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Is Government Neglect Killing the Postal Service?

Bob Schimek
Posted by Bob Schimek Senior Director of Postal Affairs Friday, August 10, 2018 - 10:28

Schimek applies his 26-plus years of mailing industry experience to provide product management and strategic direction for Quadient’s mailing business, formerly known as Satori Software. As Senior Director of Postal Affairs for Quadient, Bob Schimek serves as primary liaison between Quadient and USPS on technical matters affecting the company’s mailing solutions, which include CASS and PAVE certified software, integrated 48-month NCOALink processing and post-sort solutions. 

Customer Experience Update
Is Government Neglect Killing the Postal Service?

This could be answered with as simple “yes”. However, in true political fashion, let’s use this question to provide a long winded answer. Unlike most answers from politicians, this answer will actually be relevant to the question being asked. There are many in the mailing industry who try to make a point of keeping up with what is going on in their industry. Like myself, they probably have friends and family that ask about what is going on with the post office? Recently I have found myself trying to have one of those conversation, thanks to the recent actions coming from President Trump regarding the topic of the Postal Service. I found myself thinking: where do I even begin to try and explain all the craziness that is taking place? So it seems like a good idea to take some time and attempt to describe the situation with facts as we know them, and hope it won’t be labeled as Fake News.

Let’s start at the top, one basic and important fact that many don’t realize is that the Postal Service does not use tax dollars. All postal operations are funded from the sale of postage.

The Government says they want the Postal Service (while a government monopoly) to “run like a business”. Any well run business has a board that holds the company leadership accountable, oversees the operations of the business, and makes important strategic decisions regarding the future of the company. The Postal Service has a Board of Governors to fulfill these functions. By definition, the board consists of 11 members which include the Postmaster General, the Deputy Postmaster General (both non-voting) and 9 presidentially appointed board members. The 9 board members serve a seven year term with the ability to serve an additional year, referred to as a hold-over year. All terms are staggered across successive years so at most only two expire on any given year. Seems reasonable, except for the fact that between December 2016 and August 2018 (which is over a year and a half), we had had ZERO, yes 0, Board of Governors. Two of nine open positions were officially filled at the end of August 2018.

To become a Governor on the Board, the President must nominate and the Senate must confirm each candidate. President Obama nominated 5 members but Bernie Sanders used a Senate tactic to put a hold on the nominees so they could not hold the necessary hearing to be confirmed by the Senate. Some believe Sanders put the hold on because some of the nominees were considered anti-union. When Congress recessed at the end of 2016, the nominations from President Obama expired. It then became the job of President Trump to nominate new candidates. Given all the other priorities, it took the President 9 months (October 26, 2017) to submit nominations for 3 of the 9 open Governors seats. Next, it becomes the job of the Homeland Security and Government Affairs Committee to approve the nominees. The necessary hearing was not held until April 18, 2018 (essentially 6 months after nominations). One nominee withdrew and the other two were approved by the subcommittee on May 8, 2018. The final step to make them official Governors is a vote by the full Senate which occurred at the end of August 2018. As usual, politics stepped in, and for a short time there was a hold put on the nominee David Williams based on his position on Alaska Bypass mail. There was an OIG (Office of Inspector General) report that noted concern around the cost to the Postal Service (and mailers) back when David was serving as head of the Postal Service OIG. Having two officially approved Governors is finally taking a small step in the right direction. Trump has also recently nominated two additional candidates, and if they are confirmed by the Senate, this would get the Board of Governors their first official quorum in years.

Only the 9 voting Board of Governors have the authority to approve a Postal Service price change. Some may be thinking, wait, the Postal Service has raised prices since December 2016, actually the last prices increase occurred in January of 2018. This is true, but what you may not know is that price increase was approved by the last serving Board of Governor (James Bilbray) just before his term expired back in Dec 2016. So the price change was approved over a year before it went into effect. The Board of Governors also needs to approve any Postal Service promotions. The Postal Service did not get a last minute approval from James Bilbray on any promotions for 2018, which is why there are currently no promotions taking place. With confirmed Governors now on the Board, the Postal Service will have the ability to raise prices. The PRC serves as the postal regulator. They review, confirm that the proposed prices comply with the law, and approve the prices before the Postal Service can officially implement them. When the math is done right, this can be a fairly smooth and quick process taking as little as 30 to 45 days. So looking at where things currently stand, the two new Governor will need to be quickly brought up to speed to raise prices in January 2019 and provide the need approval to offer promotions again.

We keep hearing that the Postal Service is losing billions of dollars. Yes, but there is a bit of a story here as well. Going back to 2006, the Bush administration, and the postal reform bill PAEA (Postal Accountability and Enhancement ACT) was passed. The Postal Service agree to fully fund 50 years of Postal Retiree benefits over a 10 year period. How many companies do you know that fully fund retirement benefits for employees that they have not yet even hired? Another fun little fact is that postal employees pay into Medicare their entire career, just like we do, but when they retire, they don’t use Medicare as a benefit. From here the line between fact and fiction gets a little blurry, but if Congress would pass legislation to require postal retirees to use Medicare (which they paid into), the pre-funding that the Postal Service partially accomplished would nearly completely fund their retirement obligations. The only problem is this would be a big hit to Medicare and score negatively on the budget which Congress has been unwilling to deal with (lacking the necessary crisis of course).

Coming back to the Postal Service running like a business. When the mailing industry looks to work with a regulated monopoly as a business partner, they are looking for a couple of key items. Predictable/stable prices, reliable service, and confidence that they are a viable business partner into the future. Right now, much of that is in question.

Predictable/Stable prices: Back in 2006 when PAEA was passed, mail volume was still growing, and the CPI cap helped to provide the mailing industry confidence in price stability. Unfortunately the 2008 recession and the resulting temporary exigent surcharge has undermined that confidence in price stability over the past 10 years. While the exigent surcharge has officially expired, half of it is still lingering to be re-instated with the postal reform bills that are currently under consideration. The regulator (PRC) is also not helping with mailing industry price stability concerns. When PAEA was passed, it included the requirement for the PRC to review the rate making system after it had been in effect for 10 years. If the PRC determined that if the current rate making system was not working, they were authorized to make whatever changes were necessary to get the system to work. This 10-year review kicked off in December 2016 and is still underway. Extensive comments were provided to the PRC from the mailing industry, the Postal Service, and the Postal Unions. The PRC has determined that the current system is not working and needs to be changed. They proposed a set of changes for comment that is safe to say “stunned” the mailing industry. The PRC proposed solution was pretty much a “jack up the rates” approach. Products that were identified as not covering their cost would see postage rates increase as much as 40% over the next 5 years. The mailing industry has attempted to communicate the mail volume death spiral that would result from such a decision. It is yet to be determined if the regulator is listening, as no communication has occurred since the comment period closed.

No decision is expected from the PRC until after the Presidential Task Force on the Postal Service issues their report. Ah yes, the Presidential Task Force. To add additional chaos to the lack of action and confusion already taking place, on April 12, 2018 President Trump issued an executive order establishing a "Task Force on the United States Postal System". The Task Force has broad authority to investigate issues impacting the Postal Service and the broader postal ecosystem. The Task Force will "consider the views of the USPS workforce; commercial, non-profit, and residential users of the USPS services; and competitors in the marketplace." A report is due within 120 days of the issuance of the executive order, so this occurred in mid-August, but it has yet to be made public. It is currently unknown when the PRC will take their next step in the 10-year rate review process.

In case that wasn’t enough to stir the pot and create additional uncertainty around the future of the Postal Service, on June 21, 2018 the Executive Office of the President of the United States released a report titled: "Delivering Government Solutions in the 21st Century: Reform Plan and Reorganization Recommendations". Within this report, it discusses the privatization of the Postal Service. The summary states: “This proposal would restructure the United States Postal System to return it to a sustainable business model or prepare it for future conversion from a Government agency into a privately-held corporation.” It also notes that the President’s Task Force on the United States Postal System will make recommendations on reforms towards this goal in August 2018.

So is the Government killing the Postal Service? 

The government is currently greatly restricting the Postal Service ability to be run as it is currently designed to be run. The financial condition of the Postal Service has been a concern for going on 10 years now, yet the government has failed to act on any type of Postal reform that would resolve key concerns directly related to their financial viability. If you were a business that was dependent on the Postal Service as a viable partner, what would you do? If you are still wondering why mail volume continues to decline, then maybe you should strongly consider running for Congress.

 

Published in Mailing System Technologies and updated September 2018.