GovernmentExecutive.com

Expect to pay more for postage in 2006 - and possibly 2007.

The Postal Service has begun the process to raise its 2006 rates. Last week, the Postal Board of Governors told agency managers to begin preparing to file a case for a rate increase with the Postal Rate Commission.

Some members of the mailing industry fear that next year's rate increase will be followed by another in 2007.

Postal Service CFO Richard Strasser said he expects the agency will earn $1 billion in net income this year and break even next year. Mail volume was strong in the first quarter, due in part to catalog mailings and direct marketing by financial services companies.

But unlike most postal rate increases, this one won't pay for operating expenses. Rather, the rate hike will cover $3.1 billion the Postal Service is required to put into escrow in 2006. If the Postal Service did not have this obligation, rates would stay at their current levels for at least another year, Strasser said.

Industry experts estimate that rates will need to rise 5.5 to 6 percent to cover the $3.1 billion. Thanks to strong first- and second-quarter financial results, this is lower than some forecasts, which predicted 2006 rate increases of 10 percent or more.

"But the speculation is that a year later, they might have to file another case to ask for further funds to pay for operating expenses," said Kate Muth, vice president of the Association for Postal Commerce.

Strasser said the Postal Service is moving toward more frequent, but smaller, rate increases, at least for commercial postage. In the past, the Postal Service has raised rates every three years. The agency operates on a break-even basis, and the idea behind the three-year system is to earn money the first year, break even the second and lose money the third. "It is a shock to the industry when they get one large rate increase every three years," Strasser said.

The escrow requirement was included in the 2003 Postal Civil Service Retirement System Funding Reform Act. The Postal Service had discovered that it was over-funding its pension obligations. It was allowed to use the first three years' savings for expenses and debt, but starting in 2006, the money is supposed to go into escrow until Congress approves a plan for the funds, which it has not yet done.

The escrow funds appear as an asset on the Treasury Department's balance sheet. In March, 2004, Treasury Secretary John Snow said the Bush administration would support releasing the funds only if it could be done in a deficit-neutral way. Members of the mailing industry call the rate hike to cover the escrow requirement a "stamp tax."

If Congress were able to pass a law releasing the funds, the rate increase could be avoided. But such a measure was part of a major Postal Service overhaul bill that did not pass last year.

"I believe that the House and Senate leaders who've been working on this the last seven years are going to continue working on this, and they should," said Neal Denton, executive director of the Alliance of Nonprofit Mailers. "But we've been working on postal reform over a dozen years. I don't think there's any such thing as speedy enactment of postal reform."

COMMENTS

• The writer complaining about overpaid postal employees doesn't know the half of it. I am not sure now if he is a rejected postal applicant, or a Wal-Mart Greeter, but I am sure he makes what he is worth. That is the same with the postal service. Charlie Posted February 24, 2005 7:32 PM
• I totally agree with the first message. As a Fed since 1987, it has always been a thorn in my side that postal employees are in the same medical plans as the rest of us, yet, they pay a fraction of the premiums that we do. It is my understanding that this sorry situation exists because postal unions bargain on benefits, while the rest of us Feds have to take whatever Congress gives us. It is time for the immoral discrepancy to end. Contracting Officer Posted February 24, 2005 5:09 PM
• Before worrying about where the money is coming from to cover additional costs, maybe they ought to look at where all the money is being spent and if sufficient justification exists. Most taxpayers don't realize how much the postal system pays out to their employees (some with little or no education). A mail sorter for example can make around $54K a year. Also unlike most federal employees, postal employees pay little if any toward their health care programs. We all know health care premiums have increased by double digits in the last 7-10 years so I'm sure the postal system is suffering since they haven't tried to pass the increase on to their employees. Their only option is to pass it onto the taxpayers. Like most federal agencies they also have to absorb the cost of living increases alloted to their overpaid employees. So now they want to pass this increase on to the taxpayers as well. Why don't we set postal rates high enough to pay for all federal agencies inflation issues? Can you imagine a VA hospital telling the veterans (the consumer) we had to increase your cost due to our deficit? I think the postal system needs to start reassessing their program and stop overspending. Two things to start with is pay and benefits. Also I'd wager a bet that they (like most federal agencies) are too top heavy in management so this is another area to cut back. Since Bush likes contracting out, how about contracting out some of the work? Given the choice I'd bet that the employees would rather pay their fair share of their health program than lose their jobs. I don't think the postal employees will ever need to worry about their jobs being contracted out since the postal system is another method of collecting taxes and the government wouldn't ever want this cash cow put to bed. Say, makes you wonder, does a postal money problem really exist or is this just another sneaky way for Bush to collect taxes? GovExec.com reader Posted February 24, 2005 7:42 AM