USPS Stuck Between Rock and a Hard Place —Michelson

The news that U.S. Postmaster General John Potter announced his retirement effective Dec. 3 is just one more chapter in an ongoing saga at the U.S. Postal Service (USPS). Potter was the 71st successor to Benjamin Franklin and—serving nine years at the helm of the nation’s second largest civilian employer—was actually the longest serving Postmaster General since the 1820s. But, after serving 32 years at the agency, starting from the bottom as a mail clerk, the 55-year-old Potter picked a good time to start collecting his pension.
His successor, current Deputy Postmaster General Patrick Donahoe, faces a projected $7 billion loss in 2011, exacerbated further by the Postal Regulatory Commission’s (PRC) recent ruling that denied an “exigent” rate request by the USPS, as a result of the recession, to raise postal rates in excess of its statutory Consumer Price Index (CPI) price cap. The PRC ruled that the recession has been an extraordinary circumstance, but said the Postal Service failed to quantify the recession’s impact on its finances and to show how its rate increase request (for a 5.6 percent increase, on average) related to the resulting loss of mail volume. In other words, it determined the USPS’ cash flow problems would have occurred whether or not the recession took place. The rate request would have only reduced the $7 billion operating loss by $2.5 billion anyway. The Postal Service has since appealed the PRC’s ruling, but most experts believe the initial determination will be upheld in court.

Perhaps the Postal Service’s appeal was more designed to win over the court of public opinion than the U.S. Court of Appeals. A large part of the blame rests squarely on Congress, which requires the USPS to prepay its retiree healthcare obligations to the tune of $5.4 billion each year—and then uses the funds, interest-free, as a way to make the federal deficit look smaller. And the supposed “bailout” of the USPS last fall really amounted to $4 billion of temporary fiscal relief to meet that prefunding obligation and payment installments. In actuality, the federal government and taxpayer money are not subsidizing the Postal Service; the USPS is subsidizing the government through its arcane prepayment requirements. The Postal Service’s request to end Saturday mail delivery as a way to cut costs also continues to languish in Congress. And, when Potter proposed closing thousands of under-utilized post offices, politicians were quick to respond, “not in my district,” fearing negative backlash from their voting constituencies.

Don’t get me wrong. The Postal Service shares plenty of blame for all of its problems. With entrenched unions and collective bargaining agreements in place, the agency remains overstaffed, both at the worker and, especially, the supervisory, levels. Total employment has been reduced from 787,000 full-time positions in 2001 to roughly 584,000 today. But, it’s been all through attrition, not the aggressive steps needed to lower overall payroll and head counts. With shrinking mail volumes and bloated staffs, idle employees end up being assigned to perform automated tasks. As might be expected, bureaucracy also runs rampant within the USPS, with claims of lengthy internal studies and unnecessary analysis for what should be obvious cost-cutting business decisions.

Unfortunately, for producers of printed products such as direct mail, magazines and catalogs, the Postal Service’s continued viability is critical—like it or not. It’s no surprise there’s a direct correlation between a rise in postal rates and the subsequent decreased volume of printed products that direct marketers, publishers and catalogers send through the mail stream. It creates a vicious circle: postal rates escalate, causing mail volume to decrease, resulting in reduced revenues for the USPS and, consequently, its need to raise rates further. And, that’s not even factoring in the amount of First Class mail that’s been lost to electronic communication and online bill paying. As smart phones, electronic tablets and other Web-capable devices flourish, the need for traditional mail, in general, will become increasingly irrelevant to our children and grandchildren. We just need to figure out how to make sure the same thing doesn’t happen to the need for print.

Mark T. Michelson