Long Island-based bulk-mail companies rally against pending 10%

Long Island Business News, Apr 9, 2004 by Claude Solnik

Long Island-based bulk-mail companies are trying to stamp out a pending postal-rate hike of 10 percent or more, which would be used to cover new expenses imposed on the U.S. Postal Service.

The federal government recently shifted $27 billion in military pensions to the USPS - a burden the agency won't be able to shoulder unless it imposes a postage-price hike.

In testimony before Congress late last month, Postmaster General John Potter said the agency believes it will need to jack up postal rates as of 2006 by at least 10 percent, including a 4-cent jump for first-class letters, which now cost 37 cents to mail.

He blamed the need for the hike, in large part, on the fact that Congress hit the post office last year with a $27 billion bill for the military retirement benefits of postal workers who served in the armed forces.

Congress also required the postal service to set aside $3 billion in escrow each year. The use of that money would require approval by the government.

Those financial burdens come at a time when mailings are down, fuel costs are up and competition is stiffer from the likes of the United Parcel Service and Federal Express. This could mean the average rate increase sought for 2006 could be in the double digits, Potter said in a written statement.

Long Island-based bulk mailers, whose livelihood is tied partially to postage rates, said they oppose shifting pension costs to the USPS. It makes no sense. You're throwing a burden onto the post office, said Stephen Paladino, president of Fala Direct Marketing in Melville. Military retirement costs have no relation to the post office. The post office shouldn't be paying for that. It's the U.S. government [responsibility].

Michael Borkan, president of Talon Mailing and Marketing in Deer Park, said he worries that rate hikes could be phased in before 2006, putting a further drag on Long Island's economy. If the post office loses money, you may see rate increases sooner, said Borkan. There are so many mailing companies on Long Island that an increase in postage could hurt employment levels.

The question being voiced by bulk mailers in Nassau and Suffolk: How did the USPS get saddled with pension costs offloaded by the federal government? Last year, Congress relieved the USPS from having to pump more money into its pension fund than it needed. In turn, Potter promised to keep postal rates flat until 2006.

But at the same time, Congress shifted the onus of postal workers' military pensions to the USPS, dumping a new and massive expense on the agency.

It looks like a classic case of taking debts and moving them off the books to off-budget entities that have their own budgets, said William Kline, director of the Center for Business Ethics, at Molloy College in Rockville Centre. It does have the appearance that they're trying to balance their budget. One has to ask, Why isn't the government ponying up the pensions?

The Direct Marketing Association said it believes shifting military pensions to the post office artificially deflates the federal deficit by getting ratepayers, instead of taxpayers, to pick up the tab.

The DMA is in favor of having [the expense] shifted back to the Treasury, said Edward Gleiman, a spokesman for the DMA. The Administration is opposed to that.

The Bush Administration argues that the postal service ought to be a fully self-financed operation and that the agency's rate hike in 2002 included provisions to pay for more pension costs than it's now being asked to shoulder. The additional money should be set aside for uses that Congress would approve, the administration said.

The health of the postal service is essential to thousands of companies and the millions they employ, said Paladino. It ends up affecting a lot of people within the postal service.

The USPS, tightly regulated by the federal government, is also seeking a freer hand in setting rates and the right to make decisions that it says would allow it to operate more efficiently.

We have to relook at the post office and figure out how it's run, Paladino said. Is it going to be run like a business or not?

Borkan said he also favors allowing the postal service to be more flexible and fluid, although some suggest that could lead to more frequent rate hikes.

The board of directors for Federal Express can sit down and respond to changing market conditions, said Borkan. Unlike a business, they [the post office] can't change on a dime. I do want them to be more flexible.

Key Republicans already have broken ranks with the president, saying they oppose shifting the pension costs to the postal service.

Senator Susan Collins, R-Maine, chairman of the Senate's governmental affairs committee, and Congressman Tom Davis, R- Virginia, chairman of the House's government reform committee, oppose the pension shift.

Those legislators, charged with overseeing the post office, support legislation to repeal the military-pension provision, which could be crafted in as little as a month.