By now everyone with an interest in postal affairs knows of the U.S. Postal Service’s newfound financial bounty, or less of a liability to be more precise, involving funding of a USPS pension plan.
In looking at the details, we learn that the postal service’s deferred pension liability was thought to be $32 billion. Since there was so much publicity concerning this huge liability, the administration’s Office of Personnel Management analyzed it. The new analysis, confirmed by the Office of Management and Budget, calculated a much much lower liability. The review found that the postal service’s payments into the retirement system had been invested in U.S. Treasury bonds paying an average of 6.5 percent interest rather than the 5 percent that had been assumed. With this higher yield, the liability to the retirement account is $5 billion.
However, the size of the postal service’s payment into the retirement system is established by law. Therefore, a lowering of the formula that determines USPS payments to the retirement fund requires legislative action. This may not be as simple as it seems. Since the postal service is “off budget,” any payments from the USPS to the Treasury are revenue to the government’s budget and thus reduce the size of the federal budget deficit. Correct or not, this reduction in pension payments would, over time, raise the size of the federal deficit by $27 billion.
If the law does change and the postal service’s pension contribution is reduced, the effect on ratepayers would be substantial. The USPS would reduce its FY 2003 and 2004 payments by a combined $5.5 billion. Postmaster general John E. Potter has said these reduced payments would let the postal service delay its next general rate increase until 2006. We could be entering a period of “pax postal.”
What will be most interesting are the reactions of various groups to potentially three-plus years without a rate increase.
How will United Parcel Service react to the prospect of no USPS rate increase for three-plus years? UPS just announced plans to raise overall rates 2.9 percent. Perhaps more importantly, UPS will raise rates for ground deliveries by an average of 3.9 percent. Will UPS actively lobby against the legislation? Will we see a kinder, gentler UPS or one that reverts to its old habits?
It will be interesting to see how Congress responds. Congress has been known to make mischief on postal matters. For example, will a congressman concerned about a postal facility closing in his district try to attach a rider to the postal pension bill that would restrict postal facility closings?
If the legislation passes, will the postal service, under Potter’s leadership, continue its focus on cost reduction? Potter has strongly indicated his intension to pursue his cost-cutting agenda. But will he be able to maintain his pressure on field operations when everyone knows of the $27 billion find?
Another factor will be the lobbying influence of two key labor unions, the National Association of Letter Carriers and the American Postal Workers Union. Each is under new leadership. The two unions seem headed in opposite directions concerning their support of postal programs and policies.
The letter carriers union has embarked on what could be a major new sales campaign with the postal service. Carriers serving business customers in the Albany, NY, area are handing out brochures and information about Priority and Express Mail services. The USPS plans a nationwide rollout of the program next year. According to the postal service, the NALC has been “totally involved” and helped launch the program.
Conversely, the APWU seems to be giving only grudging support to the effort in Congress that would reduce the postal service’s pension contribution and delay the next rate increase. Here’s a quote from the APWU Web site: “A delay in postage rate increases to 2006 would impede our efforts to reduce the subsidies big mailers now enjoy under the management’s discounted postage work-share programs: USPS subsidies to private companies would continue.”
These two situations paint rather different pictures of two unions and their support of USPS interests. One is working with the postal service to expand revenue through increased volume. The other wants higher postal rates sooner so it can pursue its efforts to increase postage rates for the service’s best customers. The USPS has enough problems dealing with competitors and e-commerce. It would help if all its employee groups worked for the common good.