Association for Postal Commerce

Understanding what’s going on and who’s doing what when it comes ot proposing changes to postal law to address the challenges being faced by the U.S. Postal Service (USPS) today can be a formidable challenge. To understand, it’s best to view the subject in as systematic a manner as possible.

The challenge facing the Postal Service is a simple one to understand. It’s costs are much greater than its revenues, and the size of its human and physical infrastructures (which are at the base of its costs) are much larger than can be justified by an realistic estimate of future mail volumes and workload demands. The Postal Service know this. Mailers know this. Postal labor knows this. About the only people who appear to be a bit in the dark are the people who are proposing the many changes to the nation’s postal laws.

To help facilities everyone’s understanding, the Postmaster General has emphasize that the Postal Service needs to reduce its costs by $20 billion by 2015 to prevent the USPS from facing fiscal collapse. The Postmaster General and his management team have identified three main areas of savings to remain self sustaining. Table 1 shows these areas and the amount of savings the USPS projects by 2015.

Table 1: USPS’ $20 Billion Savings Plan	Amount of Savings
Network	$6.5 B
Sorting and Transportation
Retail
Delivery
Compensation & Benefits	$5.0 B
Flexibility, Benefits, Wages/Admin
Legislative Changes	$8.5 B
RHB Pre-Funding Resolved
Five-Day Delivery

Total	$20.0 B

Network. The Postal Service has many flexibilities under the current law, especially when aligning its network resources to match the needs of the industry. The Postal Service has made some progress with reforms it can pursue without the help of Congress, including plans to:

$ Review 3,600 low-activity Post Offices for potential closure, consolidation or contracting.

$ Enhance and expand alternate access sites, including Village Post Offices and usps.com.

$ Make it easier to do business with the Postal Service with new, innovative products.

Yet, on December 13, 2011, the Postal Service, in response to a request from several U.S. Senators, agreed to delay the closing or consolidation of any Post Office or mail processing facility until May 15, 2012. It said that it would continue all necessary steps required for the review of these facilities during the interim period, including public input meetings, in hopes that there would be enactment of comprehensive postal legislation.

The Postal Service has defined network optimization initiative as meaning fewer facilities, greater utilization and efficiency; earlier mail availability driving more efficient local delivery; and more retail partners, kiosks, and more online with fewer brick and mortar post offices. By law, it must seek an advisory opinion for the Postal Regulatory Commission on any change to nationwide service.

Currently before the Commission is Docket No N2012-1, Mail Processing Network Rationalization Service Changes, 2012. The Docket will close in mid-July and then the Commission will have to deliberate the merits of the case. The Commission recently denied the Postal Service’s request for an expedited schedule, shorten the deadline to mid-April. The PRC sited due process as the major deterrent to shorten the procedural schedule. The Postal Service has forecasted a net annual savings of $2.1 billion, and is projected to save up to $3 billion by 2015.

In furthering its network realigning, the Postal Service has pursued advisory opinions for Retail Access Optimization Initiative in 2011, a program that identified more than 3,600 post offices and other retail facilities for possible closure. The Commission found that the initiative was not designed to optimize the network as intended by the Postal Service. The Commission recommended the use of modern optimization tools and techniques to better maximize net retail revenues while fulfilling statutory service obligations. It was unable to develop reliable cost savings estimates because the Postal Service does not collect facility-specific revenue and cost data, or separate retail costs from other operational costs. The Commission found that such data should be available for use in comprehensive facility closing plans.

In addition to retail and processing consolidation and closures, the Postal Service has and continues to aggressively pursue an optimization initiative that has led to fewer delivery routes, despite the growth in delivery points, along with more efficient usage of vehicles and fuel. It has renegotiated with its unions to help consolidate routes for more efficient and less costly delivery of mail as the revenue per delivery points continues to decline.

Despite its best efforts, the Postal Service will not get a reprieve from Congress. Even with the moratorium of closures in hopes of comprehensive legislation, current legislation does nothing but weigh down the Postal Service with additional regulation, timeframes, and mandates. Table 2 compares a Senate bill (S. 1789) sponsored by Senators Lieberman, Collins, Carper, and Brown and the House bill (H.R. 2309) sponsored by Representatives Issa and Ross. Both bills have made it out of committee and have been scored by the Congressional Budget Office. Both are ready for time on the Senate and House floors respectively.

Table 2: Network Optimization - Congress’s response
S. 1789	H.R. 2309
USPS to complete study; 45 day public comment period; 30 day period to consider factors by USPS; 15 days after publication on USPS website, USPS may close facility	Joint plan from USPS and OIG on closure/consolidation of mail processing facilities;
Develop/update every 5 yrs a plan for how to consolidate area/district offices; consolidate offices located within 50 miles of each other; to consolidate offices that have lees than the mean mail volume and number of workhours for all area/district offices; and to relocate area offices to HQ	Joint plan by USPS and PRC on closure and consolidation of retail facilities
	Reduces the deadline for PRC review of post office closures from 120 days to 60 days. It excludes any post office from the PRC appeals process if a contract postal unit is opened within two miles of the applicable post office, providing that the CPU stays open at least 2 years.
	Eliminates the restrictions in 39 U.S.C. 1001 (a) that USPS cannot close a small post office solely for operating a deficit
	Requires PRC to issue advisory opinions within 90 days for any proposal concerning the closing or consolidation of postal retail services.

The Postal Service would be worse off if either legislation were enacted, due to the added restrictions and additional requirements that would be placed it. The Postal Service has less constraints under current law.

Compensation and benefits. The Postal Service seeks legislative changes in additional to network realignment by:

$ giving the Postal Service the ability to adjust the size of its workforce to match operational needs and the changing marketplace.

The Postal Service, based on projected revenues and costs by 2015 can afford a workforce of 425,000[1]. Through past efforts, the Postal Service estimated achieving a total staff reduction by attrition to be 100,000, which would still leave the Postal Service with the need to reduce its complement by 220,000 career positions between now and 2015. It has asked Congress for the ability to aggressively reduce its workforce by 120,000 through a change in legislation to eliminate the layoff protections in the current collective bargaining agreements or process. The Postal Service said, in its “Workforce Optimization Discussion Draft” that, “[r]eductions in bargaining unit postal employees should be governed by the RIF provisions applicable to federal competitive service employees. These provisions must supersede existing contract provisions and should not be subject to modification or supplementation through collective bargaining to avoid conflicts of law and to maintain necessary continuity among bargaining units.”

Under current law, the Postal Service must provide employees compensation and benefits comparable to the private sector. It does not control the health care benefits programs for its employees or its retiree, but can negotiate the cost appropriations with its unions. The last few collective bargaining agreements have reduced the Postal Service’s percentage of appropriations. Employees, as government employees, participate in the Federal Employees Health Benefits program which is controlled by the Office of Personnel Management (OPM). The Postal Service is seeking a legislative change to allow it the ability to establish its own health benefits program. It believes it can incorporate private sector best practice, save money, while providing comparable benefits to employees. The Postal Service is seeking this legislatively because it does not believe that survive the arbitration process.

Table 3 shows how S. 1789 would direct the Postal Service to address this issue. Again, the Postal Service’s cost reduction goals in regards to compensation and benefits are met with this proposed legislation. The House equivalent does address this postal need at all.

Table 3: Compensation and benefits - Congress’s response
S. 1789	H.R. 2309
Allow USPS to enter into negotiations with unions to develop a new health care plan outside of FEHB	Eliminates no lay-off clause for all postal employees.
Maintains the last sentence of 39 USC 1005(f). Requires any non-FEHB health plan to be consistent with 1005(f) as written.	Eliminates the last sentence of 39 USC 1005(f). This sentence means that under current law it is illegal to reduce the level of benefits offered to postal employees.
USPS to a) require medicare eligible retirees to enroll in Medicare parts A and B; b) work with OPM to develop Medigap-like plans that offer comparable benefits w/in Fed Employee Health Benefits program for postal retirees and their dependents	Equalizes share of benefits costs paid by postal workers to that of federal workers.

Legislative changes. The Postal Accountability and Enhancement Act of 2006 requires the Postal Service to pay $5.5 billion annually into a retiree health benefit fund, in addition to what’s been paid to cover current retirement liabilities. The Postal Service is the only entity, public or private that is responsible for making such a prefunding payment. PAEA laid out an aggressive 10-year prefunding schedule to cover the$50 billion liability. In previous legislative initiatives, many postal stakeholders, including the USPS Office of Inspector General have asked for overpayments into the Civil Service Retirement System (CSRS) and the Federal Employee Retirement System (FERS) to be transferred to cover the estimated future retiree health benefit liability of $50 billion that looms over the Postal Service.

In late 2011, the Government Accountability Office issued a report stating that there was no CSRS overpayment that could be transferred. OPM has agreed, however, that an overpayment does exist when it comes to FERS.

Congress took the CSRS transfer off of the table, and the Postal Service is now asking for a complete revamping of the payment structure or deferment of payments altogether. A legislative change to PAEA is needed to make any adjustments in the USPS’ payments to Treasury.

Congress allowed the Postal Service to defer its 2011 payment of $5.5 billion to the retiree health benefits fund in the continuing resolutions for FY2012. It now owes Treasury $11.1 billion for FY2012 due by September 30, 2012. The Postal Service has made it clear that it will not have the money to make this payment.

The Postal Service, in 2010, asked the Postal Regulatory Commission for an advisory opinion on its proposed changes on days of delivery. On March 4, 2011, the Commission issued, one full year after the request, an opinion that neither denied or approved the Postal Service’s proposal. The Commission concluded that the Postal Service overestimated its annual net savings by $1.4 billion from a one-day reduction in delivery service. Instead of a represented $3.1 billion in savings, the Commission said it was worth a more meager $1.7 billion.

With the Commission taking no firm position, the only thing that stoped the Postal Service from moving forward with a five-day delivery plan was a thirty year appropriations rider that has been part of he federal government’s annual budget process. It is seeking additional legislative changes. Table 4 shows how Congress wishes to handle these two issues.

Table 4: - Legislative changes - Congress’s response
S. 1789	H.R. 2309
Restructure USPS' payments, a 40yr amortization schedule. Reduce prefunding goal to 80%	N/A
Prohibit USPS from 5-day for 2 years, then USPS must: 1)identify affected customers and develop remedies; 2) use everything to increase revenues	Option of eliminating Saturday delivery

Additional legislation. The majority of this article focused on S. 1789 and H.R. 2309 since these are out of committee. Table 5 shows other legislative proposals that have been advanced and it shows these bills do not support the Postal Service’s $20 billion cost reduction plan.

Table 5: Additional legislation
H.R. 2967	S. 1853	White House
Network Optimization
Enhances reporting to Congress and PRC on right-sizing network	Places restrictions on closure of postal facilities; USPS conduct investigation to assess need of closure; allow public period; OIG to do follow up study	N/A
Standardizes processes for closing retail facilities and streamlines appeal rights
Compensation and benefits
N/A	N/A	N/A
Legislative changes
N/A	USPS may not increase the expected delivery time for market dominant products	To reduce mail delivery from six days to five days

Additional postal legislation. The Postal Service has not been shy about asking for additional legislation and refunding of overpayments. Table 6 shows the additional legislative wants of the Postal Service has how the different bills stack up.

Table 6: Additional postal legislation
S. 1789	H.R. 2309	H.R. 2967	S. 1853	White House
FERS refund - All Congressional stakeholders agree exists
used for buyouts (up to $25K) or additional service credits. Any leftover can then be used for repaying debt, worker's comp, paying down retiree	Required to be expended by end of FY2015, directing it to buyouts	Refunds $6.9 B; use surplus to encourage early retirement and voluntary separation	any overpayment into retirement annuity be transferred to RHBF	provide USPS with a refund over two years of the $6.9 billion surplus in Postal contributions to the FERS program;
Transfer CSRS overpayment or allow USPS to restructure healthcare system
allow USPS to enter into negotiations with unions to develop a new health care plan outside of FEHB	N/A	Repeals current schedule; requires OPM to establish more practical schedule; amortized over longer period	any overpayment into retirement annuity be transferred to RHBF	restructure Retiree Health Benefit pre-funding in order to accelerate moving these Postal payments to an accruing cost basis and reduce near-year
Retirement Plan - allow USPS to provide a defined contribution retirement plan for new hires
N/A	N/A	N/A	N/A	N/A
Streamlined Governance Model - speed pricing and product decisions
Default timeline of 90 days for advisory opinions to be issued by USPS, USPS can not act until 30 days after opinion is issued	Requires PRC to issue advisory opinions within 90 days for any proposal concerning closing/consolidation of postal retail services; 90-day timeframe on any proposal that is identical to one within 5 years.		Adds additional Postal Innovation Advisory Commission

Conclusion. In reviewing the legislation above, three criteria needs to be consider of any postal reform measure:

$ It must ensure the Postal Service is set up to operate on a self-sufficient basis, and

$ It must ensure the ability of the Postal Service to satisfy the nation’s postal needs.

Anything less than that and postal stakeholders will be back in a few years demanding additional postal legislation. This review shows that none of these bills meet the criteria needed for long-term legislation. Congress still has a lot of work ahead of them to accomplish these objectives for long term postal reform.

^{^[1]}Based on current revenue and cost trends, and assuming a move to 5-day delivery, the Postal Service can only afford a total workforce by 2015 of 425,000, which includes approximately 30% lower cost, more flexible, non-career employees.