May 8, 2019

As if mailers don’t have enough to worry about, another shoe to drop was revealed at the April 30 hearing of the House Committee on Oversight and Reform: The Financial Condition of the U.S. Postal Service.  Blistering questioning of Postmaster General Megan Brennan by Congressman Mark Meadows (R-NC) disclosed that the Postal Service had promised Meadows in January a USPS “ten-year plan.”

There was dispute about when the plan was promised.  In the end, the PMG said about 45 days, and Chairman Elijah Cummings (D-MD) remarked he would hold her accountable by scheduling a hearing.  We now understand it likely will be in the week after Independence Day.  (The Alliance of Nonprofit Mailers Board will meet July 8-9.)

So, in addition to the President’s Task Force on the United States Postal System and the Postal Regulatory Commission’s Statutory Review of the System for Regulating Rates and Classes for Market Dominant Products, we have another potential bombshell to anticipate.

We immediately flashed back to the March 2010 USPS release of Ensuring a Viable Postal Service for America: An Action Plan for the Future.  We did so not only because it was the last attempt at a USPS “strategic plan” but also because it has been their playbook for the subsequent nine years.

It will be most interesting to see how much the 2019 plan differs from the 2010 version.  In 2010, USPS committed to strong internal management, but focused more on legislation increasing “flexibilities” to close the remaining losses.

Internal actions would save $123 billion over ten years: “Without fundamental change, cumulative losses could reach more than $238 billion by 2020. To avoid potential insolvency, the Postal Service has developed an ambitious but achievable plan, taking steps allowed under current law to reduce the projected gap by $123 billion.”

USPS said in 2010 that legislative change was needed:

“…the Postal Service can continue to fulfill its mission at no cost to American taxpayers, but only with additional flexibility that would have to come through legislative changes. They include:

1. Retiree Health Benefits Prefunding. Restructure retiree health benefits payments to “pay-as-you-go,” comparable to what is used by the rest of government and the private sector. This equates to an average of $5.6 billion in cash flow per year through 2016. Address overpayments to the Postal Service’s Civil Service Retirement System pension fund.
2. Delivery Frequency. Adjust delivery days to better reflect current mail volumes and customer usage. Survey data show that the public favors 5-day delivery over using taxpayer funds and other alternatives.
3. Expand Access. Modernize customer access by providing services where the customers are. Increase and enhance customer access through partnerships, kiosks, and improved online offerings, while reducing costs.
4. Workforce. Establish a more flexible workforce that is better-positioned to respond to changing demand patterns as over 300,000 employees become eligible to retire in the coming decade.
5. Pricing. Ensure that prices of Market Dominant products can be based on the demand for each individual product and its costs, rather than capping prices for every class at the rate of inflation. In addition, pursue a moderate exigent price increase effective in 2011.
6. Expand Products and Services. Permit the Postal Service to evaluate and introduce more new products consistent with its mission, allowing it to better respond to changing customer needs.
7. Oversight. Reinforce these changes with more clearly defined, appropriate, agile oversight roles and more streamlined processes.”

The 2010 USPS plan envisioned these fundamental legislative changes:

The Postal Service in its 2010 plan projected much larger losses than have been realized:

The Postal Service pendulum swung from optimism to extreme pessimism in March 2010 as indicated in its mail volume forecast.  Reality has been very close to the USPS “Best Case” with volume near 150 billion the last six years.

Postal management has stayed “on message” repeating most of the seven legislative “asks” on a quarterly basis.  Two important developments are worth noting.

First, in 2010, USPS said that it would need legislation to alter the CPI price cap established by Congress on Market Dominant mail pricing on 2006.  More recently, postal management argues that the regulator can undo what Congress wrote in law by throwing out the price cap in the ten-year rate review.

Second, after Postmaster General Patrick Donahoe abandoned his efforts to reduce mail delivery to five days a week, USPS has been silent on legislative initiative #2.  That is, until April 30, when PMG Brennan revealed that five-day delivery of mail and seven-day delivery of packages are in the 2019 version of its strategic plan.  She remained adamant that it must be seriously considered even after Congressman Meadows said “that dog won’t hunt,” and other committee members agreed.

One of the most interesting things about the July 2019 USPS plan will be how much it differs from the March 2010 version.

We assume that the PRC will need to wait until after the release and discussion of the new plan before the regulator takes further action in its ten-year review of the rates regulation system.