Postal Service, mailing industry hope for overhaul by spring

There was a point in the spring of 2004 when it looked like years of work by lawmakers and lobbyists might actually pay off in legislation to modernize the Postal Service by simplifying the rate-setting process, allowing the closure of unneeded post offices and granting management flexibilities that would help the organization compete with private-sector delivery companies.

"There was a sense of optimism that we were really rolling here," said Robert Taub, a spokesperson for Rep. John McHugh, R-N.Y., who began working on a postal overhaul nearly 10 years ago. But time ran out. Bills passed House and Senate committees unanimously in the 108th Congress, but never made it to the floor.

Now advocates for reform hope the 109th Congress can pass a bill by early spring, in time to lessen the amount by which postage rates will increase in 2006. Without changes, the rate hike could be as high as 15 percent.

The Postal Service has not yet determined exactly when it will begin the process of raising rates, which takes at least 10 months. The timing could depend on how many cards and packages Americans send during the upcoming holiday season, which is by far the most profitable time of year for the Postal Service.

By all accounts, though, a reform law would have to be passed by next summer to reduce the need for a large rate hike. Passage that quickly would require immediate action when Congress convenes early in 2005.

Progress made last year could provide some momentum. "If the stars aligned right, I'm assuming it could be done fairly quickly," said Ralph Moden, the Postal Service's senior vice president for government relations.

Postal reform ran into trouble this year because of the abbreviated election-year schedule, which was made worse by time lost for the funeral of former president Ronald Reagan. No matter how often lobbyists mentioned the "death spiral" facing the Postal Service--in which declining mail volume due to electronic communications forces the agency to raise rates, which causes a further drop in volume--postal reform could not compete with appropriations and intelligence reform for the time and attention of lawmakers.

Two other issues, involving measures in the House and Senate bills addressing accounting issues arising from legislation in 2003, also need to be resolved. If disputes with the Bush administration over these issues aren't settled, major increases in postage rates are likely.

The first involves an escrow account created when the Postal Service discovered several years ago that it was overfunding its pension obligations and could reduce payments by almost $3 billion annually. The Postal Service was allowed to use the first three years' savings to pay expenses and reduce debt. After that, the money was to go into escrow until Congress approved a plan for the funds.

But the escrow funds appear as an asset on the Treasury Department's balance sheet, and Treasury Secretary John Snow said in March that the Bush administration would support releasing the funds only if it could do so in a deficit-neutral way. His remarks left legislators scratching their heads as to how that could be done.

Postal officials say the status of the escrow account is pivotal in future rate-setting decisions. "If we have escrow relief, it's a single-digit rate increase," Moden said. If not, rates will rise 10 percent or more.

The second stumbling block involves the question of who should pay for the portion of Postal Service pensions associated with employees' prior military service. No other federal agency covers these costs, but the Bush administration pushed to have this $27 billion burden shifted to the Postal Service in 2003. Congress, the Postal Service, the mailing industry and postal employee unions--just about everyone except White House officials--say this cost should move back to Treasury.

Lawmakers and industry groups hope to break the stalemate by meeting with Bush administration officials during the next month. "We're hopeful we can sit down in this breathing room we have and work these things through," Taub said.

Lobbyists disagree, however, on whether a bill without measures to address the escrow and military service issues would be worthwhile. Most say it wouldn't. "The challenges facing the Postal Service right now are immediate," said Neil Denton, executive director of the Alliance of Nonprofit Mailers. "They can't afford to compete with a lead weight tied around their ankles."

Others say they'd be satisfied with an incremental approach, if necessary. Robert McLean, executive director of the Mailers Council, a mailing industry association, said, "As important, if not more important [as the escrow and military service issues], is the need for a streamlined rate-setting process and new opportunities for the Postal Service to act in a more businesslike fashion."