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chapter 3
financial highlights

growth in the high-tech sector far outstrips that of the industrial and service sectors that are more akin to the Postal Service.

Table 3.8 shows annual and cumulative TFP and Output per Workhour compared to MFP for the years 1990 through 2004. Over 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 Output per Workhour are common. Beginning with 2000, the Postal Service has achieved strong growth in both TFP and Output per Workhour.

The Postal Service's TFP growth of 2.4 percent in 2004 marks five consecutive years of positive growth. Output per Workhour growth was 2.4 percent. The TFP result is equivalent to $1,647 million in expense reductions. Cumulative from 2000, TFP growth measures 9.0 percent, equivalent to $6.1 billion in expense reductions. Output per Workhour over this same period grew 10.7 percent.

When compared to years with strong positive TFP growth prior to 2000, the achievement of 2004 is significant. In previous years, strong TFP growth was fueled largely by workload growth. During the 1990s, TFP grew 0.2 percent annually, on average, while workload grew 1.9 percent annually, on average. In 2004, however, strong productivity growth was fueled by a substantial restraint on resource usage growth. TFP growth of 2.4 percent was achieved with only a 1.4 percent increase in workload. The Postal Service effectively managed its use of resources to achieve a 1.0 percent reduction in total resource usage. Labor and Materials usage declined by 1.1 percent and 0.9 percent, respectively, and marks the fifth straight year of declines.

The Postal Service plans to continue to improve TFP over time. It is now policy to develop an annual budget each year so that the net income target also yields positive and sustainable TFP growth. This objective is balanced against the need for service improvements to improve customer satisfaction and remain competitive in the marketplace.

Worksharing discounts to mailers impact Postal Service productivity performance. Worksharing incentives have shifted a greater proportion of the workload associated with automation compatible mail to business mailers. Worksharing discounts provide cost savings for the Postal Service and enhance the productivity of the economy as a whole. Worksharing, however, transfers the prime opportunities of the Postal Service for productivity improvement to our partners, the mailers. In contrast, the BLS measure, multifactor productivity,

does not factor out self-service or worksharing on the part of the customer. Rather, MFP captures the whole of the economy, including productivity that has been transferred between segments.

C. Civil Service Retirement System Legislation

Public Law 108–18, Postal Civil Service Retirement Funding Reform Act of 2003 (P. L. 108–18), modified Postal Service obligations to the Civil Service Retirement System (CSRS) to preclude further over-funding of those obligations. The difference between contributions that the Postal Service would have made if the law had not been enacted and the contributions made by the Postal Service under P. L. 108–18 are defined as "savings." P. L. 108–18 required the Postal Service to use "savings" in 2003 and 2004 ($3.5 billion and $2.7 billion, respectively) to pay down debt and in 2005 ($2.8 billion) to maintain the level of postage rates implemented in 2002. These values reflect the Office of Personnel Management (OPM) calculations as of September 30, 2004. OPM will recalculate the 2004 value in 2005.

In 2004, the second year of "savings" realized from P. L. 108–18, the Postal Service fulfilled its obligations under P. L. 108–18. It has paid down debt and held rates steady. In 2005, the "savings" will be completely consumed in absorbing inflationary cost pressures and contribution loss due to declining revenue that has resulted from mail mix and volume changes. Further, although the "savings" have been consumed, P. L. 108–18 requires that the calculated amount of "savings" in years after 2005 be placed in escrow for use as determined by Congress. This will require an increase in postage rates of approximately 5 percent in 2006 to fund this escrow. Also, P. L. 108–18 requires the Postal Service to fund the full value of retirement benefits attributable to the military service of its CSRS employees. Until passage of P. L. 108–18, military service retirement benefits had been a Treasury Department obligation and remain so for almost every other federal agency.

P. L. 108–18 mandated a review of both the CSRS military service retirement obligation and the escrow requirement. The Postal Service recommended that the obligation to fund military service costs of postal employees' CSRS retirement benefits revert to the Treasury Department. It recommended that the escrow provision be eliminated and that the Postal Service begin pre-funding its obligations for post-retirement health benefits. Legislation is required to implement these recommendations, which could materially affect