The closing days of the Postal Service's 2010 fiscal year were among the most turbulent in recent postal history. Congress did not provide the organization relief from its $5.5 billion payment into the Retiree Health Benefit Fund. The Postal Regulatory Commission (PRC) denied the Postal Service's request for an exigent price increase. And the Postmaster General reported that the Postal Service faces the very real risk of running out of money in 2011.

For stakeholders, the last two weeks of September were like watching the World Series of poker. The Postal Service and the PRC were "all in" on the final hand, only it was stakeholder money sitting on the table. Fortunately for mailers, the PRC ruled against a price increase above the rate of inflation. Unfortunately for the Postal Service, it has no quick access to a large chunk of cash without legislative change.

The Postal Service could appeal the PRC decision, or it could file a new exigent case. But the most likely option is that the USPS will file for rate increases under the price cap, as the law allows. With inflation growing at only about 1.4%, the revenue the USPS can generate from CPI-based postage increases is small (by Postal Service standards).

Speaking to reporters in Washington after the PRC decision, PMG John E. Potter said the Postal Service felt compelled to file an exigent price increase because it was one of the few avenues available under the law. He noted all of the things the law requires:

--The USPS must prefund its retiree health obligations at an aggressive pace of more than $5 billion a year.
--Price increases on market-dominant products are capped at the rate of inflation, other than for extraordinary or exceptional circumstances.
--The Postal Service must deliver mail five days a week.
--The Postal Service can't offer non-postal services.

Of all of these requirements, five-day delivery and the prefunding of retiree health benefits have gotten the most attention. Five-day delivery is a political hot potato, with many lawmakers opposed to it, so it generates lots of news stories and headlines. As for the prefunding requirement, the Postal Service is the only federal agency required to prefund its retiree health benefits, and it must do so at an aggressive pace. In fact, if Congress had waived the payment for 2010, the USPS would have lost only $500 million for the year. This seems the most logical thing to reform first.
Non-postal services are becoming a bigger issue as the Postal Service's customers urge the organization to jump into the digital arena. This area of the law needs a fresh look.

But I would argue that the price-cap mechanism probably needs the most thoughtful study. I'm not arguing for or against the price cap and I'm certainly not saying we should abandon it because I do think the price cap puts pressure on the Postal Service to cut costs. I just believe that we need to keep the price cap open to study and occasional review.

As the PRC says in its recent decision in the exigent case, the price cap was the centerpiece of the 2006 Postal Accountability and Enhancement Act. It limits increases to the rate of inflation, "which ensures rate stability and predictability for the nation's mail users, and provides incentives for the Postal Service to reduce costs and operate efficiently."

But a recent study by the George Mason University School of Public Policy raises the question of whether a postal system in a declining volume mode - that is, one that is shrinking -- can survive without price increases above inflation. It's a fair question to ask, as the USPS predicts that mail volume will decline by another 20 billion pieces over the next decade. Many will argue that there are plenty of opportunities for the USPS to improve efficiencies, and they are correct. But it doesn't mean we dismiss some of the more controversial issues outright.

My larger point is that we don't have to think about "postal reform" the way we used to - in 30-year increments. Good public policy would have us studying and discussing all pieces of the law and making incremental changes as needed.