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197 IRET Congressional Advisory 1 (2005)

handle is hein.taxfoundation/iretcgadv0194 and id is 1 raw text is: IRET is a non-profit 501(c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote growth and efficient operation of the market economy. December 20, 2005 Advisory No. 197 GOOD AND BAD NEWS IN THE JANUARY 8 POSTAL RATE INCREASE Executive Summary In 2005, the Postal Service asked the Postal Rate Commission (PRC), the independent federal agency that regulates postal rates, to approve a rate increase. The PRC held hearings and several months later gave the Postal Service most of what it sought. With only a few exceptions, the rate hike will be approximately across the board and roughly 5.4% for most Postal Service products. The price of a first-class stamp will rise from 37¢ to 39¢. There are positive aspects to the rate case but also negative ones. The increase is relatively modest, about half the size of general price inflation since 2002, when postal rates last rose. Since the early 1970s, postal rate increases have closely matched the inflation rate. On the other hand, postal rates may soon begin rising more quickly. The Postal Service is already gearing up for the next rate case, which is expected to be a major one, and will probably submit its request in 2006. The Postal Service releases a great deal of cost data during rate cases. However, the information tends to be of low quality, with numerous shortcomings in how it is gathered and then interpreted by the Service. As a result, the data are poorly suited to determining how the Service's various costs are related to its various products. That makes it difficult for the regulator to ensure that rates on Postal Service products are set efficiently, equitably, and in accord with public policy. Following a change in the law, the Postal Service needs to contribute much less to finance workers' pensions. The savings are going temporarily into an escrow fund. The Service wants to use the escrow money for various purposes, including holding down rates. When Congress did not quickly go along with that, the Service misleadingly called this the Escrow Rate Case (misleading because the escrow expense, under a different name, was already built into the old rate base.) A better use for the escrow money would be to protect the next generation of mail users and taxpayers by gradually paying down the Postal Service's huge - about $65 billion - unfunded retiree health care liability. Under the leadership of Postmaster General John Potter, the Postal Service has achieved impressive productivity gains and a 10% leaner workforce while maintaining service quality. Unfortunately, higher per-unit input costs, mainly labor-related, have eaten away most of the potential savings from greater productivity. It will be bad news for mail users if the productivity gains slow or reverse. If Congress is to enact meaningful Postal Service reform, one of the highest priorities should be giving the Service better tools to manage its costs. g~*I A3~ S I gg~ a Ae ~6I

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