June 13, 2018

Four postal unions banded together to meet with the President’s Task Force and to make joint observations and recommendations. In one sense they agree with us that a major remake of USPS is not necessary.  But after that, we part ways.

The unions believe that the mandate to prefund retiree obligations is the major problem facing USPS.  We disagree because Congress, Treasury, OMB, OPM, and everyone involved have essentially forgiven these excessive and unnecessary payments.  Yes, of course the “obligations” should be removed or recalculated, but they are not really obligations because no one is asking USPS to actually make the payments.

The unions want to limit the Task Force to the prefunding sideshow and allow the PRC to move forward on gouging captive customers in the ten-year regulatory review.

The postal union point of view, not surprisingly, is all about employment (80 percent of USPS costs) and not about the mailers who fund the operation with 90 percent of its revenue: “The NALC, the American Postal Workers Union (APWU), National Postal Mail Handlers (NPMHU), and National Rural Letter Carriers (NRLCA), collectively represent more than 500,000 Postal Service employees who are a critical part of the $1.4 trillion mailing industry, which employs 7.5 million Americans in total.”

The union argument for the status quo is based on surveys of the general public that is happy to receive a daily government service for free: home delivery.  They do not mention satisfying the customers who actually pay 90 percent of the revenue: “At the meeting NALC made it clear that the Postal Service, an agency with an 88 percent favorability rating with the American people, does not need a new business model or a fundamental restructuring. Instead, Rolando called on the Task Force to focus on the real source of the Postal Service’s financial crisis:  The mandate to prefund retiree health benefits decades in advance, which accounts for 92% of the agency’s reported losses since 2007.”

The unions want more money to pour into USPS, as they believe the price cap incentive system must be riddled with errors and mistakes:

“The other major policy error in the PAEA had to do with the pricing of postage for Market Dominant products — the letter mail, periodicals, and marketing mail that make up 95% of total mail volume. The law implemented an overly stringent price cap on postage increases – linking them to general inflation, as measured by the Consumer Price Index, instead of an index related to the actual costs of providing universal delivery services (such as the CPI for Delivery Services or the Producer Price Index for Warehousing and Delivery Services).

o This mistake was compounded by a regulatory error committed by the Postal Regulatory Commission. In 2016, after granting the Postal Service an emergency rate increase (above that allowed by the change in the CPI) under the law’s “exigent” increase procedure to deal with the negative impact of the Great Recession, the Commission erred when it decided to make the ‘exigent’ increase temporary. This is the case because the 4.3% increase was implemented to deal with a permanent 20% reduction in letter mail volume. Yet the exigent increase was repealed in April 2016 – the first reduction in postage rates in nearly 100 years. That decision has cost the USPS more than $4 billion since 2016 and has shifted the USPS from earning operational profits to recording a small operating losses (sic) in 2017 and 2018.

o Fortunately, the PAEA already provides a mechanism to repair and improve the Postal Service’s pricing policy. It mandated a formal review of the price-setting system by the PRC after 10 years. That review, begun in December 2016, is now underway and provides an excellent opportunity for our regulators to strengthen the Postal Service with a more appropriate postage rate-setting process.”

Senator Bernie Sanders (I-VT) sent a letter to Treasury Secretary Steven Mnutchin, largely supporting the union position.  Like the unions, Sanders makes no mention of the customers who actually fund the operation.  He is very concerned about just about everyone else and takes for granted that excessive postage increases will be like manna from heaven, rather than money out of the pockets and operations of thousands of businesses and organizations. He apparently values government jobs much more than private sector jobs:

“Remove the artificial price cap. From January 2014 to April 2016, the Postal service was able to add a small surcharge to mailing products and services to make up for revenue lost during the Great Recession. The surcharge generated $4.6 billion in revenue for the Postal Service. In April 2016, it was forced to end the surcharge and the price of a stamp was rolled back by two cents, costing it about $2 billion in revenue a year. Today, the rate system is capped by the Consumer Price Index (CPI). The rate cap is a hindrance on meeting the Universal Service Obligation.  As the Postal Service’s Inspector General found, ‘it may be possible to fix the funding issue by simply allowing the Postal Service to increase prices beyond the current price cap.’”

Note the value-laden characterizations in Senator Sanders’ letter:

• “small surcharge” …so don’t worry about it
• “surcharge generated” …like manna from heaven
• “forced to end the surcharge” …but you said it was “for revenue lost during the Great Recession”
• “stamp was rolled back by 2 cents” … 2 cents is so small
• “costing it about $2 billion” …someone bad is costing USPS lots of money
• “the rate cap is a hindrance” …not a business-like incentive
• “simply allowing” …it’s easy, unleash the monopoly!