on Oct 4th, 2010
in Strategy & Public Policy
| 26 comments
On September 30th, the Postal Regulatory Commission (PRC) turned down the request by the Postal Service for an exigent price increase averaging 5.6 percent across all market-dominant products, such as First-Class Mail and Periodicals. Although current law cape increases in these products to the inflation rate, the PRC can consider rate increases beyond the cap if the Postal Service has been affected by “extraordinary or exceptional circumstances.” In this decision, the PRC agreed with the Postal Service’s contention that the economic recession was an exceptional circumstance, but it ruled that the Postal Service did not show how the exigent rate request was due to the recession. The ruling also tied cash flow problems the Postal Service currently faces to current laws that require prefunding of retiree health benefits. An OIG study found that the Postal Service has been overcharged $75 billion in its funding of pension liabilities, an amount that could be used to fund current and future retiree health benefits. In a statement addressing the PRC’s decision, Postmaster General Jack Potter expressed disappointment. However, he said that the PRC’s acknowledgement of the large financial risk caused by the prefunding payments for retiree health benefits was encouraging. The statement notes that the Postal Service is still reviewing the PRC’s decision and determining its course of action, but it lists areas for legislative relief to keep the Postal Service viable. October 1st was the start of the new fiscal year for the Postal Service. As the Postal Service enters 2011, what do you think its next step should be?
on Sep 29th, 2010
in Strategy & Public Policy
| 7 comments
The U.S. Postal Service is used to delivering large amounts of mail. Last year, it delivered more than 177 billion pieces. More mail pieces are sent per person in the United States than almost anywhere else in the world. But mail volume has been declining. How will the Postal Service change if volumes continue to fall? Is the Postal Service even financially sustainable at lower volume levels? The Office of Inspector General (OIG) asked the George Mason University School of Public Policy (GMU) to find out. The results of GMU’s work appear in a paper released today on our website. GMU researchers looked at how mail volumes of 150, 125, 100, and 75 billion would affect the Postal Service’s financial position and cost structure. Their results are encouraging. They found that the Postal Service is financially sustainable at volume levels down to 100 billion pieces per year, although price increases above inflation would be needed. The cost structure of the Postal Service would also change at lower volume levels. For example, delivery would account for a much larger share of total costs. GMU researchers also looked at the effect of various cost reduction initiatives and how they would impact the price increases necessary to break even. The paper describes their results and a description of the model they used for their analysis. What do you think? What are the biggest challenges for the Postal Service at lower volume levels? This topic is hosted by the OIG’s Risk Analysis Research Center (RARC).
on Sep 13th, 2010
in Strategy & Public Policy
| 9 comments
Last month the Economic Policy Institute, an independent Washington think tank, issued a study (Congressional Mandates Account for Most of Postal Service’s Recent Losses) analyzing the Postal Service’s operating losses over the past three years. It should be noted that while the Institute is nonpartisan, the National Association of Letter Carriers provided support for the research. While the paper acknowledges the underlying shifts taking place in communications, it cites Congressional mandates, more specifically those requiring prefunding for retiree health benefits, as the principal driver behind the losses. In fact, the study discusses that removing the health benefits mandate would cover the Postal Service’s operational losses for 2007 and 2008 and a good portion for 2009. Furthermore, it points out that the Postal Service’s retiree benefits plan currently is funded at a significantly higher level than a sample of large private-sector employers that offer similar pensions. The authors recommend a number of steps for Congress: •Direct the Office of Personnel Management to recalculate Postal Service pension obligations using proper methodologies. •Transfer any surplus discovered to the retiree health benefits fund. •Should the surplus be sufficient to fully fund all benefit obligations, permit the Postal Service to pay off debt with the remaining surplus. The paper concludes that issues involving the overpayments must be resolved before turning to other major actions, such as cutting Saturday delivery. What do you think of the pension debate? What should Congress do? This topic is hosted by the OIG’s Risk Analysis Research Center (RARC).
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