Be prepared for a January rate hike

Mailers should brace for postal rates to go up in January, rather than in the spring or the summer as many had hoped. A fiscal 2006 operating plan for the U.S. Postal Service is predicated on a postage rate increase of 5.4% taking effect in January 2006.

The operating plan — presented by USPS chief financial officer Richard Strasser Jr. to the agency’s Board of Governors on Sept. 27 — offsets a deficit of $1.8 billion, the result of an escrow account set up in 2003 to pay for the military pensions of former postal employees. The Postal Service is required to put $3.1 billion in the account by the end of its fiscal year.

To make up for the deficit, the USPS will borrow $1 billion from the Treasury Department, cut some 42 million man-hours, and implement the January rate increase. Without the escrow, the plan would have showed net income of $1.3 billion.

Mailers had hoped that the passage of one of the proposed postal reform bills would release the USPS of its obligation to fund the escrow account. In July, Congress had approved H.R. 22, the Postal Accountability and Enhancement Act, and the vote for the companion Senate bill, S. 622, was scheduled for early September. But what with hurricanes Katrina and Rita and the Supreme Court justice nominee hearings, postal reform has hardly been a priority for Congress this fall.