Potter Cautious on FY06 Forecasts for USPS

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Postmaster General John E. Potter cautioned yesterday that the U.S Postal Service's fiscal year 2006 forecast projects a surplus from operations but a net deficiency approaching $2 billion because of an anticipated escrow requirement of $3.1 billion.


Potter offered this information at the Board of Governors' monthly meeting, where the USPS said it concluded FY05 with a net income of $1.4 billion on record revenues of $70 billion and record volume of 212 billion pieces of mail.


"Financially, we are in the best position we've been since the 1970s," he said in a statement. "Despite the strong financial and productivity records of recent years, we are facing a modest increase in postage rates in January."


The Jan. 8 increase was compelled by legislation enacted in 2003 requiring the postal service to annually set aside more than $3 billion into escrow beginning in 2006. Efforts to change the escrow requirement have stalled in Congress because they are tied to postal reform.


Postage rates have been stable since 2002, a result of three years of operating surpluses. The surpluses have been used to reduce the USPS' once $11 billion debt to zero.


"We kept our focus on the customer for the past four years," Potter said. "It has paid off in record revenues, record volumes and positive customer satisfaction ratings."


Since Potter became PMG in 2001, the USPS said it has reduced costs by a cumulative $15 billion. In September, Potter unveiled more cost-cutting plans and pledged to take another $5 billion out of the USPS' budget by 2010.


For FY05, mail volume increased 2.7 percent to 212 billion pieces. Standard mail outpaced First Class for the first time in history with 101 billion pieces compared to 98 billion. Still, First-Class volume was up slightly in 2005 after three years of decline.


"The increase in mail volume demonstrates that American businesses recognize that hard copy mail works and has a bright future," Potter said.


For 2006, however, the USPS is projecting a slowdown in growth. According to the USPS Integrated Financial Plan, mail volume growth will decrease to 0.6 percent because of the rate increase. Most of the growth will be in Standard mail, which is expected to increase 3.6 percent to 104.3 billion pieces. First-Class volume is projected to drop 2.4 percent.


In a teleconference with reporters after the meeting, Richard J. Strasser, chief financial officer and executive vice president at the USPS, said FY05 was a very good year for the postal service.


"Service levels were solid. We reduced our injuries and illness rate, which is a key target of ours," he said, adding that the amount of money the agency had to pay to compensate workers who were injured was down for the first time for the organization.


However, Strasser also reiterated that 2006 will be a challenging -- and unpredictable -- year.


"With a larger share of our mail volume tied to advertising and customer relationship management, it will depend on the investment of mailers, of business customers and their decisions on whether to invest in the mail [based on] their particular business economics."


Strasser also mentioned that the USPS has applied to be a Medicare Part D provider, which would allow it to receive the employer's retiree prescription drug subsidy under the Medicare Modernization Act of 2003. The postal service paid $6.6 billion for employee and retiree health benefits in FY05 and estimates that by taking part in the program could save $250 million a year.


During the Board of Governors' meeting, Strasser said the USPS is seeking approval for a FY07 appropriation request of $152.7 million. This includes $87.4 million for the USPS to meet its statutory obligation to provide free mail for the blind, free mailing of absentee balloting materials by members of the armed forces and other U.S. citizens residing abroad and free mailing of balloting materials between state and local officials. It also includes a reconciliation adjustment for FY04 of $19.2 million and a reconciliation adjustment for FY05 of $24.4 million for money it did not receive in these years for this statutory obligation. It also includes $29 million as part of the Revenue Forgone Reform Act of 1993.


In other business, the board approved $54.9 million in capital funding for the final phase of a comprehensive effort to upgrade the USPS' existing mail-processing data networks.


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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