Bipartisan Postal Reform Points the Way Toward a Sustainable USPS  

Picture1And now for some good news.

In a rare moment of bipartisan cooperation in the US Congress, the House Committee on Oversight and Government Reform recently passed two bills aimed at overhauling the operations and finances of the United States Postal Service (USPS).

H.R. 5714, the Postal Service Reform Act of 2016, will reform retiree health care benefit funding, reform pension funding , include a Medicare part B premium transition for newly enrolling Postal Service annuitants and family members, transition to more efficient and secure mail delivery, and establish competitive, market-dominant mail rates.

H.R. 5707, the Postal Service Financial Improvement Act of 2016, would amend Title 5, United States Code, and direct the Secretary of the Treasury to invest 25% of the currently available portions of the Postal Service Retiree Health Benefits Fund (RHBF) into index funds.

The bills seem to reverse provisions of the infamous 2006 Postal Accountability and Enhancement Act (PAEA) which legally mandated tens of billions of dollars in annual pre-payments to the RHBF against projected future obligations, which resulted in huge annual losses to the USPS, significantly reduced cash flow, and impaired the management of day-to-day operations. For more depth on the PAEA, see this MailBlogx post from 2013.

If successful in achieving the desired outcomes, H.R. 5714 and 5707 will address three big issues that have severely threatened the sustainability of the USPS in recent years: 1) lack of revenue, 2) inefficiency, and 3) the overwhelming burden of financial obligations to future retirees.

Fingers crossed.

 

USPS Price Increases Proposed for 2014

iStock_000004729406SmallA news advisory from the United States Postal Service today announced a slate of proposed price changes for the new year. The Governors of the Postal Service voted on September 24 to seek price increases above the typical annual increases associated with changes in the Consumer Price Index (CPI). The USPS will propose the price increases in their annual filing to the Postal Regulatory Commission (PRC) on September 26. If approved by the PRC, the changes would go into effect in January 2014 and are projected to generate $2 billion in incremental annual revenue.

Here are the highlights:

  • Letters (1 oz.) — $0.03 increase to $0.49
  • Letters additional ounces —  $0.01 increase to $0.21
  • Letters to all international destinations (1 oz.) — $1.15
  • Postcards — $0.01 increase to $0.34

Update: Postal Service Liquidity “Dangerously Low”

postal legislationYesterday, Postmaster General Patrick Donahoe spoke to the U.S. Senate about the Postal Service’s dangerously low liquidity.

He encouraged the Senate to take another look at the Five-Year Business Plan, released earlier this year, to better understand the organization’s financial situation.

“The strategies we are allowed to pursue cannot get us to the $20 billion dollar mark by 2017,” Donahoe said to the Senate yesterday. “To fully implement our plan, we require the enactment of legislation that reforms our business model.”

Because liquidity is low, the organization has reached the point that they must consider annual price increases above inflation.

Darrell Issa (R-CA), chairman of the House Oversight and Government Reform Committee, released a revised House bill in late June that interested catalog and direct mail companies.  Although all Democratic members of the Congress voted against this bill in its current form, Al Urbanski, writer for Direct Marketing News, believes that some might feel this bill may “get the mail trucks rolling in the right direction.”

Some of the features of his bill, such as five-day delivery and pre-funding healthcare relief, also exist in the USPS’ Five-Year Business Plan:

Others are new suggestions (as highlighted in the September issue of Direct Marketing Magazine):

  • Central delivery: 30 million of the 37 million addresses receiving door delivery are targeted by the bill for central delivery in “cluster boxes.”
  • Politicians pay: Takes the nonprofit postal rate away from state and national political committees.
  • Underwater products: Unprofitable postal mail products, such as periodicals and standard flats, are mandated to bring in at least 90% of their costs in a phased-in, 2% rise a year program.

While some of the proposed changes have been met with scrutiny, Issa believes that these cost cutting reforms are necessary for the USPS.

Yesterday, Donahoe ended his speech to Congress with a similar sentiment, adding that the Postal Service is “quickly moving down a path that leads to becoming a massive, long-term burden to the American taxpayer.”

We’re Still Listening: What’s Next for the USPS?

listeningAfter the government denied the USPS’ request to cease Saturday delivery, the company responded by aggressively seeking ways to increase their revenue.

While Postmaster General Partick Donahoe has been insistently reporting about the continued fiscal decline of the company, the USPS has also responded by releasing an aggressive five-year business plan which continues to highlight their increasing debt.

Numerous press releases about the importance of comprehensive legislation have targeted various issues surrounding the organization’s fiscal decline.  While the USPS’ efforts to make the public aware of their dwindling finances may be working, many are still left to speculate about the future and accessibility of their mail.

So, what are the options?

Higher Price Increases –

While prices have already increased between 2.6%-4% in 2013, some are speculating that the USPS will propose a higher rate increase.  The Postal Regulatory Commission (PRC) reviews prices before they become effective, but because prices are linked to the Customer Price Index (CPI) and held to a price cap, the PRC may not approve the requested increase.

One source highlighted that the proposed exigent rates for 2014 could be between 6-9%.  This report also stated that the House of Representatives’ Committee on Oversight and Government Reform has released a draft discussion bill that would require all “market dominant products” to pay their costs.  Market dominant products include First-Class Mail, Standard Mail, periodicals, and single parcel post.

This would allow the CPI cap to remain the same, although market dominant products could affect the cap after two years.  Lane also reported that this exigent increase will continue to urge the Board of Governors and Congress to take action on reform.

Public Private Partnerships (PPP) –
A white paper released on June 24 by the USPS Office of The Inspector General highlights what PPPs could do for the USPS.  While the organization does not have a cohesive strategy, they are observing how PPPs have benefited other organizations.  MailBlogx covered the main points of this white paper.

USPS Office of the Inspector General Releases White Paper on Public-Private Partnerships

From the USPS white paper on PPPs.On Monday, the USPS acknowledged how Public-Private Partnerships (PPPs) could help the organization reduce costs.

“Given the depth of the financial problems of the U.S. Postal Service, the time is right to consider greater use of PPPs. When designed and executed well, PPPs can be a useful instrument for the Postal Service to manage costs, secure capital needed to modernize its infrastructure, and acquire new know-how to spur product innovation,” the white paper states.  “Some PPPs can also provide short-term injections of cash to the Postal Service as part of a long-term symbiotic arrangement, bolstering an organization which suffered a $15.9 billion loss in 2012.”

Along with highlighting how PPPs will help leverage financial problems, the USPS addresses how these proposed PPPs will help the organization:

• There are real opportunities for the Postal Service to earn income from its real estate portfolio, upgrade its infrastructure, benefit from private sector innovation, and make its cost structure more variable so costs decline with volume.

• PPPs have helped postal operators reduce the costs of universal service and leverage the skills of private businesses. The posts use a wide variety of PPP models successfully, including franchising, co-location in private retail facilities, and sale and leaseback agreements.

• Foreign posts have used PPPs to lower or eliminate fixed costs in retailing, real estate, and fleet management. Turning these fixed costs into variable costs allows them to decline along with mail volume.

• A key lesson from U.S. states and foreign governments is that there are benefits in centralizing and professionalizing PPP expertise and best practices.

• The Postal Service has experience with PPPs in several functional areas, but does not use a cohesive PPP strategy or operational approach.

The Postal Service states that while they do not have a cohesive PPP strategy, they have been observing other organizations and are willing to learn from these experiences.  The white paper is available on the USPS’ website.

USPS Proposes Changes in Mail Delivery Service Standards

The Postal Regulatory Commission (PRC) is currently reviewing a proposal from the United States Postal Service (Docket N2012-1) that recommends changing the service standards that govern how long it takes the various classes of mail to be delivered.

According to Ruth Goldway, Chairman of the PRC, “The most significant revisions would eliminate overnight service for First-Class Mail and Periodicals, and would instead provide two and three day delivery service.  The intent of these changes is to capture significant cost savings from the consolidation of the Postal Service’s mail processing and transportation networks.  This proposal will impact in significant but varying ways, the mail service, all business mailers, and the mailing public.”

The Commission will review the proposed changes, study the evidence and justifications that the USPS has filed, and release and Advisory Opinion. The Commission will also listen to testimony at public hearings and encourgaes the public to participate in the process.

Opinions Vary on the Future of the USPS

United States Capitol Building in Grandeur -2

Image via Wikipedia

With the future of the United States Post Office still unclear, opinions, recommendations, and pending legislative action are coming from all sides of the political spectrum. Commentary ranges from predictions that the USPS will lose $238 billion by 2020 to claims that it is largely a manufactured crisis. At the core of the controversy is the Postal Accountability and Enhancement Act of 2006 which requires the USPS to pay $103.7 billion in advance, over a 10-year period, to cover the next 75 years of future retiree benefits.

The following is a sequential compilation of news stories from the last several weeks as reported by Post & Parcel.

Sept 30 Congress seeks final decision on $75bn USPS pension surplus

Sept 26 Ralph Nader: cutting postal services is “suicidal” for USPS

Sept 23 John McCain introduces USPS control bill in US Senate

Sept 21 House Republicans hint that deal is possible over USPS “bailout”

Sept 20 Difficult reception for Obama’s US Postal Service rescue plan

Sept 19 White House, House Republicans push plans to rescue USPS

Sept 07 Searching for consensus on US postal reform