GAO: USPS Rates Would Soar Under Escrow Rule

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A General Accounting Office report backed U.S. Postal Service estimates that rates will rise steeply unless the postal service can use funds currently earmarked for an escrow account beginning with the 2006 fiscal year.

"We believe that the continuation of the escrow requirement after fiscal year 2005 without allowing the service to use the funds has the potential for significantly raising postal rates unnecessarily," the report said. "Rate increases of the magnitude necessary to fund this escrow requirement in the future may precipitate further declines in mail volume and could hinder the service's ability to achieve other financial goals."

Prompted by the discovery that the USPS had overfunded contributions to the Civil Service Retirement System, the act let the postal service lower its contributions to the CSRS fund beginning in the 2003 fiscal year. However, the act also required the postal service to place CSRS savings in an escrow account starting in FY 2006.

The GAO report, issued Nov. 26, follows efforts by postmaster general John E. Potter and mailers groups to have Congress repeal the escrow requirement.

"With the escrow requirement, postage rates will have to rise even more than is necessary to reflect inflation," Potter told a Senate Governmental Affairs Committee last month. "Some have suggested that the increase would be in the double digits."

The GAO did recommend conditions for repeal of the escrow account. Most importantly, it tied repeal to the postal service's transformation plan and said that the USPS has not yet presented a comprehensive, integrated infrastructure and workforce rationalization plan. The postal service argues that the escrow repeal should not be linked to transformation or other reform efforts.

Another GAO report also issued Nov. 26 was a potential setback for the USPS in its efforts to no longer include employees' military service benefits as part of CSRS contributions. The postal service argues that no other government agency, including other self-supporting ones, fully funds the cost of these benefits. It wants the Treasury Department to take over these contributions.

Though the GAO agreed that discrepancies exist in what individual agencies are required to contribute, it suggested that if "Congress requires the postal service to fund the military service component of CSRS benefits, then it may wish to have other self-supporting agencies do so as well."

Earlier this year, the President's Commission on the United States Postal Service agreed with the USPS and recommended that this requirement be repealed.

The postal service has said that eliminating military service costs would overfund its CSRS obligation by $10 billion. It proposed that the $10 billion stay in the Civil Service Retirement and Disability Fund in a separate account designated the "Postal Service Retiree Health Benefit Fund."

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