Postmaster general warns of sharp stamp price increase
WASHINGTON (AP) — Postmaster General John Potter warned that a postal rate increase planned for 2006 could be 4 cents or more for first class letters unless restrictions on how the agency operates are eased.
Potter asked a joint House-Senate hearing on the future of the post office Tuesday to free $3 billion in postal funds from an escrow account and to remove a $27 billion obligation for the agency to cover military retirement benefits for its workers who previously served in the armed forces.
The agency is facing a future clouded by shrinking mail volume and rising costs. The Postal Service is asking Congress for help becoming more flexible in responding to market conditions and for funds to cover anti-terrorism efforts.
Rep. Tom Davis, R-Va., and Sen. Susan Collins, R-Maine, have held a series of separate hearings over recent months and said Tuesday’s was the final public session before they begin writing bills to retool the 1970 law under which the post office operates.
Last year Congress passed a law lifting a requirement for the post office to overfund retirement benefits, a step that resulted in Potter’s pledge not to raise rates until 2006.
But that bill also shifted the obligation to pay the military requirement benefits from the Treasury to the Post Office and required that $3 billion be placed in escrow each year until the agency reported to Congress on how it should be spent.
Davis, chairman of the House government reform committee, said that when that report has been issued the money should be released.
However, Treasury Secretary John Snow opposed release of the money without some balancing savings, saying that placing it in escrow counted as a positive when toting up the national deficit and releasing it would count against the deficit.
It’s the post office’s money from people who pay the rates and should be released for their use, Davis responded. Potter estimated the escrow requirement alone would require a 5.4 percent postal rate increase, or about 2 cents on a first class stamp. Currently first class postage is 37 cents.
“This could mean the average rate increase sought for 2006 could be in the double digits,” Potter said in prepared testimony. Aides said he was referring to an increase of 10 percent or more, which would round to 4 cents or more for first class letters.
Other factors in increasing the rate are rising labor and fuel costs, inflation and the decline in mail volume.
David Fineman, chairman of the postal service’s governing board, said the agency is likely to have to begin action on a rate increase in November and if no action is taken on the escrow by then it will have to include that in calculating how much to raise prices.
Snow also contended that the military retirement obligation should remain with the post office, suggesting the agency find new efficiencies to save the money.
“You want us to act like a business and be independent. Other businesses don’t fund military pensions,” said Fineman.
Potter told the panel that he has sharply increased postal efficiency, including reducing the work force by some 85,000 over the last several years, but that saving that amount of money would take decades.
And raising postage rates causes a decline in mail, Potter added, potentially leading to a death spiral of rising rates and falling business.
Mail volume has fallen for three straight years, Potter said. He said the agency anticipates volume to remain flat or grow slightly next year as the economy rebounds, but over the long term expects a decline in first class mail as more people turn to electronic communications and banking.
In addition to the changes in finances, the post office wants more freedom in how it sets rates, a process that currently takes from 10 months to a year.
Potter said large commercial customers prefer regular, small rate increases while the public would rather have larger increases less often, but current law doesn’t allow the post office to seek ways to accommodate both ideas.
“The ratemaking process is broken,” added Fineman. “It’s a lawyer’s welfare act,” he said of the system that allows postal competitors and other interested groups to challenge rate plans and testify at hearings before the independent Postal Rate Commission, which rules on rate increase requests.