*Postal Official Denies Second Rate Increase Is Imminent

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The U.S. Postal Service is planning another rate increase, even though the current rate case has not yet been finalized, according to mailers who attended the October Mailers Technical Advisory Committee meeting in Washington.


While mailers did not say when the filing would take place or how much the rates would go up, they said postal officials are expecting a deficit in fiscal year 2001, which ends next September -- which is rare, because it usually makes money when it has a rate increase.


Richard Strasser, acting chief financial officer at the USPS, denied the reports yesterday, saying it would be premature to start planning another rate case.


"We have to see the outcome of this rate case and we have to see the outcome of the labor negotiations and arbitration at which point we have to determine the situation as it is related to our cost," he said. The USPS will start thinking about another rate case "as we observe what's going on with our volume and our growth. This is a key first-quarter."


Based on the USPS' preliminary year-end fiscal year 2000 financial numbers, the agency faces a $150 million dollar deficit, Strasser said. This is half the amount Postmaster General William J. Henderson speculated the agency would experience earlier this summer.


Insiders said the worse-case scenario would be the USPS filing another rate case in June 2001 so higher rates could be implemented 10 months later. Rates also could be filed in early 2002 and then implemented in early 2003.


Some MTAC members speculated that the size of the next rate increase would be between 5 percent and 6 percent, only slightly higher than the rate of inflation. They also said that the USPS' strategy is to have small rate increases every year so Congress will finally take a renewed interest in the postal service. This may be the crisis that many think is needed before Congress will revise the laws governing the USPS.


Others said the USPS is trying to punish mailers because they are trying to push back the agency's contingency allowance. The Direct Marketing Association, for example, -- backed by 16 major companies and associations that rely on the postal service -- submitted testimony to the Postal Rate Commission saying the USPS should slash its proposed $3.4 billion revenue requirement to $1.8 billion. It argued that the postal service should cut its contingency allowance -- which accounts for $1.7 billion of the requirement and is included in the rate case to offset any unforeseen events -- to $175 million.


"This is partly revenge," said a mailer who asked not to be identified. "The USPS is saying that if you don't give us the money we want, then we'll just raise rates again."


The same mailer said that the USPS has to look like it is not doing well because it is in negotiations with its labor unions, and their contracts all expire in late November.


Ultimately, MTAC members said the rate case will be determined by the outcome of binding arbitration between the USPS and its employee unions. When union wages and benefits increase, they usually have a direct impact on postal rate increases because labor is 75 percent to 80 percent of postal costs.
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