How much of a contingency budget is too much? That question was at the heart of recent testimony in the current postal rate case.
In testimony filed in June, cosponsored by nine industry associations and four large mailers, postal consultant Larry Buc asked the Postal Rate Commission (PRC) to lower the overall revenue requirement sought by the U.S. Postal Service. The Direct Marketing Association, the Association for Postal Commerce (PostCom), the Alliance of Nonprofit Mailers, and the Magazine Publishers of America were among the testimony sponsors.
Rather than challenging the rate increases by postal class, Buc, president of McLean, VA-based Project Performance Corp., contended that the USPS’s request for $1.7 billion to cover “unforeseen expenses” is excessive. For one thing, the USPS understated cost reductions by nearly $300 million in its original rate request, Buc claimed. In his testimony, Buc said that an appropriate contingency request would be $670 million.
The rate case hearings are expected to continue into the fall. The PRC will likely give its final recommendation in November. Unless the PRC rejects the USPS’s case outright – which is highly unlikely – the Postal Service is expected to raise rates in early ’01; some catalogers’ rates could rise as much as 14.8%. Should the testimony convince the PRC that the USPS’s contingency budget should be reduced, the rate increase could be somewhat lower.
Some observers feel that scenario is a distinct possibility. “Because of the extreme increases in specific classes of mail, the PRC will act as a body of balance,” predicts Dan Minnick, vice president, postal and industry services, for Schaumburg, IL-based service bureau Experian Direct Tech. “As a result, I think Standard A flats will end up with a 6%-7% increase on average, down a few percentage points from what the USPS has asked for. I’m optimistic the PRC will also pass more discounts for mail delivered directly into sectional center facilities and bulk mail centers.”
But PostCom president Gene Del Polito is not so optimistic, given that the Postal Service’s volume and revenue numbers have been disappointing for much of this year. Overall volume from September to May was up over the previous year by just 2.7%, while revenue rose only 3.6%.
A matter of timing
Del Polito says he’s pinning his hopes on persuading the Postal Service to delay the rate hikes beyond next January. The USPS Board of Governors final decision, following the PRC recommendation, is expected in December; implementing the rate hike in January would give software vendors only one month to rewrite the necessary programs. “But that process takes a minimum of 90 days,” Del Polito says. “So giving programmers just a month is a little unrealistic.”