Postal Mortem

Rep. John McHugh, R-N.Y., has been calling for an overhaul of the U.S. Postal Service for nine years. "There are individuals who actually murder people who are sentenced to less time," McHugh said during a March hearing.

Early this year, it appeared McHugh's work as chairman of a House special panel on postal reform and oversight finally might pay off. Sens. Susan Collins, R-Maine, and Tom Carper, D-Del., and Rep. Tom Davis, R-Va., and McHugh were preparing postal reform bills. There was bipartisan support. Proponents-including direct-mail marketers, newspaper and magazine publishers, catalog and greeting-card companies and the Postal Service itself-said odds for passage were good.

But now it appears the odds are changing. Congress has an overflowing agenda during a condensed election-year session. House and Senate leaders haven't shown enthusiasm for reform, and outside the oversight committees, postal problems are not well understood.

Another challenge is the vast scope of proposed reform. The list of issues on the table includes the agency's mission, governance, price-setting, management, workforce, delivery monopoly, technology and security. By April, it seemed unlikely that the best intentions would overcome the hurdles to postal reform.

"We don't even need to talk about the details," said Cory Alexander, chief of staff for Minority Whip Steny Hoyer, D-Md., at a recent meeting of the Direct Marketing Association. "It's not a must-do, major national political issue."

Perhaps not, but troubles continue to mount for the USPS. The General Accounting Office added it to the list of agencies at risk in 2001. The following year, President Bush appointed a commission to study it. The last time that happened was in 1968; three years later, Congress created the Postal Service.

Today, USPS is struggling to break even. Electronic communications are eating into its revenues as more people forgo snail mail. In 2003, the number of first-class mail pieces fell by more than 3 billion, from 102.4 billion to 99.1 billion. At the same time, the cost of serving every address in the country-which the Postal Service must do-is on the rise. Last year alone, the delivery workload grew by 1.7 million new addresses. The nonprofit Institute for the Future found that the Postal Service will lose $4.5 billion in 2012 and $8.5 billion in 2017 if it continues on its current course.

Reform efforts have centered on streamlining the 18-month rate-setting process to enable the Postal Service to more quickly adjust its prices. "We cannot be asked to conduct ourselves in a businesslike manner when the tools to do so are not available to those running the business," said David Fineman, chairman of the Postal Service Board of Governors, at a hearing of the Senate committee in early April.

Two more financial challenges arose this year from legislation enacted in 2003. The first is an escrow account established when the Postal Service discovered it was overfunding its Civil Service Retirement System obligations and could reduce payments by almost $3 billion annually. USPS was allowed to use the first three years' savings to pay expenses and reduce debt. Starting in 2006, the money must go into escrow until Congress approves plans for the funds. But holding the funds in escrow will cause a 5.4 percent increase in postal rates in 2006, according to Postmaster General John Potter.

The Postal Service has submitted its plan, which GAO is reviewing and which some leaders in Congress support. "The Postal Service has fulfilled its requirements . . . I think it is now time to release the escrow," House Government Reform Committee Chairman Rep. Tom Davis, D-Va., said at a joint hearing of the House and Senate committees in March. Mailing industry representatives say the escrow is their top priority.

But the Bush administration has reservations about abolishing the escrow. The funds appear as an asset on the Treasury balance sheet while they're in escrow. Handing them back to the Postal Service would make the national deficit appear $3 billion larger-an unappealing election-year prospect. Treasury Secretary John Snow told legislators at the March hearing that the Bush administration would support releasing the escrow only if it can be done in a budget-neutral manner.

The Postal Service faces a second funding problem: Who should pay for the portion of CSRS pensions associated with postal retirees' prior military service? No other federal agency is required to cover these costs, and 90 percent of the service time at issue occurred before the Postal Service was created in 1971. But the Bush administration pushed to have this $27 billion burden (including $10 billion in interest for past payments) shifted from the Treasury to the Postal Service last year as part of the legislation correcting the CSRS overpayment. The Postal Service and large mailers believe that taxpayers, not postal ratepayers, should cover the cost.

The presidential commission recommended relieving the Postal Service of the pension payments, but Snow called the pension responsibility "a fair and equitable allocation," and said the Bush administration would oppose any bill that would move the costs back to the Treasury. "The administration has a pretty lonely voice on those two issues," said Collins.

As debate continues, large mailers are becoming resigned to another year without reform, and they're bracing for a rate hike.

Red Ink Ahead

As the number of addresses the Postal Service must serve increases and mail volume declines, expenses are on track to outpace revenue. Figures are in millions of dollars.

* projected

Source: The President's Commission on the U.S. Postal Service