President Bush has signed into law (P.L. 109-435) a postal reform bill that finishes more than a decade of work among the U.S. Postal Service, large mailers, postal unions and some members of Congress. The measure is the most significant change in postal operations since a 1970 law that created the USPS as a government corporation.
On financing issues, the measure: abolishes the escrow requirement and replaces it with a requirement to pre-fund retiree health benefits; outlines a payment stream for the first 10 years; and returns the obligation for military service costs to the Department of Treasury. The funds already designated for escrow and any over-funding of the Postal Service’s Civil Service Retirement System liability will be transferred to the new Health Benefits Trust Fund, to begin pre-funding retiree health benefits
The law divides postal products into market-dominant and competitive categories. Increases in market-dominant product rates will be tied to a Consumer Price Index-based price cap — a provision that unions believe will create pressure to hold down future wage increases. Price increases in competitive products are not capped; the Board of Governors will set rates that ensure they cover attributable costs and make a contribution to institutional costs.
On rate setting, the measure renames the Postal Rate Commission the Postal Regulatory Commission (PRC) and gives the PRC broad new regulatory powers. The PRC has 18 months to develop new regulations for both groups of products, taking into account certain defined factors for market-dominant products. Ten years after the enactment of the bill, the PRC has broad authority to revisit the market-dominant rate system and revise it in any way the PRC deems appropriate to achieve the objectives and the factors contained in the bill. The Postal Service has until late 2007 to file one last rate case under current rules.
In addition, under the law: the Postal Service must comply, beginning in 2010, with certain provisions of Sarbanes-Oxley; an accounting system must be developed to allow the Postal Service to separate the assets and liabilities of the market-dominant and competitive product lines; and the competitive product line will be required to pay a proxy for a federal income tax to the market-dominant product fund (proxy because as a federal agency the Postal Service is exempt from such taxes); the Postal Service is required to establish a set of service standards for its market-dominant products within 12 months and must develop an annual plan, which it will submit to Congress, to meet the service standards.