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Chapter 3 Financial Highlights
Worksharing discounts for mailers, for example, impact Postal Service productivity performance as these incentives shift a greater proportion of the workload associated with automation compatible mail to business mailers. While worksharing discounts provide cost savings for the Postal Service and enhance the productivity of the economy as a whole, they do transfer the prime Postal Service opportunities for productivity improvement to partners, the mailers. In contrast, the BLS measure, multifactor productivity, does not factor out self-service or worksharing on the part of the customer. MFP captures the whole of the economy, including productivity that has been transferred between segments.
Table 3-6 shows annual and cumulative TFP and labor productivity compared to MFP for 1990 through 2006. In the long run, a successful organization will average positive growth in productivity, as has the Postal Service, but year-to-year fluctuations in TFP and labor productivity are common. Beginning with 2000, the Postal Service has achieved strong growth in both TFP and labor productivity.
The Postal Service’s TFP growth of 0.4% in 2006 marks seven consecutive years of positive growth. Labor productivity growth was 1.2%. This TFP result is equivalent to $255 million in expense reductions. Cumulatively, from 2000, TFP growth measures 10.4%, equivalent to $7.0 billion in expense reductions. Labor productivity over this same period grew 13.3%.
In 2006 productivity achievement was driven primarily by a workload growth of 0.8%. Contributing factors of workload growth were a 0.5% contribution in the postal delivery network, weighted mail volume contribution of 0.2%, and a 0.1% contribution in miscellaneous output. The Postal Service was able to achieve TFP growth of 0.4% by managing a larger increase in workload with a smaller increase in resource usage. Labor usage declined by 0.3%, with capital and materials usage each growing 0.4%. The overall resource growth was 0.4%.
The Postal Service plans to continue to improve productivity over time. Postal Service policy targets positive and sustainable productivity growth as an outcome of the net income target in each of its annual budgets. This objective is balanced against the need for service improvements to increase customer satisfaction and remain competitive in the marketplace.
Docket No. R2005-1 was the first instance in which the Postal Service’s proposals to raise rates and fees in an omnibus rate case were based on a single, statutory financial obligation. That continuing obligation is mandated by Public Law (P.L.) 108–18, the Postal Civil Service Retirement System Funding Reform Act of 2003, which amended the Postal Service’s responsibilities under the Federal Civil Service Retirement System (CSRS) and created new financial obligations that must be paid for with newly generated revenue each year, beginning in 2006.
Congress concluded that, under previously-applied funding mechanisms, future Postal Service payments to the Civil Service Retirement and Disability Fund would result in substantial over-funding of Postal Service obligations to the system. P.L. 108–18 changed the payment mechanism, reduced the Postal Service’s funding requirements to avoid overpayment, and directed that the difference between the Postal Service’s funding under the previous approach, and the funding under P.L. 108–18 (the “savings”), be applied to reduce debt and maintain rate stability in 2003, 2004, and 2005. Thereafter, the law directed the Postal Service to place the “savings” in escrow, beginning in 2006, until Congress determined the appropriate use for the funds. Although the escrow funds were to be classified as “operating expenses”, the Postal Service was not authorized to apply them to any financial or operational use in maintaining the national postal system.
The January 8, 2006, rate increase proposed in Docket no. R2005-1, was effected for the sole purpose of generating the revenue required to fund the 2006 escrow obligation of $3.1 billion as required by P.L. 108–18.