November 4, 2015
We reported on August 31 that Senator Tom Carper (D-DE), the ranking member of the Homeland Security and Governmental Affairs Committee, had been working diligently with stakeholders representing customers, the mailing industry, employees, the Postal Service, the Postal Regulatory Commission, the Office of the Inspector General, the Government Accountability Office, and other interested committee members on a new version of postal reform legislation. We also said at the time that the Alliance hoped to be able to support a bill that is in the best interests of both the Postal Service and its customers for the long-term sustainability of our postal system.
Unfortunately, we cannot support Sen. Carper’s bill because it has too big a price tag for USPS customers–$60 billion present value in surcharge postage—while at the same time limiting the Postal Service’s options for re-sizing its operations to better fit lower mail volumes.
Too high a cost
The $60 billion cost to customers is over and above the $3.957 billion in contribution that the Postal Regulatory Commission determined in its July 29 Order Resolving Issues on Remand. It is key to note that the regulator’s determination was for a dollar amount the USPS should recover for its losses during the 2007-2009 recession. The 4.3 percent surcharge is a vehicle to reach the dollar amount which we project to happen in spring 2016. Then postage rates will revert back to their CPI-capped levels without the temporary surcharge.
The new Carper bill would bake the 4.3 percent surcharge into postage rates forever, marking the first general postal rate increase enacted by Congress since 1968, and thus a return to the legislative ratemaking that the Postal Reorganization Act of 1970 ended. The $60 billion price tag for a permanent surcharge takes the 4.3 percent impact out forever and discounts it to present value.
Too early to give up on consolidation
The new Carper bill severely limits USPS efforts to reduce costs by mandating a moratorium on its facility closing and consolidation efforts for two years for mail processing plants and five years for post offices. In part, the $60 billion customer price tag is needed to offset the opportunity cost of halting the right-sizing of postal operations.
It is not surprising that the transition to a smaller postal system has been difficult and not without bumps in the road. Adjusting from over 200 billion pieces of mail to 150 billion in a relatively short period of time is not easy. It is not impossible, however. The Postal Service has been very transparent about the difficulties; for example, the early 2015 drop off in service. And it has been very firm in its commitment to return to excellent delivery service as it has in recent months.
Halting the progress toward a smaller postal system while hitting customers with a permanent surcharge that will hasten more volume from the mail is not, in our opinion, the answer.
There are many very good reforms in the Carper bill, such as recalibrating the prefunding of retiree health cost to a goal of 80 percent of the estimate over a 40 year amortization. And requiring postal retirees to use Medicare as their primary health insurance would save the USPS some money, although they and the Office of Personnel Management can’t seem to agree on how much. Allowing the USPS to expand its revenue base by entering “non-postal” businesses has longer-term potential. Adding wine and beer to its already booming package business will not hurt.
Stay the course
The fact remains that the Alliance and its brethren postage-paying mailers of letters and flats have spent a good part of the last three-plus years fighting the imposition of the exigent surcharge. We have made more than one trip through the PRC and the U.S. Court of Appeals which together have arrived at thoughtful resolutions to all the issues raised by both sides. We cannot turn on a dime and agree that not only is the surcharge alright, but it’s worth making permanent.
The Alliance certainly appreciates Sen. Carper’s continued interest, dedication, and effort to reach consensus on postal reform legislation. His current bill makes perhaps the best attempt yet to satisfy many of the constituencies involved. But maybe it best illustrates how much more work needs to be done to right-size the system rather than hit existing mailer customers with a devastatingly large permanent surcharge.
The Postal Service will soon report its third operating net income in a row, following four years of operating losses that coincided with the largest part of the volume drop-off. It is the second operating profit in a row over $1 billion. Since the passage of the Postal Accountability and Enhancement Act of 2006, the USPS has posted total operating income over $1 billion. The $50 billion-plus reported losses have been due to pre-funding and accounting adjustments. And the all-important cash liquidity shortage that the Postal Service correctly cited as the most important concern has been resolved with $7 billion in cash equal to about a month of operations with no new income.
We urge the USPS together with the PRC to continue to “stay the course” and make it through this very tough transition to a much leaner postal system, rather than “cut and run” by curtailing efficiency efforts and surcharging customers. The 2006 postal act has a built-in safety valves after ten years. In 2017, the PRC will have an open process to review and revise aspects of its pricing regulation that are not meeting the objectives and factors in the law. In addition, in 2017 the remaining pre-funding of retiree health benefits will be re-amortized over a more reasonable 40 years, requiring that any net liability be paid down by September 30, 2056.