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Postal Reform: What Does It Mean?

It appears that good things do come to those who wait. In the case of Postal Reform, it has been a very long wait — nearly 12 years. But in the last hours of the last day of the lame-duck Congress, compromises were made, differences were overlooked and a minor miracle happened: Both the House and Senate passed a comprehensive postal reform bill that would overhaul the business operations of the U.S. Postal Service.

The USPS was facing a dire future, and without a change to the laws governing the way it conducts its business, costs and rates would have continued to rise at a level that would do serious damage to our industry. Now there is a chance for the Postal Service to set prices in a more businesslike and competitive manner, while providing services that add value to mail.

The final legislation reflects an agreement among members of Congress, the Bush administration and the mailing community, and contains all of the elements major mailing stakeholders have sought over the past several years, including:

• Elimination of the Civil Service Retirement System Escrow Fund
  Under the law today, the USPS must make annual payments of approximately $3 billion into an escrow fund that it has no control over and probably would never be able to use. This escrow fund requirement was the reason for the 5.4 percent rate increase in January 2006. The new legislation eliminates the escrow fund, returns the money to the USPS, and directs it to use that money to prefund retiree healthcare benefits.
• A cap that will tie future postal rate increases to the rate of inflation
  The cap is tied to the Consumer Price Index (CPI) for the most recent 12-month period. This will allow the Postal Service to adjust rates annually at a set time each year. The cap will be applied by class of mail, so theoretically, some rates within a class of mail could be higher than the CPI and some could be lower, as long as the average for the class is at or below the CPI.
• A tight exigency clause defining the conditions for emergency rate increases
  This provides the USPS with its only out clause for raising rates more than the CPI. Mailers argued for a very tight exigency clause, while the USPS wanted it to be more flexible. In the end, the language favored the mailing industry’s stance.
• The return of the military retirement cost burden (approximately $27 billion ) to the U.S. Treasury
  The USPS never should have been saddled with this obligation. This bill shifts the military retiree tax burden back to the U.S. Treasury, making these funds once again available to the USPS to support the cost of its operations.
• Language supporting the continuation of work-sharing agreements
  Work-sharing provisions (discounted rates) were a critical part of the legislation for mailers. Work sharing has helped the USPS save or avoid billions of dollars in costs over the years, while at the same time providing opportunities for mailers to manage the rates they pay.
• The Postal Rate Commission (PRC) becomes the Postal Regulatory Commission
  The bill replaces the PRC — a rate-review commission — with a more powerful Postal Regulatory Commission, which can set some postal rates and examine postal financial management practices.
  
  

H.R. 6407 will not halt the current postal rate case now before the Postal Regulatory Commission, nor will it change the rates or the rate structure in this rate case.

Since this legislation could give the USPS some financial relief, it may consider granting a longer period of time between the Board of Governors’ approval of the PRC recommendations and the date the rates are implemented. Mailers have been asking for at least 60 days and as much as 90 days to make software and process changes, but with a May 6 implementation, as stated by the Postmaster General, it could be as little as 30 to 45 days.

While it’s good that this legislation has finally passed, it is not perfect and is not the answer to all things postal. The many problems facing the Postal Service still exist, but H.R. 6407 provides tools to address these problems. Now it’s up to us to use them wisely.

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