Reality Is Rearing Its Ugly Head

In the past few weeks some uncertainties in the postal arena appear to have been resolved. Unfortunately, what they portend for the U.S. Postal Service merely serves to point up the real difficulties the agency faces.

Let's begin with the current rate case. Barring unforeseen circumstances, it does seem that the postal service and the vast majority of rate case intervenors have agreed to settle the case, roughly along the terms as filed by the USPS.

The intervenors did not choose to settle for any altruistic reason. It was the fear that the alternative would be more expensive. The postal service threatened that if the rate case were to continue, it would modify its filing with the Postal Rate Commission and raise its revenue requirement by perhaps as much as 50 percent. Faced with potential rate increases of 15 percent instead of 10 percent, the settlement decision was relatively easy. Indeed, one can make a case that a settlement was not in the postal service's best interest.

The recession, Sept. 11 and the anthrax events have all hurt postal mail volume. The USPS has released its volume statistics for the first quarter of fiscal year 2002, and it is not a pretty picture. First-Class Mail volume dropped 2.3 percent, and Standard Mail volume declined 9 percent. Perhaps of even greater significance, Priority Mail, one of the USPS' most profitable products, astoundingly dropped almost 17 percent.

These dramatic changes in volume have resulted in a first-quarter net income of $108 million, $521 million less than its planned income of $629 million. At the same time that the USPS was involved in rate case proceedings it also was involved in labor arbitration hearings with the American Postal Workers Union. Recall that if the postal service and its unions cannot reach a negotiated labor contract, existing law requires that the two sides submit to binding arbitration.

The arbitrator, after a fact-finding process, decides the settlement terms. Some think the USPS did well by the arbitrator since the settlement cost was about what it planned for. However, what was most troubling about that decision was it followed the pattern in the recent Letter Carrier arbitrator's settlement. That is, the arbitrator in the APWU case increased the wage grade of 50,000 APWU members. This increase, merited or not, in future years will have a meaningful effect on the agency's cost structure.

While the rate case proceeding and arbitration hearings were under way, the General Accounting Office was involved in a U.S. Senate-sponsored study on the postal service's retirement obligations. The study was undertaken to identify “longer-term structural or operational issues that may affect the service's ability to provide affordable universal postal service on a break-even basis.”

The GAO did indeed identify a serious long-term problem, the postal service's growing pension and health insurance costs for current and future retirees. According to the USPS, its annual retirement plan costs are projected to rise from $8.5 billion in FY 2000 to $14 billion in 2010. At the same time, the cost of its post-retirement health benefit program is expected to rise from $744 million in FY 2000 to $2 billion in FY 2010. So, in total, the annual cost for retiree pension and benefits is expected to grow from $9.3 billion to $16 billion.

The retiree problem is conceptually similar to what the federal government is facing with Social Security. In the Social Security program a decreasing number of employed workers will be supporting the retirement benefits for an increasing number of Social Security recipients. For the USPS, a decreasing volume of mail will have to carry the retirement burden of a growing number of retirees.

In addition, both the Social Security system and the postal retirement system provide for annual increases based on inflation. These annual inflation-based increases seem to be staples of federal pension programs but certainly not all private pension programs.

What is the solution to this looming, Titanic-sized iceberg? I wish I had one. The proposed postal reform legislation does not have one, either. The legislation being discussed skirts all issues related to craft union employees, including compensation, retirement benefits, work rules and the collective bargaining process. It seems clear that employee issues have proved too hot for Congress to handle.

Therefore, reform must be dealt with by another venue. The only other game in town is presidential. Obviously, the president has plenty on his plate. However, it seems clear that if meaningful postal reform is to happen, a presidential postal reform commission must be established. Otherwise, labor issues, accounting for almost 80 percent of postal costs, will never be discussed.

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