Postal Reform Issues

It has been over 30 years since the legislation that created the modern Postal Service has been reviewed. At that time, the prospects of Internet communication, email and even express mail were not even contemplated.

The legal basis for the Postal Service and the issue that establishes limited monopoly protection is the delivery of first class mail. The USPS has a monopoly on the use of mailboxes for receipt of mail delivered by the USPS. Further, Congress has expressed its support for a uniform nationwide delivery service for first class mail supported by a uniform rate structure.

The largest cost attribution for service in the USPS is for first class mail (57%). When volume declines, the cost of delivery rises. Unfortunately, while standard (advertising) mail has been increasing, first class volume has been decreasing (1.3 billion pieces last year).

The largest cost issue for the USPS is labor. The USPS has a mix of private sector and public sector employment rules. For example, employees have access to federal employee retirement, benefits that are equal to or better than federal employees, a very generous workers compensation system, and a military service hiring preference. Additionally, employees are unionized: while they do not have the right to strike, they do have binding arbitration.

Rates are set through an independent Postal Rate Commission. Rate changes requests typically take ten months for review and decision. Costs of operation must be covered by rates. The USPS receives no federal revenues.

Congress will be considering postal reform legislation in 2004. The following are issues, the Printing Industries of America believe should be part of this legislation:

  1. Congress must repeal the 2003 law that requires the Postal Service to place retirement funds in an escrow account, to be spent only after the Postal Service tells Congress how it wants to use the funds. Following standard accounting practices, these billions of dollars in escrow must be treated as an expense when determining the next postage rate increase. As a result of these added expenses, postage will go up sooner and by a larger amount—specifically, 5.4% higher just in 2006. The Postal Service predicts a two-cent increase in the cost of a first-class stamp in 2006—in addition to whatever increase might otherwise be proposed. Business mailers would expect a postage hike of more than 10%. Additional increases would occur for every year the escrow accounts exist.
  2. Congress must also modify a provision of that law transferring responsibility for the retirement cost of postal employees earned through military service to the Postal Service. Previously the Treasury Department funded these costs. This policy change created a direct cost transfer of $27 billion from taxpayers to postage ratepayers. Over 90% of the cost of military service was earned before July 1, 1971. That’s when the Post Office Department (a cabinet-level agency) became the United States Postal Service, an independent government agency.
  3. The Postal Service should be allowed and encouraged to promote work sharing agreements with the private sector which promote reduced costs within the USPS and provide rate reduction opportunities for business mailers. Currently, the USPS enters into work sharing arrangements and has even approved a negotiated service agreement; however, there is a general belief that the authority for such agreements should be spelled out in legislation. These agreements may be controversial with unions who may feel threatened. The President’s Commission recommended expanded use of both negotiated service agreements and work sharing.
  4. The rate setting process must be more immediate to reduce the time between the expressed need by the USPS and the decision. Also, rates should be limited by cost factors such as the CPI. Currently, rate cases require ten months. While mailers certainly do not want rate increases, it is believed that the current time required for rate and service changes through the Postal Rate Commission is far too long and expensive. Mailers generally believe the USPS should be given broader authority to act quicker to respond to market conditions.
  5. The Postal Service must have the authority to manage facilities through closing and consolidating both mail processing facilities and retail outlets. For many members of Congress, this issue would seem threatening since some of the facilities that may be inefficient would be those serving rural areas. However, many of these post offices both rural and urban do not generate enough mail revenue to cover the cost of operation. The President’s Commission proposed a “base closing” commission process to make recommendations about closing and consolidating facilities in a manner that would minimize the political impact of the closing decision.
  6. Certain core principles should be retained in postal reform such as the monopoly on the use of the mailbox and uniform nationwide service. While it is tempting to consider private delivery options, none has emerged to date to provide the consistency of service.
  7. The cost structure at the Postal Service has to be addressed. These costs cover a broad area including labor agreements, pension payments, health costs, workers compensation costs and management compensation. Many of these cost issues are structural having been established during the 1971 Postal Reform Act. Mailers cannot be expected to pay the cost of maintaining these payments. Postal Facts
    • The Postal Service brought in nearly $70 billion in revenue last year. If it were a private company, the Postal Service would rank #11 on the Fortune 500.
    • The Postal Service has 750,000 employees (larger than the Pentagon workforce). It has over 38,000 branch offices and 350 processing and distribution facilities.
    • Over 206 billion pieces of mail are delivered to U.S. households annually. The Postal Service delivers to 137 million addresses, six days a week.
    • 57 percent of USPS costs are attributable to first class mail.
    • Of the 137.6 million people employed in America today, nine million are directly connected to the mailing industry. That represents six percent of all American jobs.
    • The mailing industry contributes about $900 billion in economic value, or about eight percent of the United States’ Gross Domestic Product.
    • For every job in the postal sector, there are 100 jobs in the private sector that depend on the business generated by the USPS delivery of documents.
    • For every five percent increase in postal costs, mail volume drops by about 1.175 billion pieces and 52,000 private sector jobs are lost.
    • The Postal Service has raised rates four times in the last six years, resulting in a system-wide increase of 17 percent. However, productivity has only increased by 11 percent in total over the last 30 years.
    • Regular increases in postage rates can no longer be seen as inevitable since these rates can no longer be absorbed.

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