President's Hotline Message

December 13, 2005

Steve LeNoir, President

Greetings Fellow Postmasters and LEAGUE Members

The Good News

The good news from the LEAGUE side of the house is that effective January 2006, Postmasters will see a $3.00 per month decrease in their LEAGUE membership dues. Years ago, a building fund assessment was added to our dues structure to service the mortgage on our LEAGUE Headquarters’ property. This assessment is no longer necessary because we have paid off the mortgage on our property at 1023 North Royal Street.

Let me give you a brief history of how we got to this point. Around three years ago, we outsourced the claims processing of our PBP Health Plan. We went from a staff of over 100 employees to a workforce of approximately 20 employees today. We found ourselves dealing with an aging building with over five times the space we needed to operate efficiently. We were approached by a developer who wanted to demolish the building and construct town houses on our property. It was indeed determined that residential and not office space was the best use of the property, and we were paid a handsome price for that prime piece of real estate. The market conditions today in the Alexandria/ Washington area are such that there is a glut of lease office space available, but not many good properties to invest in. Armed with this knowledge, we ultimately chose to lease office space at this time, with a eye toward purchasing a headquarters’ building when market conditions change. We closed on the sale of our former headquarters’ property in November and, after retiring the mortgage with the Atlanta Postal Credit Union, we had a substantial amount of cash leftover.

I have formed an Investment Advisory Committee that met here at our new LEAGUE Headquarters in December. We interviewed four investment firms and have narrowed our focus down to two. We intend to make our final decision by January 1st and put that money to work. A special thanks to our LEAGUE Postmasters who helped us service that mortgage and stuck with us through a difficult time. So, the good news for the LEAGUE is that we’ve reduced our dues, retired our debt, and now have major investments.

Good News Also for the Postal Service

At the December 6 Board of Governors meeting in Washington, DC, it was reported that for FY 05 the Postal Service had a net income of $1.4 billion on record revenues of $70 billion and record volume of 212 billion pieces of mail. (So much for declining volume.) First Class mail even grew slightly in 2005 after three years of decline. Postage rates have remained stable since 2002. The operating surplus during those three years has been used to reduce the Postal Service’s $11 billion debt down to zero. So, 2005 has been a banner year for the LEAGUE and the Postal Service in eliminating long-term debt!

Now for the Bad News

On January 8, 2006, the Postal Service is being forced to implement a rate increase. This is to comply with legislation passed in 2003 requiring the Postal Service to put aside over $3 billion each year into an escrow account beginning in September 2006. This is nothing more than a “back door stamp tax.” The Postal Service originally projected an operating surplus of around $1.3 billion for 2006, but with the anticipated escrow requirement of $3.1 billion, the Postal Service will likely have a net deficiency of about $2 billion. Past history has shown that in the first year of a rate increase, we make money. The second year, we break even, and we lose money in the third year. All of this has been thrown out of the window due to the escrow requirement.

Raise rates by 5.4 percent and still lose money in the same year? The bottom line is that we need legislative relief from the escrow requirement. If we don’t get it, we have to go back to our mailers in 2007 to ask for another rate increase.

There comes a point in pricing when you kill the goose that lays the golden egg. We are near that point. We need to be extremely careful not to price ourselves out of the market and drive our customer base to other forms of communication.

While 2005 was a great year for the LEAGUE and the Postal Service, we certainly have our challenges waiting for us in 2006.

--Steve LeNoir, LEAGUE President