Postal Rumor Features 6% Increase

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A rumor is circulating in the postal and mailing communities about the size of the U.S. Postal Service's next rate increase, which is expected to be filed with the Postal Rate Commission this spring and take effect in early 2006.


The speculation is that the USPS will initiate a 6 percent across-the-board rate increase in March with implementation Jan. 1, 2006. This would be based on an expedited rate case. It essentially would be strictly a revenue-generating case with no classification changes.


Another modest increase would follow in 2007, which some say would be about 5 percent.


The rumor is a welcome change for mailers who have heard postal officials saying over the past year that the mailing community should expect a double-digit increase absent legislative relief. Some mailers predicted a 15 to 18 percent average increase.


The rumor accounts for USPS finances being better than anticipated, along with cautious optimism regarding prospects for legislative action. The scenario also considers that there may be no legislative relief this year. The USPS reported $700 million in unanticipated revenue recently and plans to continue a successful cost-containment program.


"Postal service headquarters are scratching their heads about what would be the best approach for going after the rate case, and what's become clear after looking at the last two financial quarters is that the postal service is doing better financially than anyone had originally hoped for," said Neal Denton, executive director of the Alliance of Nonprofit Mailers, Washington.


The 6 percent increase, however, would be needed "if the USPS must make payments to the Treasury to cover expenses related to military service time of retirees, the escrow payment for the Civil Service Retirement [System] fund or to pay down future healthcare costs for postal retirees," Denton said. "[The scenario] is the bare minimum revenue requirement, which is what we would need in order to pay these congressional obligations."


The military service time of employees and escrow payment for the fund were addressed in a postal reform bill introduced this month by Rep. John McHugh, R-NY. The bill calls for replacing a provision requiring that money owed to the USPS because of an overpayment into the CSRS fund be held in an escrow account. Repeal would free up $78 billion over 60 years, letting the USPS pay off debt to the U.S. Treasury, fund its healthcare liabilities and mitigate rate increases.


The bill also would return responsibility for funding CSRS pension benefits related to the military service of postal retirees -- a $27 billion obligation -- to the Treasury Department. No other federal agency must make this payment.


A Senate version of postal reform legislation has not been introduced this session, though it is expected soon.


Obviously, "any fiscal relief granted to the USPS to reduce payments into these future obligations may reduce the [rumored] 6 percent figure for the 2006 increases," Denton said. For example, "if Congress were to enact the recommendation of the President's Commission on the USPS to return the $27 billion military service time obligation of postal retirees to the Treasury, we might trim the 2006 increases to 3 percent -- close to what a CPI-indexed increase would have been."


But Denton said in his association's newsletter last week that the scenario includes many unanswered questions, including:


· Such a proposal must first gain the support of the USPS Board of Governors and then be submitted to the Postal Rate Commission.


· When one says "6 percent across the board," some averaging is likely. The First-Class single-piece rate increase can't be 2.2 cents. Will the USPS seek a consumer-confounding 39-cent stamp or a vending machine friendly 40-cent stamp?


· How will the lower, rumored rate increase affect deliberations on the House legislation and the Senate version of postal reform? Will such a proposal improve or harm prospects for military service time and CSRS escrow fund relief?


"It is important to emphasize that the most recent speculation is just that: speculation," the Direct Marketing Association said in a statement Jan. 27. "The ultimate outcome is intertwined with postal reform legislative proposals, including the disposition of the existing escrow provision and questions of how quickly the postal service and, in turn, postal rate payers will be required to cover long-term, unfunded liabilities."


The USPS would not comment on the rumors.


"The postal service governors would be the ones to announce any rate proposal, and they have not yet come to a determination," said USPS spokesman Paul Harrington, adding that there would be no rate increase before 2006. Harrington also said there are "a number of things beyond our control that could affect any proposal, including reform."


Melissa Campanelli covers postal news, CRM and database marketing for DM News and DMNews.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters


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