Back in the 1980s, particularly during the Reagan administration, an often-heard phrase was “trickle-down economics.” This is another term for supply-side economic policies, which generally held that tax breaks and benefits for corporations and the wealthy will trickle down to everyone else. This theory can be translated – sort of – into the world of the Postal Service.
Upon enactment of the 2022 version of postal reform — HR 3076, the Postal Service Reform Act of 2022 — the USPS received significant relief from past and future financial obligations related to health care costs for employees and annuitants. Specifically, that relief derives from two major provisions of the law: one repealing the mandate in the 2006 postal reform law that required the Postal Service to prefund 75 years of future retiree health care costs, and the other allowing USPS employees and annuitants to fully participate in Medicare, thus reducing USPS contributions to other employee and retiree health plans. (Postal employees have always contributed to Medicare like private sector employees but, unlike them, weren’t allowed access to full benefits.)
The total value of that relief has been put as high as $107 billion, though that number varies based on who’s estimating and what’s being included; the low end of the range is still about $50 billion. Regardless, it’s a lot of money, which is especially important given that it will partly offset what Postmaster General Louis DeJoy predicted in his 10-year plan would be $160 billion in Postal Service losses over 10 years.
That plan includes a variety of measures to both reduce cost and increase revenue, but the two elements of the plan that are most onerous to mail producers and ratepayers are the reduction in service standards for First-Class Mail and some Periodicals, and the implementation of semiannual price increases that will be as large as legally possible.
At the same time, the plan does not include any measures to reduce labor costs; in fact, the agency continues its pattern of largesse when reaching new agreements with the postal labor unions, and there are no efforts to implement performance or productivity standards.
On the revenue side, DeJoy has placed emphasis on growing the agency’s package business, as if the existing giants in the package arena will graciously allow the USPS to become a viable competitor. Only passing mention is given the existing market-dominant classes, and no plans are offered to seriously reinvigorate hard-copy mail.
Meanwhile, the objections of the commercial mailing industry and its ratepaying customers to the two unsavory initiatives mentioned above have been dismissed consistently by the PMG. Parties opposed to his plan are considered self-interested, narrow-minded whiners and obstructionists. His comments in the past have never indicated that he feels the need to get input about his plan or its implementation from the mail producing and ratepaying community.
However, now that Congress has passed the legislation that he’d advocated in his plan, the question that’s resurfaced in the mind of mail producers and ratepayers is how the financial relief afforded to the USPS by that legislation will impact the plan’s financial forecasts and, in turn, the need for maximized price increases.
(Observers also note that the USPS ended fiscal 2021 with revenue that was 8.7% better than planned, and 5.7% better than at the end of FY 2020. The USPS also had nearly $24 billion in cold cash at the end of the first quarter of fiscal 2022. Both of these data points further fuel doubts about the accuracy of the oft-cited $160 billion hole DeJoy want to fill with ratepayers’ money.)
Economists might be able to postulate how the benefits of billions in financial relief for the Postal Service are supposed to trickle down to ratepayers, much like tax cuts for the rich were supposed to trickle down to everyone else, but odds are that the results for ratepayers will be as undiscernible as those experienced by average citizens from “trickle-down economics.” However, unlike during the Reagan years, when there was no one deciding whether any alleged benefits would be allowed to trickle down, there is someone – the PMG – who will decide whether the benefits of postal reform will trickle down to ratepayers. If history is any guide, they won’t.
The Postmaster General has repeatedly affirmed his intent to maximize the use of whatever rate authority is available to him, regardless of how the circumstances underlying his plan’s financial elements might change. Though, officially, the Governors of the Postal Service have the exclusive right to file price change requests, the majority have shown scrupulous allegiance to DeJoy, acceding to whatever he proposes should be done – including raising rates.
Not that it will alter his course, but outside observers have questioned not only the bases for the plan’s financial projections but how the plan itself could – or should – be revised if those bases prove incorrect or overtaken by events. Clearly, getting billions in relief from past and future obligations should make a difference in the total projected loss, and, accordingly, reduce the revenue need, but few expect DeJoy will be diverted from his semiannual price increases on market-dominant products.
Most readers of the PMG’s plan get the impression that it assumes the inevitable and unalterable decline of traditional hard-copy (market-dominant) mail. This apparent premise drives the perspective that revenues from whatever of that mail remains should be maximized. Conversely, there’s no attention given in the plan to how the decline could be moderated by betterservice or, more importantly, by a less aggressive pricing strategy.
Therefore, while ratepayers and the commercial mail producers that serve them might be buoyed by the news of financial relief for the Postal Service, they shouldn’t expect that any benefit from that relief will trickle down to them. Louis DeJoy will see to that.
Leo Raymond is owner and managing director at Mailers Hub, LLC. He can be reached at email@example.com.
This article originally appeared in the July/August, 2022 issue of Mailing Systems Technology.