109th Congress Passes Postal Reform Legislation

In early December 2006, in an unexpected act of bipartisanship during its final hours, the 109th Congress passed postal reform legislation modernizing the United States Postal Service.

The action began December 8 in the House of Representatives where members passed by voice vote H.R. 6407 (formerly H.R. 22 and S. 662), the Postal Accountability and Enhancement Act. The Senate received the legislation on December 9 and passed it by unanimous consent of the full Senate prior to adjourning. The bill was signed into law on December 20, 2006.

A full decade in the making, H.R. 6407 is the first major reform of the USPS since 1970, when President Nixon signed Public Law 91-375, the Postal Reorganization Act, to establish the USPS as an independent organization of the Executive Branch. That legislation transformed the Post Office Department into the United States Postal Service and removed the Postmaster General as a member of the President's cabinet.

Just as the Post Office Department needed reform in 1970, the USPS today needs structural changes that will allow it to improve performance and compete for postal business.

What It Means

Although passage of the legislation does not come in time to prevent the May 2007 postage rate increase, it is nevertheless an important reform. Here is a summary of the key provisions:

• Future rate increases will be more frequent—probably once a year—but smaller. The current system of filing a rate case and taking a year to determine new rates will be replaced by a process more like that used by private sector companies such as UPS, FedEx and DHL, where rate increases take effect annually at a predictable time. The new law links postage rate increases to the Consumer Price Index for the next 10 years, meaning postage rates can't rise faster than inflation rates. Marketers will be able to plan for annual rate increases in the 4-5% range. To safeguard the interests of the mailing public, the legislation contains strict criteria regarding the conditions for emergency rate increases and adds oversight from the Postal Regulatory Commission (formerly the Postal Rate Commission).
• Under the new law, the USPS gains freedom to create new products or tailor existing ones to better suit the needs of mailers. This is expected to yield even more innovative products, such as repositionable notes and Customized MarketMail.
• The law transfers responsibility for pension benefits earned by postal employees during military service—$27 billion—to the U.S. Treasury Department. This provision was at the heart of the administration's objection to postal reform legislation. Legislators argued that no other federal agency is responsible for this payment. This gives the USPS access to the Civil Service Retirement System escrow account which can be used to hold down future rate increases or to fund introduction of new products.
• With the elimination of rate cases, the Postal Regulatory Commission is given enhanced authority to safeguard the mailing public. The commission will have subpoena power to ensure that the USPS is complying with the law as well as authority to monitor the new rate system and make changes as required to uphold service standards and meet customer needs. For the first time, the USPS will be held accountable for delivering all classes of mail on time. A new Inspector General of the Postal Regulatory Commission will monitor the commission's use of its new authority.
• Other changes: The law reforms the workers' compensation system for postal employees, which will help the USPS better contain costs. It also removes the requirement that a seat on the Board of Governors be reserved for the postal unions.

The existing Postal Rate Commission has 18 months to write rules for implementation. The full text of the Postal Accountability and Enhancement Act is available at: http://thomas.loc.gov/cgi-bin/query/D?c109:1:./temp/

Postal Reform and the Rate Case

When the USPS filed R2006-1 in April 2006, there were still high hopes that postal reform legislation would be passed in time to resolve the issue of whether the USPS or the Treasury Department would be responsible for $27 billion in military pension benefits for USPS employees. At that time there was some speculation that if the liability for the pension funds was shifted to Treasury, the rate case might be modified or even dropped. However, as 2006 wore on without postal reform, it became clear that even with passage, the rate case would go forward.

It is now expected that new postage rates will take effect on May 6, 2007. The USPS closed the first comment period in November 2006 and was expected to re-open the comment period in January 2007. The rate case timeline calls for submission of the rate case and favorable action by the Board of Governors in March 2007. The projected rate increases are Standard Mail, 9%; First Class, 7.1%; Priority Mail, 13.8%; Express Mail, 12.5%; Package Services, 13.4%; and Periodicals, 11.4%.

These rates reflect the move from weight-based to shaped-based rates, where postage is determined by physical characteristics as well as weight. Shape-based postage rates will have the largest effect on three types of mailers: those who use first class to mail flats; those who mail parcels weighing less than 13 ounces; and those who mail flats weighing less than 3.5 ounces. Postage increases may be in the range of 15-40% percent for these mailers.

One provision in R2006-1 that is of concern to the mailing community is a new classification called "not flat-machinable" (NFM). The classification is a kind of catch-all for letters and flats that fail to meet the new shape-based standards. The name refers to mail that cannot be processed on the AFSM 100 sort equipment, but seems to imply that NFM mail is not automation-compatible, rather than incompatible with processing on the AFSM 100. This is of concern because letter mail that exceeds three ounces will be reclassified as NFM with an accompanying substantial increase in postage rates.

R2066-1 also adjusts incentives for worksharing to reflect the way the USPS actually processes mail. These include an increased emphasis on five- and three-digit sortation schemes as well as elimination of some carrier route schemes. For a complete resource about R2006-1 including Federal Register notices, rate tables, details by class of mail and FAQs, visit usps.com/ratecase.

Nancy DeDiemar is the president of Printing Resources of Southern California, a quick print shop in Upland, CA, offering printing, copying, electronic prepress, and mailing services. Nancy is the co-publisher of Printips (www.printips.com), a newsletter subscription service for printers. Contact her at Nancy@printingresources.com.