Senator Coburn Blasts Rate Cap in Postal Hearing

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Sen. Coburn will retire at end of year.
Sen. Coburn will retire at end of year.

Making a strident case for a U.S. Postal Service (USPS) that is able to react to market forces, Sen. Tom Coburn (R-OK) insisted today that the agency has to have the authority to set its own rates. “We're going to have a postal system and we have to make the numbers work. Like I've told everybody in the [business mail] industry, there's going to have to be more than the inflation rate [increases],” said the ranking member of the Senate on Homeland Security and Government Affairs.

Coburn's comment came during a contentious exchange with Direct Marketing Association's SVP of Governmental Affairs Jerry Cerasale at a hearing on the proposed Postal Reform Act coauthored by Coburn and committee Chairman Bob Carper (D-DE). 

Coburn challenged Cerasale's depiction of the size and influence of the business mail industry and charged him with contradicting earlier statements he had made about the value of the Postal Regulatory Commission (PRC). In his testimony, Cerasale stated that business mailers accounted for nearly 90% of the USPS's $6 billion in revenues. Coburn responded by saying that standard flats, by example, added only $500 million to Postal Service revenue and that he highly doubted Cerasale's contention that business related to direct mail contributed 9% to the nation's GDP.

In response to earlier testimony by USPS Inspector General David Williams that moderate price increases return sufficient working capital to the Postal Service while having little effect on mail volume, Cerasale reminded the committee what happened to the catalog industry when it was hit with double-digit increases in 2007.

“Catalog volumes plummeted 23% in the next year, a year in which other Standard Mail volume grew,” Cerasale said.  “If catalogs were inelastic to pricing, postal revenues from catalogs should have increased. It did not. It dropped 11%.”

During the question-and-answer phase of the hearing, Coburn expressed confidence that postal officials, if given the power, would not be so self-defeating as to raise rates that might severely reduce volume. “If your business is that integral, would not cogent members of the board be sensitive to not losing that volume?” Coburn asked Cerasale.

“People in our business,” he replied, “would look to try to lower prices to get more volume. That's not what the board of governors is looking to do.”

Inspector General Williams contended that, when the Postal Accountability and Enhancement Act put through a rate cap pegged to the Consumer Price Index in 2006, mail volume was expanding and the Postal Service's monopoly was a significant asset. Now, he argued, exigent increases are necessary for the Post Office to meet its universal service requirement. “The monopoly has lost much of its value, since there is powerful competition for each type of mail today,” he said.

Postmaster General Patrick Donahoe said that even with a 5% volume decrease in First Class mail, the Postal Service's revenues look to be relatively stable due to an uptick in the package delivery business. His main concern continues to be removing the burden of the pre-payment of employee healthcare benefits. “We've reduced costs by $15 billion, and still we face substantial problems going forward,” Donahoe remarked.

Reducing the $5.6 billion annual pre-payment for retiree healthcare benefits appears to be on the agenda of all postal industry stakeholders. The heads of the American Postal Workers Union (APWU) and the National Rural Letter Carriers Association, both urged the removal of that burden from USPS as a way to keep postal service going at current or better levels. “Any discussion of the financial condition of the Postal Service has to begin with the fundamental cause of the USPS financial crisis--the pre-funding requirement for retiree health benefits,” said APWU President Cliff Guffey.

As for direct mailers, Cerasale made it clear that the priority was controlling rates. “Please do not eliminate the cap,” Cerasale implored the Senators. “Elimination of the cap would reintroduce uncertainty and unpredictability and drive mail out of the system at a faster pace.”

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