USPS, Treasury Debate Military Pension Responsibility

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The heads of the Treasury Department and U.S. Postal Service differed on which agency should be responsible for two aspects of last year's Civil Service Retirement System legislation in testimony before what is expected to be the last Congressional hearing on postal reform yesterday.


The legislation reduced the amount of money the USPS pays into the Civil Service Retirement System, but it also required the postal service to place savings in an escrow account starting in 2006 and to take over funding of CSRS benefits earned by postal employees during military service, a $27 billion obligation.


The USPS has argued that it should not pay for the military benefits, and it also wants to abolish the escrow account.


"The postal service believes it should not be responsible for funding [CSRS] retirement benefits earned by postal employees while they served in the military," USPS postmaster general John E. Potter told the panel. "We disagree in the shift in the obligation from the taxpayer to the ratepayer."


The Administration, however, "opposes any effort to shift the roughly $27 billion of military costs back to the taxpayer," said Treasury Secretary John W. Snow.


Other witnesses at the joint House and Senate hearing included Brian C. Roseboro, acting undersecretary for domestic finance, U.S. Treasury; and USPS Board of Governors chairman S. David Fineman.


On the issue of the escrow account, Potter said that postal ratepayers would fund the cost through higher postage rates because it will be necessary to raise rates in 2006 beyond what would be required simply to offset inflation.


"The moneys needed for the escrow fund equate to a 5.4 percent rate increase. This could mean that the average rate increase sought for 2006 could be in the double digits," he said. "I don't believe a rate increase is good for the recovering economy or for the mailing industry or for the long term future of universal service as we know it today."


Fineman recommended that the escrow provisions of the CSRS act be eliminated.


"I have a fiduciary obligation to the American public, to the postal service, to the ratepayers," he said. "We are going to have to act on rates, probably sometime in November. If we don't know whether or not this $3 billion [the total of the escrow account] is coming back into our coffers, we are going to have to do something. That's the way the system works. The system shouldn't work this way."


Snow said the Administration never advocated including the escrow provision in the final CSRS bill, and is "prepared to work [with Congress] toward a proposed modification of the postal CSRS Funding Reform Act abolishing the escrow that will not have an adverse effect on the deficit as long as it's part of a good overall postal reform bill."


Snow said the business model of the postal service just doesn't work anymore.


"Its just not sustainable in light if all of the technological changes ... that have come along," he said.


Fineman took issue with a recommendation last year by the President's Commission on the U.S. Postal Service regarding the selection of future governors.


Under the Commission's recommendations, the president would appoint three Board members, who would then select the first eight independent Board members with the agreement of the Secretary of the Treasury. After that, independent members would be selected by the board, again with the agreement of Secretary of the Treasury.


"The manner which [board members] are chosen, could cause a partisan board to come into existence," he said.


House Government Reform Committee chairman Tom Davis, R-VA, plans to introduce postal reform legislation in the near future, along with the committee's ranking member, Henry Waxman, D-CA; and Reps. John McHugh, R-NY, and Danny Davis, D-IL.


Susan Collins, R-ME, chairwoman of the Senate Government Affairs Committee, and Sen. Tom Carper, D-DE, also plan to introduce postal reform legislation as early as next month.


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