Postmaster General Warns of Potentially Steep 2006 Rate Hike

In a nationally broadcast speech on the U.S. Postal Service’s National Postal Customer Council Day on May 26, Postmaster General Jack Potter said that he anticipates the need for a rate increase in 2006 that will be “over and above” previous USPS forecasts.

Unless further legislative changes take place to the Civil Service Retirement System (CSRS), a provision in the CSRS legislation could result in the need to generate $3 billion in the next rate filing beyond forecasts. The legislation passed in 2003 correcting the overpayments also put in place a requirement for the Postal Service to place the savings in escrow beginning in 2006. In addition, the law transferred responsibility for military retirement benefits of postal employees from the Treasury to the Postal Service, adding a $28 billion obligation.

Potter is banking on postal reform bills introduced in both the House and Senate this month, both of which include language that would eliminate these burdens being placed on postal ratepayers.

But Potter expressed concern about other portions of the bills, which seek to modernize the 34-year-old postal regulatory process. He cited provisions requiring the USPS to prefund health benefit retirement obligations. “Our evaluation indicates the costs could be as high as $3.9 billion in 2006,” he said, “or a 6.5% rate increase over and above our forecast.”

Both bills have language that calls for price caps as a way to set rates. And since neither bill provides relief from postal wages and benefits, “we believe any price cap index must take all cost drivers into consideration,” Potter said. “We therefore prefer the Senate version of price caps.”

Potter is also concerned about legislative language that deals with pricing flexibility in competitive and noncompetitive product lines. “The language will likely result in added costs being shifted to packages,” he said. “That could result in significant upward price pressure, which could put $2.5 billion in contributions we gain annually from our package services in jeopardy. That loss of contribution would have to be borne in higher rates on other classes of mail.”

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