Download Locations

Summary

Reform of the business model of the U.S. Postal Service (USPS) has been given new momentum by the July, 2003 report of a blue-ribbon presidential commission. The commission concluded that USPS faces a long-term decline in mail volume and revenues, and unless its finances are shored up, a taxpayer bailout or loss of universal service is threatened. Congress has held a dozen hearings on the commission's report. Broad reform proposals, however, have been somewhat overshadowed by controversy over two pension funding issues left unsettled by passage of P.L. 108-18, the Postal Civil Service Retirement System Funding Reform Act of 2003. The first issue is what to do with the "savings" to USPS from the reduction in its payments to the Civil Service Retirement Fund allowed by the law. Savings for the first three years were to be used to pay off the USPS debt to the Treasury, but for FY2006 and later years, the law provided that they be held in escrow pending further congressional action. Continuation of the escrow requirement greatly concerns mailers' organizations, because anticipated new rates will extract money from them that cannot be used to deliver the mail or support the system. The Administration opposes removal of the escrow because it would add $3 billion this year to the budget deficit. USPS would like to use it to set up a separate fund for retiree health benefits. The second issue concerns the provision in the 2003 act transferring from the Treasury to the Postal Service responsibility for paying the retirement benefits earned by postal employees when they were members of the armed forces, a $27 billion obligation. USPS argues that the Treasury pays for military service credits held by employees of every other agency, and there is no connection between the USPS mission and that of the military. The Postmaster General points out that 90% of the obligation was incurred before USPS was established as an independent entity in 1971. The Administration, however, believes that USPS should pay the full cost of its employees' pensions, including those earned in military service, because the credits have pension value only by virtue of USPS having hired veterans in the first place. The Administration points out that the Federal Employees Retirement System (FERS), to which all postal employees newly hired since 1984 belong, fully funds military retirement obligations through agency contributions. Because the Postal Service has said it must raise rates in 2006, there is some urgency to resolving these two issues before rate case preparations begin this summer. If there is no resolution, the new rates for 2006 will reflect $3 billion for an escrow fund that cannot be used, and $1.5 billion for repaying the Treasury for the past military service of present or former postal employees. P.L. 108-18 required multiple reports on the issues and provided that Congress "shall revisit" the escrow provision by the end of May 2004. The strategy of postal stakeholders has been to package acceptable escrow and military retirement provisions with a broader postal reform measure that enacts some of the bold recommendations of the President's own blue-ribbon commission. In a dozen congressional hearings to date, however, these two issues have overshadowed discussion of the commission's recommendations. This report will be updated to reflect significant legislative events.

XML