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Why the Proposed Postage Rates are Bad for the Postal Service & Bad for America. The postage rate increases proposed by the U.S. Postal Service and embraced by the giant mailing industry are bad for the Postal Service and bad for America. Why? · The proposed rates would increase discounts to giant mailers who pre-sort their mail far in excess of the costs the Postal Service avoids. · In doing so, the Postal Service would force consumers and small businesses to subsidize the big mailers. Should Aunt Minnie really subsidize American Express? Should you? · If the rates were properly set, the Postal Service could keep the price of a first-class stamp to 36 cents, rather than 37 cents, according to Michael J. Riley, the former Chief Financial Officer of the Postal Service (1993-1998). · Discounts should be set between 80 percent and 100 percent of the costs avoided, Riley says, but never more than 100 percent. It's just bad business, he says. The current proposal sets discounts at 125 percent of the costs avoided. · Excessive discounts are costing the Postal Service more than $700 million per year, information submitted to the Postal Rate Commission shows. The Postal Service’s financial situation is dire. The Postal Service is in the middle of “the perfect storm.” It simply cannot afford to forego the revenue it is giving away to the big mailers in the form of discounts. · The Postal Service lost money in fiscal year 2001 and was expecting a loss in fiscal year 2002, when the terrorist attacks of Sept. 11, the October anthrax attacks, and a severe recession led to a dramatic decline in mail volume. The Postal Service prepared a rate proposal before Sept. 11, with rosy assumptions about mail volume, productivity and cost cutting. Although the rate proposal was filed after Sept. 11, the Postal Service failed to update their assumptions. Instead, they asked the mailers to support their proposal – now vastly under priced – so that they could get additional revenue early, by avoiding lengthy rate-case hearings.
Under the Postal Service’s initial rate proposal the big first-class mailers would have received $690 million more in discounts than the costs avoided by the Postal Service. To get these giant mailers to agree to their proposal, the Postal Service increased the discounts by $80 million. · The Postal Service is approaching its $15 billion debt limit, with debt expected to reach $13 billion by the end of this fiscal year. Even if the proposed rate increases – agreed to by the Postal Service and the giant mailers – are enacted, they will run a large deficit this year, probably between $1.3 billion and $1.6 billion. In fiscal year 2003, they will run an even larger deficit and may exceed their borrowing limit to pay year-end expenses. · The Postal Service froze 800 capital projects in February and March 2001, and expects them to remain frozen until after it gets another rate increase, probably in fiscal year 2004. · The Postal Service describes its future this way: “The capital plan is at extreme risk…for the second year in a row we will not be able to make the necessary capital investments to meet the growth demands of universal delivery.” [USPS Annual Report 2001, p. 29] · The Postal Service continues to pile up debt and losses, despite improvements in productivity and a dramatic reduction in work hours. Current Chief Financial Officer Richard Strasser reports a 36 million annual work hour reduction in the last 18 months. Since beginning the “Breakthrough Productivity Initiative” in fiscal year 2000 the Postal Service has removed $2.8 billion in annual costs. Productivity for mail processing plants is up 8 percent in fiscal year 2002 compared to the same period in fiscal year 2001. The Postal Service Justifies its Proposal: The Postal Service justifies its rate proposal by pointing out it would provide an infusion of cash in July, rather than October. (That’s because the deal with mailers would enable it to circumvent the lengthy hearings that usually precede a rate increase.) The settlement would provide the Postal Service with close to $1 billion during July, August and September, and the Postal Service desperately needs this money to pay almost $5 billion in expenses that come due Sept. 30, 2002. However, the Postal Service will be much worse off in fiscal year 2003, and the future of the Postal Service is very much in question. Instead of making this shortsighted deal, the Postal Service could have updated its proposal based on the new realities. Had they done so, the Postal Service would have a rate structure that could generate the desperately needed money in 2003. More importantly, it would have a rate structure based on fundamental fairness, where consumers, small businesses and giant mailers pay their own costs. A Little Background: · Pre-sort discounts were initiated in the early 1980s, prior to the automation of mail processing. · Approximately 48 percent of first-class mail was pre-sorted in fiscal year 2001. · The U.S. Postal Service handles 207.8 billion pieces of mail annually. · The Postal Service employs approximately 800,000 people in 38,000 post offices, stations, branches and facilities throughout the United States. · The delivery obligations of the Postal Service grow each year by 1.7 million new addresses, the equivalent of the city of Chicago.
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