This week, the fate of the US Postal Service has continued to make national headlines. On Wednesday, the Senate Committee on Homeland Security & Government Reform marked up its bipartisan “21st Century Postal Service Act” (S.1789) that can now go to the Senate floor. More on that in a moment. First, I’d like to address a more immediate cause for concern to catalogers and other mailers: USPS’s November 7 re-filing of its exigency rate case. I’m sure many of you are wondering how this may factor into your January 2012 postal budgeting.

Lowdown On Exigency Case
For starters, the USPS had a caveat in its most recent exigency filing: If “legislation passes that promotes the Postal Service’s financial stability, the Postal Service will review its position and may choose to withdraw the case if warranted.” What’s more, from as far back as ACMA’s National Catalog Forum last June to just yesterday, Postmaster General Pat Donahoe has repeatedly assured mailers he doesn’t want to raise postage beyond the consumer price index-based amount. Yesterday morning, during a PostCom-sponsored webinar featuring Mr. Donahoe, I asked him point-blank how mailers should budget for 2012 postal rates in light of the USPS’s filing for the exigency increase of 5.6%, which ACMA helped shoot down last year - especially if he has no intent to implement such an increase.

His response was very brief: “Budget for CPI.” I then asked why he filed the exigency case again if he has no intent to seek out the additional increase. Donahoe responded that with a variety of legislative proposals on the Postal Service under discussion, they felt it would be inappropriate and preemptive to categorically rule out any of these. “I’ve said this to everyone: I have no interest in exigency. I want CPI-based price changes in place and get out of the way to get these [$20B worth of] cost cuts in place,” the PMG said.

While the exigency filing is very disturbing, ACMA President & Executive Director Hamilton Davison and I have confidence in Mr. Donahoe’s abilities and his integrity. Our feeling is that we must take his words at face value and not lose sleep over this new exigency filing. That is not to say that ACMA will not vigorously oppose the exigency filing. We will. We also expect to join in with virtually all other mailing concerns in a coalition to fight this. But at least for now, we are not recommending an increase in your postal budget for next year. Over the past few years, we have continued to tell the USPS that cost cutting, and not rate increases, is the solution to USPS red ink. We hope that Monday’s exigency filing is intended to be kept in the USPS’s back pocket – “just in case.” That can be scare in and of itself, especially in light of the House Republican bill calling for a rate increase for underwater products, such as catalogs. The President’s bill also calls for an increase beyond CPI. Fortunately, the Senate bill does not call for an increase (please see below).

Congress Considers Postal Reform
The oversight committees in both Houses have been actively debating how to “fix” the USPS. The proposals vary widely in both chambers and from each political party. Despite active lobbying by ACMA and others, House Republicans voted a bill that mandates automatic rate increases for catalogs and other so called “underwater products.” In the Senate, ACMA was instrumental in getting the oversight committee to not mandate increases for underwater products. Over the past month, ACMA has contacted a large number of catalogers in the districts or states of each oversight committee members asking them to weigh in on these issues. Several Congressional staffers told Hamilton this made a big difference. One Chief of Staff actually asked us to stop generating additional calls! Our thanks to all of you who took the time to make a difference.
 
The Senate bill essentially preserves the status quo. While we wish it were better than this, compared to the huge downside of legislatively mandated rate increases for catalogs, this is a victory in and of itself. We also have dramatically improved the visibility for catalog issues in Congress. In fact, key staffers at the oversight committees in both Houses better appreciate the jobs we represent and the importance of an efficient USPS on our industry employment levels. In addition to ACMA's work, the DMA also was very active working these issues. DMA's Jerry Cerasale was able to get a minor language change in the final bill that may actually help our case with the PRC in the future.

Super Committee Reported to be Considering Rate Increases
The “super committee” that is charged with resolving the deficit issue is also reportedly considering a postal rate increase. Unfortunately, money paid to the USPS goes to it’s “banker,” the federal treasury, so any increase in postal rates reduces the federal budget deficit. ACMA is reaching out to super committee members to educate them that this is self-defeating and will only drive more mail out of the Postal Service. Our guess is the super committee will fail to get to consensus and will disband without action but this new threat bears watching also.

Senate Postal Reform Bill Highlights
Passed out of committee by a 9-1 vote, S.1789 is designed to provide USPS with the flexibility it needs to restructure itself in an effort to save billions of dollars and return to financial viability. As marked up, this bill is far from ideal; however, what matters most to catalog mailers is that there’s no mandated postage increase as was written in the House bill.

Getting legislation out by November 18 to avoid default by the USPS seems unlikely. We expect Congress will pass another resolution to avoid a default that extends the payment date further into the future. Although the Senate bill received support, it is a long way from passage by the full Senate and the most likely outcome is for nothing to happen this year. Our guess is that Congress is more likely to get something done in the first or second quarter of next year when we get closer to the Postal Service running out of cash (this is currently forecasted to occur in August.) Among the many provisions the Senate bill contains, here are some key highlights:

°    No immediate move to five-day delivery: The Senate bill calls for a two-year moratorium on five day while the USPS is to exhaust all other options and the GAO must then concur, after which time the Postal Service can apply for a drop in delivery days with the PRC. Senator Joe Lieberman (I-CT) did, however, say he believes there’s a good chance 5-day delivery will be implemented after the two-year period.

°    Senator John McCain introduced a version of the House postal reform bill in the Senate. So far, only Senator Coburn has signed on as a co-sponsor. This is essentially the same bill passed out of committee in the House that mandates catalog rate increases. Fortunately, due to our work and others, this companion bill failed to generate much support. Speaking about the bill the Senate passed out of its committee, McCain warned yesterday that S.1789 doesn’t give the USPS enough freedom to make changes to reduce costs and that the Senate would be right back having to deal with reform in three or four years. Our assessment is that he is probably correct considering the political horse trading that occurred during the mark up watered down some of the cost savings.

°    Enables USPS to offer early retirement buyouts to cut its workforce by 100,000. Directs the Office of Personnel Management (OPM) to refund the USPS for an overpayment to the Federal Employees Retirement System (FERS) to fund this and pay down debt.

°    Adds the financial condition of the USPS to be considered by labor arbitrators. In the past, arbitrators were not allowed to take the financial condition of the USPS into account. Labor interests opposed this clause.

°    Recalibrates the pre-funding requirements for its retiree health benefits by amortizing payments over a 40-year period.

Bottom Line & Action Plan
°    Retain your existing budget based on the October 18 announcement of the CPI-based postage increase, effective January 22, 2012, with increases ranging from 0.504% for bound printed matter flats to 2.878% for high density flats.

°    Remain diligent and keep abreast of how the exigency filing shakes out. In essence, it will be tied to the final outcome of a Federal postal reform bill and whether that bill will mandate any rate increases.

°    As we’ve been urging members and non-members alike, build a relationship and keep after your Senators and Congressmen to make sure they understand that a large postal rate increase will hurt your company and reduce your employment. In this economy, jobs are king. Make sure they understand the impact in their district. Of course, contributions to their re-election campaigns never hurt either!

Best,
Paul Miller
Vice President & Deputy Director
American Catalog Mailers Association
pmiller@catalogmailers.org
914-669-8391
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