Commentary & Analysis
Update on the Postal Service Reform Act of 2016
The Postal Service Reform Act of 2016 (H.R.5714) before the 114th Congress provides meaningful progress in removing regulatory requirements that are drowning the Postal Service in debt. Without passage the Postal Regulatory Commission may change its postal rate process resulting in drastically increased rates.
By Ken Garner
Published: December 2, 2016
Those of you who have been around the mailing industry for a while are aware of the 2006 Postal Accountability and Enhancement Act (PAEA) that accomplished a significant milestone for our industry. PAEA eliminated the previous highly contentious and litigious postal rate making process with a more stable and predictable process that tied postal rate increases to the Consumer Price Index (CPI).
However, PAEA contained a major flaw that required the Postal Service to pre-fund its retirement benefit obligations. This overly aggressive pre-funding schedule resulted in annual payments of more than $5.5 Billion — which the Postal Service has been unable to pay for the past several years. The inability to pay has contributed to mounting debt and a current balance sheet that would require most businesses to declare bankruptcy.
Without additional reform the Postal Regulatory Commission (PRC) will begin reviewing the impact of the current rate making process and either recommend a continuation of the current process or moving to a new rate making process. Given the Postal Service financial condition most believe that the PRC will be inclined to make changes that include dramatic rate increases.
For more than a year Idealliance and its Coalition for a 21st Century Postal Service (C-21 Coalition) partners have been working to develop the structure of a bill that could prevent the worst case scenario from happening. In partnership with the postal unions, the C-21 Coalition was able to find a path forward to on the Postal Service’s retirement benefit obligations.
This effort culminated with the work of the House Committee on Oversight and Government Reform (OGR), chaired by Jason Chaffetz from Utah. With bipartisan support the OGR Committee introduced the Postal Service Reform Act of 2016 (H.R.5714) incorporating a number of our suggestions. H.R.5714 will effectively eliminate the current pre-funding payment schedule requirements and clear up the Postal Service's balance sheet. Without this "clean up" the PRC may feel the need to turn the Postal Service's financial fortunes around with a disproportionately high contribution from rate payers. If the PRC takes this position, we could potentially see a number of consecutive double digit rate increases.
The Congressional Budget Office gave the bill a positive "score" CBO's assessment indicated that the bill will positively impact the overall budget by $2.2 billion over 10 years. A "negative" score would have essentially killed the bill.
Earlier this week a group of industry representatives met with Emily Murray, Staff Director of the Ways & Means Health Subcommittee to discuss the prospects of H.R. 5714. During the meeting the group learned that the Ways & Means Committee had serious concerns about the bill and would not be inclined to support its passage. Ways & Means Committee is responsible for, among other things, the management of Medicare and a principal provision of H.R. 5714 involved moving USPS retirees to Medicare.
The Ways & Means Committee concerns included:
• It would be a raid on Medicare
• The "score" was $2B short on what it would cost Medicare (of course the bill would contribute over $2B making the overall impact a wash).
• Forcing postal retirees to take Medicare would be a first (event though they have paid into Medicare for years - and, the unions supported this move).
• They had not been consulted about this fix, which was in their jurisdiction.
Without the support of the Ways & Means Committee the future for this bill, or any helpful legislation from this Congress, is highly doubtful.
While we can pick this effort up next year the timing is not helpful with the new rate making process likely be completed before any new legislation could be passed.