Postal Service's budget request comes under scrutiny

The Postal Service must overcome its credibility problems if it is to succeed in securing a substantial boost in its appropriation for fiscal 2003, a Postal appropriator Rep. Ernest Istook Jr., R-Okla., told agency officials Wednesday.

The agency is asking for nearly $1 billion to help recover from the recession and provide funding for capital projects.

A majority of the request-$928 million-is for "revenue forgone." This is money owed to the Postal Service by Congress for providing congressionally mandated services-primarily free delivery for various mailers. Under the 1993 Revenue Forgone Reform Act, Congress is required to reimburse the agency $29 million annually through 2035. Faced with a third consecutive year of losses and a continued decline in mail volume and having been hit hard with new security requirements, the agency wants payment in full this year.

To date, revenue is $1.5 billion below the agency's plan for the fiscal year. Mail volume is down by 4.5 billion pieces from last year.

"I doubt the subcommittee is in the position to consider a request of that magnitude," said Rep. Ernest Istook Jr., R-Okla., chairman of the House Appropriations Subcommittee on Treasury, Postal Service and General Government.

Beyond the sheer dollar size of the request, Istook expressed concern over what he called the agency's outstanding "credibility questions," especially regarding the agency's pay-for-performance program. In the last fiscal year, despite losing nearly $2 billion, the Postal Service paid out $124.5 million to executives, managers, supervisors and postmasters.

Postmaster General John Potter defended the system, saying that the agency rewards managers for meeting productivity and performance goals. The Postal Service instituted the bonus program in 1996 and replaced normal civil service rules that provided managers with annual cost-of-living increases and overtime pay. Potter noted that under the old civil service rules, the Postal Service would have paid out an additional $500 million in bonuses.

Nonetheless, members of the committee questioned the wisdom of rewarding managers while the agency continues to lose money. In criticizing the program, Istook referred to a report from the Postal Service Inspector General showing that managers benefited from a system that inflated revenues, thus boosting their year-end incentives.

The agency has not promised to give managers pay-for-performance rewards this year. In fact, Potter said the entire system is under review.

Without the $928 million, the Postal Service would likely continue its year-old freeze on capital projects-including building new post offices and modernizing aging facilities. At the same time, the agency must deliver to 1.7 million new addresses every year.

Apart from its annual appropriations, the agency is seeking money from an emergency supplemental funding package for homeland security. Potter said the agency needs $1.7 billion over the next two years. The money would be used to buy and deploy mail-screening devices in processing plants across the country. If the agency does not get the money, it could be forced to either delay deploying the machines or take money from its general operations. Doing the latter would force the Postal Service to cut services in other areas.

Barely 1 percent of the Postal Service's operating revenue comes from appropriated funds. The bulk comes from the sale of mail products and services.