No Mail On Tuesdays? Blame Congress

January 29th, 2009 at 10:13 pm | No Comments |

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There’s been a lot of press on Postmaster General John Potter’s testimony asking Congress to repeal the legislative provision requiring the Postal Service to maintain mail delivery six days per week.

Why are people in Washington so surprised? Blame it on the 2006 Postal Accountability and Enhancement Act (PAEA), nurse passed with bipartisan support and the backing of the Bush Administration, prostate which was more concerned about masking the true size of the Federal deficit than ensuring that USPS could truly compete in the 21st century.

As the Postmaster General warned last fall, “The Postal Service had positive net incomes until PAEA was passed…  It requires the Postal Service today to pay approximately 10 percent of every dollar we take in toward retiree health benefits…  Now without that obligation of $7.7 billion, the Postal Service would have a positive net income.”

So what, you say? Many businesses face sharp increases in healthcare costs.

The problem is that Congress required USPS to pre-fund healthcare benefits, to the tune of $5.4 billion last year – something not required under Generally Accepted Accounting Principles.  So USPS is faced with huge new costs, including a $5.4 billion payment for expenses far into the future, when the volume of First Class Mail is steadily declining and Standard Mail (all that advertising) has fallen sharply with the economic slowdown. The volume of mail fell by 9 billion pieces last year – and that was before the full impact of the recession.

At the same time, the Postal Service Retiree Health Benefits Fund has a healthy balance of $32 billion. That’s why the Postmaster General wants legislation to “permit the Office of Personnel Management to pay the Postal Service’s portion of health benefit premiums for current retirees” from that $32 billion fund, which would save USPS up to $24.6 billion through 2016 – enough to ensure the difference between a postal service that people want to use and one that people want to avoid.

The 2006 law essentially contemplated a first-class rate increase every year, not to exceed the rate of (general) inflation. But the cost of health care keeps going up faster. So rate increases were capped, but the cost of mandates rises. Call it the postal squeeze.

One option would be to file a rate case asking the Postal Regulatory Commission for an exemption to permit rates to rise above the level of inflation. But as the Postmaster General said, “If we raise rates above the rate of inflation, what it’s simply going to do is drive more volume away.” Yet that’s exactly the choice the postal reform bill forces on USPS.

The Postal Service warned Congress of these consequences before the law was passed, but it was ignored. (Full disclosure: as a Governor of the Postal Service at the time, I endorsed the Postal Service’s views on postal reform legislation.)

Jack Potter has been a great Postmaster General. He rose from postal clerk in the Bronx to run what is essentially a Fortune 50 (that’s 50, not 500) company, the country’s second-largest employer. Starting in 2002, he’s saved $1 billion a year in recurring costs and cut costs $2.2 billion last year. But he needs the freedom to run the Postal Service without being burdened by unique and unnecessary accounting rules. If we want to keep the best – and among the cheapest – universal postal services in the world, Congress should act on the healthcare funding issue.

Otherwise, we’re looking at endless deficits for USPS or no mail one day a week, possibly on Tuesdays. And while Greek- and Spanish-speakers might not mind missing bills on a traditionally unlucky day, America and its postal workers deserve better.

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