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Summary

Reform of the business model of the U.S. Postal Service (USPS) was 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. The 108th Congress held a dozen hearings on the commission's report. Broad postal reform proposals, however, have been somewhat overshadowed by controversy over two pension funding issues left unsettled by passage of P.L. 10818, 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 $18.3 billion from mail users over the next five years that cannot be used to deliver the mail or support the system. The Administration opposes removal of the escrow because it would add at least $3 billion annually to the budget deficit. One proposal is to use the escrow to set up a separate fund for retiree health benefits, lessening its budget impact. The second issue concerns the provision in the 2003 act transferring from the Treasury to USPS 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. USPS 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 Federal Employees Retirement System (FERS), to which all postal employees newly hired since 1984 belong, fully funds military retirement costs through agency contributions. These two issues prevented postal reform legislation, reported without dissent by the House Government Reform and Senate Governmental Affairs Committees, from reaching the floor in the 108th Congress. Both bills would have removed the escrow requirement and relieved USPS of its current obligation to pay the military pension costs of its employees. They would also require USPS to begin funding its future retiree health care obligations. The House bill has been re-introduced in the 109th Congress as H.R. 22, and the Senate bill as S. 662. USPS has increased the pressure on Congress to act by setting a rate increase in motion. The increase, scheduled for early 2006, would add $3.1 billion to the nation's annual postage bill and increase the first class stamp by 2 cents. USPS said that the increase would not be necessary if Congress passed legislation to eliminate the escrow fund. This report will be updated to reflect significant legislative developments.

Related Legislation:
• H.R.22
• S.662

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