House hearing on postal reform–May 18, 2016

The House Committee on Oversight and Government reform chaired by Jason Chaffetz (R-UT) held a hearing on the Postal Service on May 11. The panel of witnesses was similar to that at the Senate hearing in January:

Chairman Chaffetz promised that the committee will release a discussion draft of postal reform legislation soon. He and other committee members said that a bi-partisan bill would be the goal. There was a wide and rich discussion of possible improvements to the current and future state of the USPS. Everyone agreed that our Nation needs a vibrant, healthy Postal Service.

The one solution that every member seemed to agree on is the requirement that all postal retirees sign up for Medicare when they become eligible. Currently, one-fourth of eligible postal retirees use their Federal Employees Health Benefits (FEHB) as their primary health insurance, which increases estimated costs to the USPS by over $50 billion.

The witness representing postage-paying customers, Jessica Lowrance, did an excellent job of expressing the importance and success of the cap on postage price increases:

“For business customers, the cap provides postal customers the very considerable benefit associated with an assurance of postal rate stability and predictability — an assurance that’s key to a customer’s decision as to whether to continue to invest in mail as a business communication and commercial vehicle. Indeed, before enacting such a cap, Congress was well aware, on the basis of testimony presented by the Postal Service and others, that during the entire period between the Postal Reorganization Act of 1971 and the Postal Accountability and Enhancement Act of 2006 overall postal price increases were within the nation’s general economic inflationary bounds.

For the years it has been in effect, this inflation-based price cap provided not only benefits associated with the stability and predictability of postal rates but also served as an effective restraint against any abuse of the Postal Service’s monopoly power. The Postal Service was required to focus more closely on the elimination of postal waste and inefficiencies in a manner that would not have happened in the absence of a cap. It should be noted that it achieved these goals while still being permitted under the law to retain those revenues that exceeded costs.”

Postmaster General Megan Brennan said that the Postal Service has increased efficiencies since the Consumer Price Cap (CPI) was imposed by the 2006 postal reform to the tune of $15 billion annual savings. In spite of this ongoing success, Brennan said the USPS proposes a four-part legislative package:

1. First and most important, she said, was requiring postal retirees to use Medicare as their primary insurance. The step alone could save the USPS $17.5 billion over the next four years and eliminate the unfunded liability for estimated future retiree healthcare costs.

2. Brennan also wants Congress to legislate a postage rate increase for the first time since 1968. She tied the proposed rate increase to the April 10 end of the temporary exigent surcharge of 4.3 percent. Brennan estimated that the removal of the surcharge will “cost” the USPS $1 billion this year and approximately $2 billion in future years.

3. USPS also wants the Postal Service’s retirement liability to be calculated on “postal-specific assumptions” rather than government-wide retiree assumptions.

4. The Postal Service also proposes legislation to allow it “limited additional product flexibility.”

PMG Brennan said that the combination of her proposed legislation, a “favorable” outcome from the 2017 Postal Regulatory Commission (PRC) regulatory review, and continuing USPS efficiency efforts will ensure a successful ongoing Postal Service.

Aside from the Medicare integration, the USPS did not received a resounding validation of its proposals at the hearing. In fact, Republican leaders on the committee focused on issues that they posted on the committee’s web page:

Chairman Jason Chaffetz (R-UT): “What you need to do is move volume. You’ve got to make the post office more relevant in people’s lives, so that there’s more volume that can move through the system. … [R]aising rates and cutting services is not the way we’re going to necessarily get there. ”

Government Operations Subcommittee Chairman Mark Meadows (R-NC): “Now, that [delayed mail] is not a funding problem, that is a management problem. … So, what we have to do is put this together and make sure that we have a service standard that doesn’t just increase costs…”

Rep. Blake Farenthold (R-TX): “As you cut the quality of your services, especially on your lead program or your lead product, first-class mail, it starts to become less valuable and makes email look like a better alternative.”

Chairman Chaffetz appeared to surprise some at the hearing by proposing that the USPS Board of Governors be eliminated as an “extra layer [that] does not make a lot of sense to me.” He went on to say that “it is problematic when there is not a functional group,” referring to the fact that only one of nine slots has been filled lately. Chairman Chaffetz did acknowledge that the operator and the regulator need to be separate, but he also emphasized that Congress has a major oversight role too.

A discussion draft of a reform bill should be released by the committee soon. It may or may not contain controversial elements such as a Congressionally-mandated postage rate increase, but most likely will include the consensus Medicare reform for postal retirees that would save over $50 billion.

We likely will support legislation that does not raise postage rates for the first time by Congress since 1968. Indeed, nonprofit mailers whose volume dropped 4.7 percent during the two-plus year surcharge are now mailing more. The Postal Service has over $8 billion in cash reserves, a second straight year of over $1 billion operating profits, 14 percent growth in packages, and an expected $1 billion windfall from election mail.