Last month, President Bush signed into law postal reform legislation that provides for the first major overhaul of the U.S. Postal Service since the Postal Reorganization Act of 1970, which transformed the old cabinet-level Post Office Department into the current USPS.
Dubbed the Postal Accountability and Enhancement Act, the new law will ensure predictable price increases in postal rates by tying them to the rate of inflation, and will enable the Postal Service to continue its transformation and cost-cutting measures.
The new law is the culmination of a 12-year effort by Congress to change the laws governing the Postal Service and reflects an agreement among members of Congress, the Bush administration and the mailing community. Among its major tenets, the law reconstitutes the Postal Rate Commission into a regulatory body with greater authority and responsibility.
Another major change is that the Postal Service will no longer be required to fund an escrow account for employees who have served in the military. Under the new law, the liability to fund military retirement will be returned to the U.S. Department of the Treasury. (Treasury pays military portions of retiree benefits for most government entities.)
Many mailing industry stakeholders are pleased with the new law.
“We are pleased with the legislation and the consistency and efficiencies it will bring to the U.S. Postal Service,” said Rosa M. Alfonso, director-public affairs at American Express Corp., a marketer for which mail is a vital channel.
“The new law provides the Postal Service with an opportunity for financial survival in the 21st century,” said John Greco, president-CEO of the
Direct Marketing Association. DMA is among several mailing industry entities that have lobbied for reform for more than a decade. The trade group said the law’s passage will ensure that the Postal Service can continue to deliver cost-effective services to businesses and nonprofit organizations.
American Business Media also lobbied on behalf of its members, heavy users of the mail system. “It’s a good thing that it passed,” said David Straus, managing partner at Thompson Coburn and ABM’s general counsel.
Gordon A. Hughes II, president-CEO of ABM and longtime advocate of postal reform credited the Postmaster General for making reform possible.
“[John E.] Potter has been a magnificent Postmaster General,” Hughes said. “He’s worked well with the unions, made cost cuts and everything he could possibly do to make sure the post office [was reformed].”
Dan Bagan, senior VP of the Retail Division of Prism Business Media, said the new law is good for publishers.
“It is a good thing,” he said. “The ABM has been pushing for it for a long time.”
“We’re pleased about the passage of the legislation,” said Michael Monahan, exec VP at Pitney Bowes and president of Pitney’s Global Mailing Solutions and Services. “It will be a positive thing for the mailing industry as a whole.”
One of the most important components of the law is that the military retirement account is no longer under the USPS’ purview, a change that will save rate payers $27 billion over time. In addition, the law also frees up a second account, the Postal Service’s $51 billion retirement escrow account, which can now be used for retiree health benefits.
“The big victory was the pension thing,” Hughes said. “It takes that off the back of the post office, which is great.”
Alfonso agreed. “It will also restore over $78 billion to the Postal Service that otherwise would have been paid by consumers and businesses of all sizes,” she said.
Having predictable increases in postal rates by tying them to the rate of inflation is another key component.
Monahan said the bill will supply a framework for how rates are set, providing rate predictability and stability. “[While it is] difficult for mailers to plan for a budget increase, [with] predictability for modest but potentially annual increases, companies can optimize their planning.”
“It will make our postal costs more predictable,” Alfonso said.
Hughes called it a good tool for members from a planning standpoint. However, playing devil’s advocate, he added, “Can they really do that, keep it at the CPI? What happens if there’s another anthrax [scare] or another [Hurricane] Katrina? If it works, I’m delighted, but I think it’s a false economy.”
The law does have a tight exigency clause defining the conditions for emergency rate increases.
DMA’s Greco agreed that time will tell if the reforms will benefit mailers. Like many others in the industry, he said he remains cautious. “As we move forward, we will know whether or not this opportunity is working—if service remains consistent, rates remain at or below inflation and USPS operates in the black.”
Straus pointed out that rate increases are not equal across the board. “Mailers should be careful not to get their expectations too high that postal increases will be more moderate than they have been in the past,” he said. “The rate cap applies only to a class average. Individual mailers like small-circulation periodicals could see rate increases that are multiples of the CPI.”
Straus also said that while regular rate increases make sense, he’s not convinced that will save money in the end. “Rates will be more frequent, smaller, and the hope is that, over time, they will be lower than they otherwise [would] have been. My skepticism is whether over time it will really save any money to set rates that way.”
The law does not affect the pending rate case. In March, the board of governors of the Postal Service will decide on rate hikes being considered. That could be implemented as early as May. The Postal Service will also have the authority to initiate another round of rate hikes by filing another rate case within 18 months of the current one being considered.
“There’s an opportunity for an additional rate case that will be brought in 2007 that would be put into place in 2008,” Monahan said.