Postmaster general John E. Potter lobbied U.S. senators yesterday to pass legislation to address problems with the U.S. Postal Service's Civil Service Retirement System obligations and prevent drastic rate increases.
Potter spoke before the Senate Governmental Affairs Committee, which is holding hearings to discuss reforms recommended by the presidential postal commission last summer. The CSRS legislation that Congress passed in April produced savings for the postal service but created new issues that could affect rates, he said.
The legislation prevented the USPS from overpaying its CSRS obligation by $105 billion and helped the postal service reduce its debt from $11.1 billion to $7.3 billion, Potter told the committee. However, the legislation forces the USPS to place its CSRS savings in an escrow account starting in 2006 and to take over funding CSRS benefits earned by its employees during military service, a $27 billion obligation.
The postal service agrees with the presidential commission that it should not be responsible for military CSRS benefits, Potter said. The USPS also wants to abolish the escrow account.
From 2003 to 2005, the CSRS reform bill produced savings for the USPS because the cost of its overpayment already was factored into postal rates, Potter said. By 2006, inflationary pressures will eat up those savings. So, the money Congress requires the USPS to place into escrow will have to come from postal rates, which would increase even without the escrow obligation.
“With the escrow requirement, postage rates will have to rise even more than is necessary to reflect inflation,” Potter said. “Some have suggested that the increase would be in the double digits.”
After Potter finished his prepared testimony, he faced few questions from the committee, whose members read prepared statements of their own before hurrying off to back-to-back Senate votes.
“Jack asked senators to take seriously the problems associated with CSRS that will raise rates,” said Neal Denton, executive director of the Alliance of Nonprofit Mailers.
In a statement after the hearing, Sen. Susan Collins, R-ME, who chairs the committee, pledged to support legislation to assist the USPS in its reform efforts.
“If the postal service were no longer to provide universal service and deliver mail to every customer, the affordable communication link upon which many Americans rely would be severed,” she said. “Most commercial enterprises would find it uneconomical, if not impossible, to deliver mail and packages to rural Americans at rates that the postal service has been offering.”
Potter's comments reflected warnings from postal executives in recent weeks that further congressional action on CSRS funding is needed soon. The USPS likely will begin preparing its rate case next year for filing in 2005 and is keen to get a fix on its CSRS funding obligations.
One postal executive estimated that funding for the escrow account alone would require a 5 percent across-the-board rate increase. The USPS has held to Potter's promise that rates will not rise until calendar year 2006.
The USPS supports most of the presidential commission's recommendations, Potter said. Though the postal service agrees it should focus on its core services of the delivery of mail, magazines, newspapers and parcels, it shouldn't be limited to those activities, as the commission has suggested.
Potter took issue with the recommendation that a Postal Network Optimization Commission be created to decide on facility closures, arguing that postal service input is needed to provide a top-down strategy for operating the postal network.
He also took aim at the proposed postal board of directors to assume governance of the USPS, saying such a system would undermine the bipartisan oversight system that has been in place for three decades under the Board of Governors.
A proposed Postal Regulatory Board to replace the Postal Rate Commission would have discretion to revisit issues fundamental to the USPS, such as the postal monopoly and universal service, and would take determination of funding needs for the postal system away from the USPS, he said.
“In return for some basic elements of rate-setting flexibility, the postal service is asked to cede a staggering amount of control in areas that — for both government and the private sector — are traditionally at the core of the decisions and responsibilities of management,” Potter said.