November 6, 2019
Next year we should see major changes in the postal landscape. There are at least eight reasons for this:
Before we get into these reasons, we must reiterate the type of change that is needed. In short, the funding model for our public postal system must be reinvented. By this we mean: what does USPS do, how much does each element cost, and how do we pay for it.
Right now, the USPS funding model is an unsustainable mismatch. We require our postal agency to do a mix of businesslike and public services. To fund this hybrid model, we allow only a single-payer option: mailers, mostly businesses and organizations, must provide all the funding.
The real-time problem with the mismatch between mandates and funding is that the businesslike service side is flat to declining while the public service cost is growing. Under the current funding model, mailers would be asked to pay increasing rates for services provided as a matter of public policy, except for the fact that the law requires an inflation cap on postage increases.
That is why the Postal Service, its regulator, and some in Congress are pushing to get rid of the inflation cap so that mailers could pay more for increasing public services. The problem with that approach, something government officials might not fully grasp, is that both for-profit and nonprofit mailers are in their own fight for their lives. They must keep their own costs at or below inflation to remain competitive.
If postage starts increasing faster than inflation, mailers will be forced to abandon the Postal Service, and the agency will lose its single-payer funding.
A rational and ultimately successful effort to save the USPS must start with a careful examination of the public service costs it incurs and alternative ways to fund them. Alternatives to consider include:
In any case, next year seems to have the ingredients to lead to some sort of reinvention of our postal system. The question we keep asking is whether it will be comprehensive and rational, or will it be piecemeal and ill-fated.
New Postmaster General – Current PMG Megan Brennan announced that she will retire at the end of January, bringing to a merciful end her efforts to both run the massive agency daily and reform it without much help from presidentially-appointed Governors and Commissioners or Congress.
The five new Governors announced they would begin a nationwide search. Rumors are flying at postal headquarters and in the mailing industry that either the Treasury Department or Peter Navarro, Assistant to the President, and Director of Trade and Manufacturing Policy, is directing the search. Treasury wrote the President’s Task Force Report on USPS and Navarro led the successful effort to reform Universal Postal Union pricing of inbound international packages.
Aside from rumors, we do believe that the Governors will attempt to retain someone from outside USPS with business and Hill experience. The new reformer will try to turn around what four career postal PMGs were not able to over the last 21 years.
5 New Governors – USPS Governors have a mixed record since 1970. Repeated calls for better Governors changed to calls for Governors in recent years. The Trump Administration has answered the call by nominating and getting through the Senate five of a possible nine Governors.
They are unique entering office with widespread agreement that the USPS funding model is broken and that they must convince Congress to fix it with new law. And they all were nominated by the current President following an extended period with no USPS Governors at all. It seems like an opportunity to implement change but only time will tell whether it addresses the real issues described above.
3 New PRC Commissioners – The ten-year rate review has become the 13-year rate review and counting. It started with the ten-year anniversary of the December 2006 postal law that calls for such a review. But it has no deadline for completion.
The December 2017 proposal floated by the Commission was met with widespread opposition because it took a unilateral, blunt force approach of “giving” USPS needed revenue by allowing several surcharges above inflation. Rate increases of 25 to 40 percent over five years would undoubtedly have driven substantial volume out of mail.
We and many others believe that the regulator does not have the legal authority to change very specific language passed by Congress into law mandating the Consumer Price Index (CPI) price cap. We also firmly believe that such a piecemeal approach only makes the postal funding problem worse.
Legal and substantive external opposition, along with apparent disagreements within the PRC, have meant no new action for two years. But that is about to change as three of the five Commissioners have turned over, and the new members along with the Chairman have stated that the x-year rate review is their highest priority.
We expect a new PRC rate proposal soon, but it is an open question whether they should wait for the new Governors and the new PMG to weigh in.
A New House Oversight Chair – The very unfortunate passing of past Chair Elijah Cummings (D-MD) means that the committee that all are looking to for leadership on postal reform will need a new leader. It comes at a time when the committee already seems consumed with the impeachment of the President, although their goal appears to be completion by Thanksgiving.
The House Committee on Oversight and Reform seemed until recently to be moving toward reintroduction of a reform bill like the last two years with Cummings and Rep. Mark Meadows (R-NC) as the champions. Cummings passing and Meadows backing off have reduced near-term chances of a bill.
Rep. Peter DeFazio (D-OR) introduced the USPS Fairness Act earlier this year. It would delete the retiree health benefit prefunding requirement from the postal law, thereby greatly reducing the paper losses and liabilities USPS has been reporting. The mailing community supports this modest measure, but USPS management opposes it. Perhaps they do not want their financial condition to look better at a time they are seeking big surcharge permissions in the PRC rate review. The bill has very little chance of passage on its own but could be added to a larger must-pass bill.
A New PRC 10-Year Rate Review Proposal – This one will inevitably happen soon. The proposal inevitably will focus on above-inflation rate increases. And the mailing community will inevitably oppose it. And finally, it inevitably will be appealed to the U.S. Court of Appeals.
Maybe New Postal Reform Legislation – Reform legislation to define the USPS public service role, also called the Universal Service Obligation (USO), and to determine how it is paid for, is very much needed. Recent years’ examples of reform legislation have been very limited as lawmakers whittle down the effort to make it politically expeditious.
It seems that only if USPS Governors and the PMG, along with the PRC, were to publicly advocate a comprehensive reevaluation of the public service obligation and how it is funded, do we have a chance of getting where we need to go. PRC Chair Robert Taub has spoken often about the need to reevaluate the USO; hopefully his agency, USPS, and Congress will put it into action.
Maybe a New USPS Strategic Plan – It’s been promised for half a year. People have been briefed. It seemed very similar to the agency line that has been followed since the March 2010 plan. It stayed within the box of trying to make the failed USPS funding model work by trying harder with cost containment, reduction of public services, modest new revenue initiatives, Medicare integration, and permission to price with complete “freedom” while retaining the full legal monopoly on mail.
The arrival of three new Governors in late summer delayed the release. Now the retirement of the PMG has delayed it further. We can hope that the new PMG combined with new Governors will take a fresh look and feel empowered to think and advocate outside the current funding conundrum. To quote Winston Churchill: “It is a riddle, wrapped in a mystery, inside an enigma; but perhaps there is a key.”
USPS Will Continue to Report Large Losses – There is one thing we can count on. The losses will continue until the funding model is revised. We expect USPS to report FY 2019 losses about $9 billion on November 14. There will be much discussion and coverage. Predictions will be made of when the cash will run out, which many pundits say is the necessary condition for real reform. We hope and urge that cooler heads prevail.