Many have believed for some time that the United States Postal Service enjoys very light, even lax regulatory oversight. It makes the recent complaints by Postmaster General DeJoy seem way off base.
Never before has the leadership of the Postal Regulatory Commission admitted its weakness so clearly as two documents issued within ten days recently.
The first was a “white paper” issued by three “postal leaders” and posted by the “Consumer Postal Council” on May 22. The title is: “A Next-Generation, Proactive Postal Regulatory System” and the authors are: Michael Kubayanda, current chair of the PRC, Tom Davis, member of Congress from 1995-2008 and former chair of the House Oversight and Government Reform Committee, and David Williams, former USPS Inspector General and vice chair of the USPS Board of Governors. (Does that title mean that we have to wait until the “next generation” to have a “proactive” postal regulator?)
The paper contends that the PRC, an agency whose only job is to regulate another agency, is completely over-matched by the USPS:
There is a large overall gap in financial, human resource, and IT
capacity between the Postal Service and the Commission. This gap
contributes to limitations in the structure for overseeing the Postal
Service, including a misalignment between information manage-
ment capacity, and responsibility (or incentives) for providing
transparency and data analysis among the federal postal agencies.
The Postal Service is a large and sophisticated information user
that must rely on data to run its internal operations as well as in-
teractions with employees, customers, suppliers, and third-party
intermediaries and mailing experts who help customers access the
postal system. Yet it has little inherent incentive to make raw, un-
edited data easily available in usable formats, or to produce under-
standable and cogent analyses on a significant scale for stakehold-
ers, oversight bodies, and the general public. The Commission’s
mission is to provide transparency and accountability of the Postal
Service (and it has, on its own initiative, developed vehicles for do-
ing so as well as requiring the Postal Service to publish infor-
mation), but it has historically lacked the capacity to provide infor-
mation transparency and analytics on a large scale.
We see this misalignment of capacity and responsibility for infor-
mation transparency in reporting on service performance, such as
the new dashboard required by law…
Few facts better illustrate the overall capacity gap than the con-
trast of an 82-person Commission team working to oversee the
over-600,000-employee, $80 billion Postal Service…
The paper noted upfront that “(t)he Postmaster General, for his part, wondered aloud whether the Postal Regulatory Commission is necessary. The comment may have been made in jest and to prod the Commission to act expeditiously, although he followed it up with scathing criticism of regulatory oversight during a Congressional hearing.”
The white paper continued that “(m)ore frequently, and certainly not in jest, other stakeholders and observers have suggested that the Commission be “proactive” in addressing economic and operational challenges created by changes in the postal system. This sentiment is worth considering as the system experiences a continued decline in mail volume, high inflation affecting the broader economy, aggressive redesign of the processing and delivery networks, and concerns about service performance. The Commission is working to be more agile in responding to these developments and there is an interest in becoming more proactive.”
In other words, the PRC is so under-staffed and -resourced that it must limit itself to a very narrow role of checking compliance with the law, the rules, and the associated math.
The 82-person PRC with a $17 million budget can be contrasted with the Federal Trade Commission with over 1,100 employees and a budget north of $300 million. On the other hand, the scope of the FTC is much wider than the one agency regulated by the PRC: “The Federal Trade Commission enforces a variety of antitrust and consumer protection laws affecting virtually every area of commerce, with some exceptions concerning banks, insurance companies, non-profits, transportation and communications common carriers, air carriers, and some other entities. The agency leverages its resources and targets its enforcement efforts at practices that cause the greatest harm to consumers.”
Market Dominant rates approval
The limitations of the PRC showed up in its order approving USPS rate increases for Market Dominant mail issued on May 31.
The PRC found many errors in the USPS submission. It corrected them and admonished USPS with the main regulatory sanction the PRC employs: it is requiring USPS to send in a report on why it made mistakes.
The regulator failed to address the obvious reason for the mistakes. The move to rate increases every six months requires USPS finance and legal staff to not only work constantly on the next increase but also to not know the impact of the previous hikes before submitting the next set.
More important than the mistakes is the very narrow role of checking math and legal compliance that the PRC limits itself to. Many mailers submitted formal comments expressing grave concerns about the unprecedented decline in USPS operating revenue driven by plummeting volumes that followed the previous rate hikes, most recently in January.
Among the comments were those of the Alliance of Nonprofit Mailers that concluded:
The Commission must take into account how the Postal Service’s pricing strategy impacts nonprofit mailers. The Commission’s regulations require the Postal Service to consider how its planned rate adjustments are in accordance with the provisions of 39 U.S.C. chapter 36, and it is clear that the Postal Service has failed to do so. The Postal Service replaced predictable January price increases that more easily enabled mailers to plan for the coming year with twice-yearly increases that wreak havoc on mailers’ budgets. Its pricing strategy is harming USPS revenues, and it is certainly not “encourag[ing] increased mail volume.” These rate increases are having a deleterious effect on mail users, particularly nonprofit mailers that disseminate educational, cultural, scientific, and informational mail matter. Our members’ charitable service programs benefit society enormously – from treating childhood cancers to combating lung disease, supporting our nation’s veterans, advocating for seniors and consumers, and much more. When they are forced to reduce mail volume, that impairs their fundraising and ability to deliver charitable services which, in turn, harms us all. The negative “effect of rate increases upon the general public” is relevant. Continued declines in mail volume will subject nonprofit (and all market dominant) mailers to even steeper density-based rate increases in the future, if the Commission permits the Postal Service to continue implementing this misplaced and counterproductive pricing strategy.
The Commission cannot continue to allow the Postal Service to ignore a promised pricing strategy of prudence and judiciousness. The USPS has been permitted to implement a series of large, frequent, and compounding rate hikes since 2021, and the results of that approach are plain for all to see: plummeting volumes, reduced revenues, and the USPS lagging behind the goals of its ten-year plan. If the Postal Service will not demonstrate business acumen by exercising pricing restraint, then the Commission – as regulator – must force the Postal Service’s hand. The Alliance strongly encourages the Commission to reject the proposed July 9, 2023 rate adjustments.
The PRC’s order approving the rate hikes dismissed all of the mailers’ comments. Some, such as tying the volume drops to rate increases, were brushed aside as not fully proven.
In response to many comments stating that using the full rate authority and raising rates every six months were hurting USPS and its customers and not achieving financial stability, the PRC deferred completely to the USPS Governors. In other words, the 88-member full-time professional staff led by five full-time professional Commissioners were not going to question the judgment of the nine part-time Governors with no staff who normally defer to USPS management.
Here is part of what the regulator said:
In Docket No. RM2017-3, the Commission emphasized that the Postal Service Governors, not the Commission, set the rates for postal services and are “in the best position to determine how to best utilize the pricing authority and make decisions about specific price increases.” Order No. 5763 at 81, 270. The Commission expected “the Postal Service to use its business judgment in utilizing the tools provided in the system of ratemaking to craft pricing schemes and specific prices” and noted the Postal Service “can choose not to use all of its available rate authority if it decides that doing so would be counterproductive.” Id. at 83, 270. Although the Postal Service can elect not to use all of its available rate authority and is expected to use its business judgment in setting prices and pricing strategies, the Postal Service’s election to use nearly all of its rate adjustment authority in this proceeding (and previous ones) is within the scope of the Postal Service’s price-setting discretion. It is not inconsistent with the expectations the Commission described in Order No. 5763 for the Governors to determine, in their business judgment, that use of nearly all available rate authority is the best utilization of that authority at this time. Thus, while the Governors can elect to bank available rate authority (with the exception of that allowed under 39 C.F.R. part 3030, subpart E), they are under no obligation to do so.
The commenters also argue that the proposed price increases are harmful to mailers generally as well as specific groups of mailers (e.g., nonprofit mailers, rural mailers, Periodicals mailers) and suggest that the Commission should take steps to protect mailers from price increases. As a preliminary matter, the Commission notes that there is no basis to find that the Postal Service should not or cannot use the full scope of the rate authority granted to it, nor does anything in the statute or regulations serve as a legal basis for curtailing price increases for affected mailers. The fact is that increases in postal prices affect all mailers and may affect some more so than others. However, in Docket No. RM2017-3, the Commission was tasked with reviewing the initial Market Dominant ratemaking system and permitted to modify it as necessary to achieve all the objectives of 39 U.S.C. § 3622(b) in conjunction with each other. 39 U.S.C. § 3622(d)(3). Ultimately, the Commission found after multiple rounds of notice and comment that above-inflation price increases were necessary to achieve the objectives. Order No. 5763 at 2-3, 5-10, 16. Further, as explained above, the Commission’s review in this proceeding is limited to whether the planned price adjustments comply with applicable law. 39 C.F.R. § 3030.126(b). Applicable law is defined as the applicable requirements of 39 C.F.R. part 3030, Commission directives and orders, and 39 U.S.C. §§ 3626, 3627, and 3629. Id. As a result, the Commission has no basis for rejecting the proposed price increases due to alleged effects on specific mailers.
The PRC order describes the role of USPS Governors more than once to “exercise their business judgment” when deciding about increasing rates. Yet the Postal Service law specifically defines the Governors’ role as: “The Governors shall represent the public interest generally…” The role of the Governors and the PRC must be to represent the public interest which is much more important and challenging than merely exercising business judgment.
Business Reply Mail or BRM is often a financial lifeline for nonprofits. If that lifeline is delayed or otherwise impeded, the nonprofit’s cash flow is severely impacted.
If you have been experiencing delays or other problems in receiving your BRM from the Postal Service, you can share that information with the USPS Office of Inspector General which is doing an audit. A preview and contact point can be found here under “Business Reply Mail Operations.”
The OIG initiated the audit in large part because of the information the Alliance had provided over several months. The audit team already has interviewed several of our members in-depth, and our executive director has made sure Inspector General Tammy Hull is well aware of its importance to nonprofits. You can help by filling out an online contact form.
So please contact the OIG through the “Upcoming Audit Work” page linked above. The more tangible examples the auditors have, the better the chance for a systemic fix to the problems with BRM, as opposed to the traditional “whack-a-mole” approach.
You might recall that, as a part of the ten-year rate review, the Postal Regulatory Commission proposed a performance-based adjustment to USPS rate increases. Most stakeholders, including the Alliance, had problems with the proposal that would have granted more rate authority for USPS meeting its own goals for productivity and service. There would have been no penalties or reductions of rate authority for missing goals.
When the PRC issued a final rule in November 2020, it included the density, retirement, and non-compensatory adders to help USPS make additional revenue. But it left out the performance-based adder. As the final rule was being tested in the U.S. Court of Appeals, the PRC tried to get the performance adder going again, but USPS asked the regulatory to put it on hold which it did.
Now the regulator is asking for public comments as it restarts the effort with a Federal Register notice:
On January 15, 2021, the Commission
established this proceeding to seek
public input regarding any additional
regulations that may be necessary to
achieve the objectives of the Postal
Accountability and Enhancement Act
(PAEA) 1 over the longer-term,
particularly for issues such as
‘‘maximizing incentives to increase
efficiency and reduce costs, maintaining
high-quality service standards, and
assuring financial stability (including
retained earnings).’’ 2 The Commission
invited comments (see Order No. 5816
at 15) and subsequently extended the
deadlines for filing comments (see
Order No. 5862 at 3).
On June 24, 2021, the Postal Service
filed a motion requesting that the
Commission hold this proceeding in
abeyance pending resolution of a
consolidated appeal from a separate
Commission docket then before the
United States Court of Appeals for the
District of Columbia Circuit.3 The
Commission granted the Motion and
held the instant proceeding in abeyance
until further notice.4
The appeal in question concerned
Docket No. RM2017–3, a docket in
which the Commission adopted final
rules pursuant to 39 U.S.C. 3622(d)(3)
implementing a modified ratemaking
system. See, e.g., Order No. 5928 at 1.
This appeal has been resolved.5
Consequently, the Commission will
reactivate the instant proceeding.
The Commission invites comments on
the topics identified in Order No. 5816.
Initial comments are due by September
15, 2023. Reply comments are due by
October 16, 2023.
While many of the same arguments about efficiency and service incentives will be rehashed, they will be enhanced and colored by almost three years of experience under the new rules. That includes historic rates of decline in mail volumes and unprecedented negative growth in operating revenue despite large rate hikes.
Drawing on the experiences of many other postal operators worldwide that have had to adjust to a system that emphasizes packages more and mail less, the USPS Office of Inspector General issued a “white paper” titled “Industry Trends – Major Investments in Postal Processing Networks.”
The introduction states:
As the Postal Service issued its Delivering for America strategy with little input from stakeholders, and the agency has expressed extreme self-confidence in its unique ability to figure out the grand solution, management is not likely to welcome or spend much time incorporating the OIG suggestions. The terse management comments memo reflected this:
In a rare occurrence, giving to U.S. nonprofits dropped by 3.4% last year. We have long explained that postage rate increases that are more than the increase in revenue received by nonprofits force many to cut back on mailing.
With nonprofit marketing mail letter rates up about 20% and flats increasing 40% in the last two years, combined with less charitable revenue, many nonprofit mailers are forced to reduce mailing. Digital alternatives might be much less effective, but if you cannot afford to pay for mail you must explore other options.
The recently released Giving USA 2023 report concluded:
As the Postal Service does not need additional operating cash in the near term and is not receiving an increase in operating revenue from recent record rate hikes, the agency is unnecessarily causing its loyal nonprofit customer segment to reduce its use of mail more than it otherwise would.