GAO: USPS Could Hold Rate Increase Beyond 2006

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The U.S. Postal Service has funded a pension plan even more than previously thought, the General Accounting Office said Friday. This news could allow the USPS to hold off increasing rates even beyond 2006 or to pay off part of its debt.


The GAO analysis found that the postal service already has overfunded the Civil Service Retirement System by $4.1 billion. In October, the federal Office of Personnel Management said it still needed $20.5 billion to be fully funded. The GAO also found a projected overfunding of $103.1 billion versus the $71 billion the OPM initially projected.


However, the GAO report also said that OPM's projections did not factor in issues such as the postal service's treatment of military service costs and payments made with appropriated funds. It also said that OPM's projections need to be adjusted based on obligations related to postretirement health benefits -- which are estimated at $40 billion to $50 billion -- as well as the $11.1 billion debt owed to the federal government.


Chief financial officer Richard Strasser welcomed the news that the USPS is paying too much into the program but expressed disappointment at the suggestion that Congress should decide what to do with the savings.


``We would like to think Congress would, as they have in the past, delegate matters to the postal board and postal management,'' he said.


Strasser said congressional wrangling probably will delay passage of any legislation that would help the postal service this year.


"You need a general alignment to get legislation passed," he said.


Last fall, the USPS said it could keep postal rates steady until 2006 if it lowered its contributions to the retirement fund. Pension contributions are fixed by law, however, and cannot be changed without congressional approval.


Robert Taub, chief of staff for Rep. John McHugh, R-NY, said McHugh and Rep. Tom Davis, R-VA, have been briefed about the GAO findings and that the lawmakers are still "digesting the [information but] plan to move forward with all due haste."


Quick passage is critical because the USPS has said it will submit a new rate case request with the Postal Rate Commission as early as April if the law is not changed. Without the lowered pension contributions, the postal service has said the next rate increase will occur next year.


Strasser confirmed that postal officials are working on a new rate case and are keeping the Board of Governors updated about cost savings and other business developments.


"I can't say what the absolute deadline would be for legislation as it relates to causing us not to file a case," he said. "Part of it is what is going on in the economy and in the mailing industry. We have not seen the rebound rate in terms of volume. We've seen a slight growth in Standard volume, but across the board, volume growth is pretty mediocre."


An amendment addressing the funding was added to a report accompanying the Senate version of the omnibus fiscal 2003 appropriations bill. Senate Majority Leader Bill Frist, R-TN, added the amendment last month. The appropriations bill could be passed this week.


"Essentially, Sen. Frist is putting a placeholder in so that if he wants to bring it up, or if Sen. [Ted] Stevens [chairman of the Senate Appropriations Committee] brings it up or if somebody else wants to bring it up, it's legitimate and within the rules for them to discuss it," said Bob McLean, executive director of the Mailers Council. "That does not necessarily mean that they are going to fix it."


The process hit a snag last week when the Congressional Budget Office released a report saying that while this could improve the USPS' fiscal position, it could increase budget deficits by as much as $41 billion over the next decade.


"This information complicates the situation, but it doesn't mean that this thing won't get passed," McLean said.


He also said it is not clear what the CBO based its calculations on.


"It is unclear if the CBO had the GAO number when they came up with their numbers," he said.


Strasser said he is setting up a meeting with the CBO, because "there have been some things left out regarding the impact of legislation on the federal budget." However, he had no doubt that the federal budget's forthcoming deficit is a crucial issue for Congress.


Meanwhile, another GAO report said last week that lowering the pension contributions would give postal officials "breathing room [to] allow the service to address other financial challenges, such as its outstanding debt, substantial postretirement health obligations and current capital freeze."


"Its current business model, which relies on increasing mail volumes to mitigate postal rate increases and cover the service's costs, is at risk in today's environment of greater competition and communication alternatives," said the report, "Major Management Challenges and Program Risks."


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