Forecast Is Cloudy for USPS in 2004

It’s the start of a new year. With that should naturally come renewed optimism. But though the U.S. Postal Service and its customers have things to be optimistic about, potential major roadblocks exist.

Let’s start with the causes for optimism. Postmaster general John E. Potter remains relentless in driving costs out of the postal system. The labor complement continues to be reduced, with the permanent employment level now at 720,000. This is a drop of 50,000 employees in two years. And while employment declines, we hear few complaints about delivery service.

To bolster his drive to cut costs, Potter is instituting a private-sector type of pay system that would use goals, performance indicators and results to determine annual raises for 70,000 management-level employees. My guess is that it will take at least several years to get the system to work as intended. But I applaud Potter for starting down this road.

However, the dark clouds may more than offset these positive actions.

The first of these involves pending postal reform legislation. To me, this legislation presents a mixed, contradictory picture. First, if the legislation were enacted into law, in my view it would be unlikely to improve the postal service’s ability to compete. The good news is that with this being a presidential election year, Congress will have short legislative sessions. Therefore, it’s unlikely that major postal legislation will be enacted, particularly when the populace is generally unaware of a problem.

However, buried in the reform legislation is a solution to the postal service’s overpayments into its Civil Service Retirement System. As you recall, previous congressional action let the USPS reduce its pension payments but mandated that it continue to make payments into an escrow account that was unavailable for postal use. If Congress does not remove this restriction in the current legislative year, we’ll see postage rates increase in FY 2006 at least 10 percent to 15 percent.

Congress is aware of the need for legislative action to reduce this potentially economy-stifling rate increase. Capitol Hill staffers have told us not to worry. If reform legislation falters, they say, “we’ll fix the CSRS problem.” I hope so, but it’s an issue of concern, particularly because key members of the Senate and House of Representatives seem to have other postal issues on their plate.

For example, the leaders of the key Senate and House committees involved in postal issues sometimes seem more interested in whether any post offices in rural sections of their states might be closed. The Senate committee apparently has been too busy to act, for about a year, on Bush administration nominations to the Board of Governors. In addition, Sen. Ted Stevens, R-AK, chairman of the Appropriations Committee and a key player on postal issues, has gotten entangled in ethical issues that may reduce his effectiveness on postal matters.

Another cloud on the horizon is the continuing reduction in First-Class mail. In fiscal year 2003 it declined 3.2 percent. The USPS forecasts a further reduction of 1.3 percent in FY 2004. It’s surprising that only a modest decline of 1.3 percent is forecast. The economy may be improving, but most would expect an acceleration in the decline in First Class.

Frankly, Potter is correct to press the field to continue reducing manpower. Kudos go to chief operating officer Pat Donahoe and the regional vice presidents for doing the job.

I believe the postal service’s future will be determined by its ability to control its costs. To date, new marketing initiatives have been few, but it would be a Herculean task to replace even a portion of lost First-Class revenue. The USPS will be an important part of the economy for the foreseeable future, but technology has ended its heyday.

The linchpin of the proposed postal reform legislation seems to be giving the USPS the ability to annually raise rates as long as the increase is not greater than inflation. But until reform addresses the real issues that will affect the postal service of the future, we need to hope that Potter sticks to his game plan.

You may recall that my column last month, “It’s Time to Reform the Forum,” spoke of the need to change the makeup of the National Postal Forum board. After my column was written but before it was published some changes to the board were made. It still is heavily weighted to former postal executives, but it’s a start. Let’s see what changes the new membership brings to September’s forum.

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