This article originally appeared in the July/August, 2018 issue of Mailing Systems Technology.
This title question could be answered with as simple “yes.” However, in true political fashion, let’s use this question as a jumping-off point for a long-winded answer. But unlike most answers from politicians, this answer will actually be relevant to the question being asked. There are many in the mailing industry who try to make a point of keeping up with what is going on in their industry. Like myself, they probably have friends and family that ask about what is going on with the Postal Service. Recently, I have found myself trying to have one of those conversations, thanks to the recent actions coming from President Trump regarding the topic of the USPS. I found myself thinking: Where do I even begin to try and explain all the craziness that is taking place? So it seems like a good idea to take some time and attempt to describe the situation with facts as we know them… and hope it won’t be labeled as Fake News.
Let’s start at the top. One basic and important fact that many don’t realize is that the Postal Service does not use tax dollars. All postal operations are funded from the sale of postage.
The government says it wants the Postal Service (while a government monopoly) to “run like a business.” Any well-run business has a board that holds the company leadership accountable, oversees the operations of the business, and makes important strategic decisions regarding the future of the company. The Postal Service has a Board of Governors to fulfill these functions. By definition, the board consists of 11 members, which includes the Postmaster General, the Deputy Postmaster General (both non-voting), and nine presidentially appointed board members. The nine board members serve a seven-year term with the ability to serve an additional year, referred to as a hold-over year. All terms are staggered across successive years so at most only two expire on any given year. Seems reasonable, except for the fact that as of December 2016 (which is now over a year and a half ago), we have had zero, yes, zero, governors. Why would that be?
To become a governor on the board, the President must nominate a candidate who the Senate must then confirm. President Obama nominated five members, but Bernie Sanders used a Senate tactic to put a hold on the nominees so they could not hold the necessary hearing to be confirmed by the Senate. Some believe Sanders put the hold on because some of the nominees were considered anti-union. This means that the last governor that was successfully appointed came from the Bush administration. When Congress recessed at the end of 2016, the nominations from President Obama expired. It then became the job of President Trump to nominate new candidates. Given all the other priorities, it took the President nine months (October 26, 2017) to submit nominations for three of the nine open governor seats. Next, it becomes the job of the Homeland Security and Government Affairs Committee to approve the nominees. The necessary hearing was not held until April 18, 2018 (essentially six months after nominations). One nominee withdrew and the other two were approved by the subcommittee on May 8, 2018. The final step to make them official governors is a vote by the full Senate. As usual, politics has stepped in, and there are rumblings that some Senators are threating to use the same hold that Bernie Sanders used on the Obama nominees. One senator is concerned about the nominee David Williams and his position on Alaska Bypass mail. There was an Office of Inspector General (OIG) report that noted concern around the cost to the Postal Service (and mailers) back when Williams was serving as head of the Postal Service OIG. Other Senators have expressed concerned about the lack of a Democratic nominee and potentially using that to put a hold on nominees. Given the current hesitations, it seems unlikely that we will have a new governor on the board any time too soon.
What This Means for Mailers
Only the nine voting Board of Governors have the authority to approve a Postal Service price change. Some may be thinking, wait, the Postal Service has raised prices since December 2016; the last price increase occurred in January of 2018. This is true, but what you may not know is that price increase was approved by the last serving governor (James Bilbray) just before his term expired back in December of 2016, and the price change was approved over a year before it went into effect. The Board of Governors also needs to approve any Postal Service promotions. The Postal Service did not get a last-minute approval from James Bilbray on any promotions for 2018, which is why there are currently no promotions taking place. Without a confirmed governor on the board, the Postal Service does not have the ability to raise prices. Typically, the Postal Service would raise prices in January 2019, but much work and preparation have to occur before implementation. Generally, the Postal Service would get Board of Governor approval for the price change and submit it to the Postal Regulatory Commission (PRC) in October. The PRC serves as the postal regulator. They review, confirm that the proposed prices comply with the law, and approve the prices before the Postal Service can officially implement them. When the math is done right, this can be a fairly smooth and quick process, taking as little as 30 to 45 days. So, looking at where things currently stand, a governor really needs to be approved in the summer session of Congress or it will impact the Postal Service’s ability to raise prices in January 2019, which will only continue to worsen the Postal Service’s financial position.
We keep hearing that the Postal Service is losing billions of dollars. Yes, but there is a bit of a story here as well, and it goes back to 2006, the Bush administration, and the postal reform bill (the Postal Accountability and Enhancement Act, or PAEA) that was passed. The Postal Service agreed to fully fund 50 years of Postal Retiree benefits over a 10-year period. How many companies do you know that fully fund retirement benefits for employees that they have not yet even hired? Another fun little fact is that postal employees pay into Medicare their entire career, just like we do, but when they retire, they don’t use Medicare as a benefit. From here, the line between fact and fiction gets a little blurry, but if Congress would pass legislation to require postal retirees to use Medicare (which they paid into), the pre-funding that the Postal Service partially accomplished would nearly completely fund their retirement obligations. The only problem is this would be a big hit to Medicare and score negatively on the budget, which is a problem Congress has been unwilling to deal with (lacking the necessary crisis of course).
And now we come full circle back to the Postal Service running like a business. When the mailing industry looks to work with a regulated monopoly as a business partner, they are looking for a couple of key items. Predictable/stable prices, reliable service, and confidence that they are a viable business partner into the future. Right now, much of that is in question.
Predictable Prices Are Up in the Air
Back in 2006 when PAEA was passed, mail volume was still growing, and the CPI cap helped to provide the mailing industry confidence in price stability. Unfortunately, the 2008 recession and the resulting temporary exigent surcharge has undermined that confidence in price stability over the past 10 years. While the exigent surcharge has officially expired, half of it is still lingering to be re-instated with the postal reform bills that are currently under consideration. The regulator (PRC) is also not helping with mailing industry price stability concerns. When PAEA was passed, it included the requirement for the PRC to review the rate making system after it had been in effect for 10 years. If the PRC determined that the current rate making system was not working, they were authorized to make whatever changes were necessary to get the system to work. This 10-year review kicked off in December 2016 and is still underway. Extensive comments were provided to the PRC from the mailing industry, the Postal Service, and the postal unions. The PRC has determined that the current system is not working and needs to be changed. They proposed a set of changes that stunned the mailing industry. The PRC’s proposed solution was pretty much a “jack up the rates” approach. Products that were identified as not covering their cost would see postage rates increase as much as 40% over the next five years. The mailing industry has attempted to communicate the mail volume death spiral that would result from such a decision. It is yet to be determined if the regulator is listening, as no communication has occurred since the comment period closed.
No decision is expected from the PRC until after the presidential task force on the Postal Service issues their report. Ah yes, the presidential task force. To add additional chaos to the lack of action and confusion already taking place, on April 12, 2018, President Trump issued an executive order establishing a "Task Force on the United States Postal System." The task force has broad authority to investigate issues impacting the Postal Service and the broader postal ecosystem. The task force will "consider the views of the USPS workforce; commercial, non-profit, and residential users of the USPS services; and competitors in the marketplace." A report is due within 120 days of the issuance of the executive order, so this should occur around mid-August.
In case that wasn’t enough to stir the pot and create additional uncertainty around the future of the Postal Service, on June 21, 2018, the Executive Office of the President of the United States released a report titled: "Delivering Government Solutions in the 21st Century: Reform Plan and Reorganization Recommendations." Within this report, it discusses the privatization of the Postal Service. The summary states: “This proposal would restructure the United States Postal System to return it to a sustainable business model or prepare it for future conversion from a Government agency into a privately-held corporation.” It also notes that the President’s task force on the United States Postal System will make recommendations on reforms towards this goal in August 2018.
So, Is the Government Killing the Postal Service?
The government is currently refusing to let the Postal Service be run as it is currently designed to be run. The financial condition of the Postal Service has been a concern for going on 10 years now, yet the government has failed to act on any type of postal reform that would resolve key concerns directly related to their financial viability. If you were a business that was dependent on the Postal Service as a viable partner, what would you do? If you are still wondering why mail volume continues to decline, then maybe you should strongly consider running for Congress.
Bob Schimek is Senior Director of Postal Affairs at Quadient.