POSTAL SERVICE REFORM
STATUS
On December 20, 2006,
President Bush signed into law H.R. 6407, the Postal
Accountability and Enhancement Act, the first major overhaul
of our postal system in over 30 years.
On March 20, 2007, the
U.S. Postal Service (USPS) Board of Governors approved a 7.6
percent overall increase in postage rates, including a 2-cent
increase for the price of a first-class stamp that would raise
it to 41 cents effective May 14, 2007.
ISSUE
The USPS ended fiscal
year 2006 with a $2.1 billion deficit after being required by
law to pay over $3 billion into an escrow fund. A provision
of the Civil Service Retirement System Funding Reform Act of
2003 called for the establishment of a $3.1 billion escrow
account beginning in 2006. Use of the money in the escrow
account is subject to the direction of Congress.
Record levels of revenue
and volume allowed USPS to end with net income of $900
million. The end result is that the total revenue for the
agency was $72.8 billion, and total expenses were $71.9
billion, leaving the agency with a net deficiency of $2.1
billion, after including the $3 billion escrow allocation.
Total mail volume
increased in fiscal year 2006 by 1.4 billion pieces, or 0.7
percent. While the mail volume decline trend continued for
first-class mail with a 0.5 percent decrease from the previous
fiscal year, growth in standard and priority mail helped
increase overall mail volume to 213 billion pieces.
The Postal Service delivers
more than 200 billion pieces of mail each year to nearly 140
million addresses, which accounts for more than 40 percent of
the world's mail. Moreover, 1.7 million new delivery points
are added each year—roughly the equivalent of adding the
number of addresses in Chicago. More than seven million
Americans visit post offices each day.
The Postal Reorganization Act
of 1970 was the result of the recommendations of a
Presidential Commission. The Act abolished the old Post
Office Department (which was then a cabinet agency) and
created the United States Postal Service (USPS), a government
agency with a mandate to "break even over time." Because the
Postal Service is required to operate on funds from customers,
it is expected to "act like a business." Nevertheless, it
remains a government agency, its prices are regulated, the
benefits it gives its workers are established by Congress and
wage rates and work rules are the result of a collective
bargaining process, which includes binding arbitration. The
Postal Service also enjoys many benefits of a government
agency: the monopoly over the mailbox and certain classes of
mail, immunity from taxes, and the right to issue regulations.
While the 1970 Act solved many
of the problems it was designed to address (postal strikes,
the large annual operating subsidy from the federal
government, excessive patronage), the 30 year old statutory
framework is no longer appropriate for the new century with
the increased competition (from other carriers and other forms
of communication such as email), wage rates that are now well
above private sector rates for similar work, and costs and
regulations imposed by the federal government.
Yet, full privatization may not
be the solution either. Universal postal service and pricing
has been a bedrock of commerce since the founding of our
nation. A fully privatized entity might not be able to carry
out the mission.
Because of a lack of consensus
on the best direction for Postal Reform, President Bush named
a commission to sort through these issues and make
recommendations.
THE
COMMISSION'S REPORT
The Commission's report
contains 35 recommendations, 18 of which would require some
action by Congress. In many ways, the Commission's approach
is in the mainstream of postal reform discussions that have
been underway among stakeholders since the mid-1990s. For
example, the Commission endorsed the basic structure of the
1970 Postal Reorganization Act, recommending that the USPS
"should continue to operate as an independent establishment
within the executive branch with a unique mandate to operate
as a self-sustaining commercial enterprise" and rejecting the
alternative of privatization that many other developed
countries have adopted. While keeping the basic government
corporation model, the Commission expressed in many of its
recommendations that the USPS should adopt the "best practices
of similarly-sized, private-sector corporations." These
included an independent, corporate-style board of directors
that would perpetuate itself, greater financial transparency,
expanded outsourcing for services, aggressive real estate
asset management, and the use of commercial purchasing
practices.
The Commission's
recommendations with regard to regulatory controls are similar
to recent Congressional proposals. The Postal Rate Commission
would be transformed into a new Postal Regulatory Board that
would have authority to refine the scope of the universal
service obligation and the postal monopoly, to establish
limits and broad parameters within which the USPS could set
rates and negotiate service arrangements, and to assure that
competitive products are not cross-subsidized by revenues from
products protected by the monopoly.
While recommending that
Congress eliminate current statutory restrictions on closing
post offices for economic reasons, the Commission did not
press for an aggressive program of closing local post offices,
pointing out that even some "low activity" post offices are
needed to meet the universal service obligation. It placed
much more emphasis on consolidating the 380 large processing
facilities, recommending the creation of a Postal Network
Optimization Commission to identify facilities to be closed
with a fast-track congressional approval process similar to
what is used for military base closures.
The aspect of the Commission's
report that is already being vocally challenged by some of the
USPS labor unions are four recommendations relating to
workforce compensation, a subject that recent bills in
Congress have avoided. Referring to "persuasive testimony"
that a postal compensation premium may exist, the Commission
recommended major revisions to the current practice of binding
arbitration of wage bargaining disputes, including the value
of fringe benefits such as health care and early government
retirement in bargaining over compensation, a redefinition of
pay comparability made by the Postal Regulatory Board, and the
introduction of some form of "pay for performance" into the
compensation package. The American Postal Workers Union news
bulletin, denouncing the recommendations as "fundamentally
dishonest" and "a disaster," said it would use every tool at
its disposal to assure that none of these recommendations
becomes law.
THE POSTAL ACCOUNTABILITY AND
ENHANCEMENT ACT
On January, 4, 2005,
Representative John McHugh (R-NY) introduced H.R. 22, the
Postal Accountability and Enhancement Act. Essentially the
same legislation introduced in the House of Representatives
the past several Congresses, this bill was designed to allow
the USPS to operate more like a business. The bill aims to
preserve universal service at a “reasonable” cost and free the
agency of its break-even mandate.
On the Senate side,
Senator Susan Collins (R-ME) introduced S. 662, the Postal
Accountability and Enhancement Act on March 17, 2005. While
similar in several aspects to the House version, the Senate’s
bill was also designed to address concerns of the
Administration. The bill sought to impose more stringent
financial transparency requirements on the USPS, including the
filing of SEC-like reports on a quarterly schedule, and
require the USPS to get Treasury approval for the investment
of its profits.
On July 26, 2005, the
House of Representatives passed H.R. 22 by a wide vote of
410-20. After making the amendments necessary to reflect S.
662, the Senate passed H.R. 22 by unanimous consent on
February 9, 2006. The bill then headed to conference between
the two chambers to iron out the differences.
The bill was salvaged at
the end of the 109th Congress when conferees
finally reached a compromise. On December 7, 2006,
Congressman Tom Davis (R-VA) introduced the agreed-upon
version, H.R. 6407. The bill was subsequently unanimously
passed by both the House and Senate and signed by President
Bush.
The bill makes several
significant changes, including:
 It
preserves universal service, meaning the USPS will continue
delivering to every address in the country. It also gives the
USPS board of governors the authority to set rates for
competitive products, such as Express Mail and Parcel Post, as
long as these prices do not result in cross-subsidy from the
market-dominant products.
It
simplifies the pricing process for Postal Service products and
services and replace the current rate-setting process with a
rate-cap based structure to allow the Postal Service to react
more quickly to changes in the mailing industry. The system of
rate caps applies to the market-dominant products only, such
as first class mail, periodicals, and bound printed matter.
It
provides the Postal Regulatory Commission, formerly known as
the Postal Rate Commission, the power to institute emergency
price increases due to "unexpected and extraordinary
circumstances." An example of the kind of contingency that
would trigger action is the anthrax attacks.
It
guarantees a higher degree of transparency to ensure fair
treatment of customers of the Postal Service's market-dominant
products and companies competing with the Postal Service's
competitive products. USPS will be subject to Securities and
Exchange Commission-like regulations.
It
authorizes the USPS to enter into negotiated service
agreements with mailers, whereby mailers perform some of the
work.
It
gives USPS the authority to transition individuals receiving
workers' compensation to a retirement annuity when the
affected individual reaches the age of 65. It also puts into
place a three-day waiting period before an employee is
eligible to receive workers' compensation pay.
It
requires that all future governors of the Postal Service be
selected based on their demonstrated ability in managing
organizations or corporations of substantial size.
It
requires USPS to report to Congress and the General Accounting
Office with a strategy for how it intends to restructure its
infrastructure to reduce excess processing capacity and space.
The Postal Service also is required to identify anticipated
cost savings associated with infrastructure rationalization.
USPS POSTAGE RATE INCREASE
On March 20, 2007, the
U.S. Postal Service (USPS) Board of Governors approved a 7.6
percent overall increase in postage rates, including a 2-cent
increase for the price of a first-class stamp that would raise
it to 41 cents effective May 14, 2007. The increase in the
cost of a first-class stamp will be the fifth since Jan. 10,
1999, when the rate moved up to 33 cents. Postage rates last
increased in January 2006.
The rate package,
approved with a 9 to 0 vote, includes a "forever stamp" that
would be good as stand-alone postage no matter what rates rise
to in the future. The rate increase for first-class stamps is
1 cent less than proposed by the Postal Service, which also
asked for an overall 8.1 percent postage rate increase.
The new rates also
include a 2-cent increase for postcards, rising from 24 to 26
cents. USPS had requested a 3-cent increase. On the other
hand, the new rates decreased the price of 2-ounce letters,
bank statements, targeted appeal letters by nonprofits, and
electronic certified mail return receipt.
The board also approved
new shape-based pricing. The new prices reflect differences
in the costs of handling letters, large envelopes (flats), and
packages, the board said, and mailers are encouraged to
consider options available to reduce postage costs.
The following are
additional rate changes:
Priority
Mail, 1 pound, $4.60, up from $4.05;
Express
Mail, 8 ounces, $16.25, up from $14.40;
Parcel
post, 5 pounds, $5.67, up from $4.36;.
Certified
Mail, $2.65, up from $2.40;
Money
orders up to $500, $1.05, up from 95 cents;
Bank
statement, 3 ounces, 58.4 cents, down from 73.9 cents;
Department
store bill, presorted, 37.3 cents, up from 37.1 cents;
Advertising,
2 ounces, presorted, 23.3 cents, up from 21.4 cents;
Advertising,
9 ounces, last envelope, presorted, 62.9 cents, up from 57.0
cents;
Nonprofit
mail, 1 ounce, 16.4 cents, down from 17.0 cents, and
Library
mail, 2 pounds, presorted, $1.88, up from $1.78.
OUTLOOK
Postal reform and the
new rates are now a reality.
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