To overcome these long-term challenges and ensure that the Postal Service continues to meet its mandate to the American people, change is required. Specific legislative action is required to remove a financial hurdle that imposes unnecessary costs on postal ratepayers while providing no public benefit other than technically reducing the federal deficit. That obstacle is the escrow requirement of P.L. 108-18 that is responsible for the 2006 rate increase. If continued, it will threaten the financial stability of the nation’s mail system with escalating annual escrow funding requirements.

Regarding expenses, compensation and benefits have always constituted a major portion of our operating expenses, but the ongoing growth in the benefit portion of these costs has escalated at a disproportionately greater rate than compensation costs. Retirement and health benefits costs for postal employees and retirees, most of which are legislatively mandated, now total nearly $14 billion, which is 20 percent of all Postal Service expense. Nonetheless, unlike many private sector companies and, in fact, unlike the federal government, the Postal Service has fully funded its pension obligations. The Postal Service also pays the major portion of the premiums for its retirees’ health benefits program.

In 2005, for the sixth consecutive year, we offset a portion of our cost inflation with significant productivity gains. In fact, since 2000, our annual productivity gains have averaged almost six times more than those achieved annually from 1972 through 1999. It is critical to understand that these productivity gains, which reduce costs, are not automatic—they result from sound governance, solid management, engaged employees, and the effective use of technology.

As the mail mix and sources of postal revenue undergo fundamental change, we must be able to rely on more than employee dedication and sound management to assure the viability of universal service. The Postal Service requires a governance structure that not only assesses accountability from the Board of Governors and management but also provides them with the broader authority necessary to enhance services, set prices, and control the full range of postal costs.

Richard J. Strasser, Jr.
Chief Financial Officer and
Executive Vice President

Retirement and health benefits costs for postal employees and retirees, most of which are legislatively mandated, now total nearly $14 billion, which is 20 percent of all Postal Service expense. Nonetheless, unlike many private sector companies and, in fact, unlike the federal government, the Postal Service has fully funded its pension obligations.