accomplishments of the 108th Congress. But mailers and marketers are hopeful that the 109th Congress will pick up where its predecessors left off and pass legislation to mitigate what could be a double-digit percentage postal rate increase in 2006.

“I’m not surprised, but I’m very disappointed” that legislation wasn’t passed in the 108th Congress, says Neal Denton, executive director of the Washington-based trade group Alliance of Nonprofit Mailers. “It leaves unfixed the problems of postal finances. If we don’t get these things fixed between now and when the next rate increase is implemented, it’s going to be very costly for mailers.”

What with the war in Iraq and homeland security issues, postal reform faced too much competition for lawmakers’ attention, Denton says, and there wasn’t enough time in the schedule to allow legislation to get to the floor of both the House of Representatives and the Senate. But while Congress may have considered other matters more pressing, Denton says that postal reform is critically needed: “We’ve got to get the issues resolved, and if we can’t get those resolved in the context of the large reform bill [in early 2005], then we need to consider doing something on an interim basis to at least get those issues repaired prior to the next rate case.”

The U.S. Postal Service is expected to file a rate case by April 2005, to go into effect in 2006. The previous postal rate hike took place in 2002. At that time, rates for standard bulk commercial mail, the category that generally contains catalogs, increased 7.5% — and according to USPS spokesperson Monica Suraci, that was one of the lowest price hikes for the class since at least 1985. During the 1990s, bulk mail rates had increased as much as 25%. For the next rate case, optimists are predicting a 10%-15% average increase. Pessimists think that commercial mail rates will climb 18%-22%.

The CSRS issue

One of the postal issues that many want resolved immediately concerns the Civil Service Retirement System (CSRS) escrow fund. Currently the USPS pays for the military service portion of postal employees’ retirement payments. P.L.108-18, the Postal Civil Service Retirement System Funding Reform Act of 2003, lowered the Postal Service’s annual payment for its CSRS obligation by more than $2.5 billion, beginning in fiscal 2003. But it also required the USPS to begin making payments into an escrow account in fiscal 2006.

Without a change in the present law, says Gene Del Polito, president of the Arlington, VA-based Association for Postal Commerce, the Postal Service “will have to raise an additional $5.6 billion in postal revenue not only to cover its actual needs, but to compensate for the ‘loss’ of the escrowed funds.”

Both the House and Senate reform bills called for shifting liability for military service time of postal employees’ retirement payments from the USPS to the U.S. Treasury and for eliminating the escrow account. The Bush administration, however, opposes the provision because it would add to the budget deficit.

Even if a full reform bill can’t be enacted in time to stem double-digit rate increases, Del Polito recommends amending P.L.108-18 so that the Postal Service can have the money that will otherwise be held in escrow for fiscal 2006 and 2007. “What I’m disappointed about in this session,” he says, “was that nothing was done on the issue of the CSRS revocation or providing any relief whatsoever to the Postal Service on that, which is going to be the most significant factor in terms of its impact on postal rates.”

Forging ahead

Meanwhile, reform advocates who were less than satisfied with the proposed bills see the delay in passage as an opportunity to improve the bills. Jerry Cerasale, senior vice president, government affairs for the Direct Marketing Association, says he and others in the industry plan to meet with lawmakers and their staffs prior to the beginning of the 109th Congress to discuss changes they’d like to see before the bills are reintroduced.

According to Cerasale, Sen. Susan Collins (R-ME), head of the Senate Governmental Affairs Committee; Rep. Thomas M. Davis III (R-VA), who heads the House Government Reform Committee; and the Bush administration are committed to reform. “I am optimistic,” he says, “because it looks like the Bush administration is now really engaged and trying to listen to us.”

What’s more, the upcoming rate case filing is not the deadline for postal reform. “Things can be done later than April and still reduce a double-digit rate case,” Cerasale says. “It would have to be done in the middle of a rate case, but that is possible.” He adds that there has been some discussion of the postage increase being phased in over two years, with an initial hike introduced in April 2006, for instance, and a second increase added in 2007. Staggering the increase, he says, could help businesses better absorb the additional costs.

And mailers could use all the help they can get. A double-digit rate increase “would take a lot of marginal catalog operations and kill them,” Del Polito says, “and I think it would take some that ordinarily should be very successful and reasonably profitable and weaken them financially.”

Such was the scenario in 1991, which saw the steepest rate hikes to date. But today, unlike then, marketers can use the Internet and e-mail to sell their products. They are not as dependent on the USPS to reach consumers.

Denton of the Alliance of Nonprofit Mailers, for one, predicts that a large postal rate increase will encourage more catalogers to abandon their print books or send them out fewer times a year. “If the rate of increase in this coming case is single digits, and it is reflective of something closer to what we’ve experienced with inflation, I think the Postal Service is going to survive without any changes in mail volume,” he says. “If it’s a double-digit rate increase, there’s no doubt in my mind they’re going to see very significant shifts in mail volume.”

And that would hasten a “death spiral” for the Postal Service, he says: Less mail means less revenue, which could lead to another sizable rate increase to make up the difference.

On the bright side, the severity of that scenario could improve the chances of postal reform getting passed sooner rather than later. “I think everyone on the Hill and off the Hill recognizes the urgency of resolving this one way or the other before the next rate increases are implemented,” says Denton. “If we could combine the two bills and take the best parts of them, we might very well have a good starting point for this year.”

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