September 23, 2024
Issue 24/09
The leading voice for nonprofits on postal issues for over 44 years.
Copyright 2024 Alliance of Nonprofit Mailers—All rights reserved.
A 501 (c)(4) nonprofit organization established by nonprofits for nonprofits.
We weren’t in the Board of Governors room when the USPS’s seven sitting Governors made the decision. However, we can suggest several informed theories about why they decided to skip the January 2025 rate increase on Market Dominant mail. (The agency filed its schedule adjustment today at the PRC, indicating that it will resume twice-a-year hikes after this one reprieve.)
The press release led both the sub-headlines and the body lead with an emphasis on Postmaster General Louis DeJoy making the recommendation to the Governors. One or more Governors may have raised the subject first and urged reconsideration of the relentless semi-annual increases.
At the August 8th Board of Governors open meeting, Governor Dan Tangherlini observed that the Postal Service’s financial health “continues to degrade,” and that “operating costs are not falling below our improving revenue, and most importantly, service has not improved at the same rate as price increases.” This was a rare instance of a Governor publicly expressing doubts about the course of USPS.
The major customers that provide most of the funding for the USPS have been expressing deep concerns that the agency is pursuing a self-defeating strategy of pricing so much mail volume out of the system. The Alliance and others have advocated a balanced approach emphasizing retaining loyal volume while addressing excessive USPS costs. Perhaps USPS leaders who did not involve customers in creating the strategy are now listening as evidence piles up.
Much to the Postal Service’s chagrin, the Postal Regulatory Commission launched a complete reconsideration in April of the extra rate authority it gifted USPS starting in 2021. USPS has wrongly argued that the regulator lacks authority to review its regulations despite clear Congressionally-granted authority.
A primary point of the Alliance and others is that the USPS has insufficient incentive to use anything less than the full authority given by the PRC. Further, the Postal Service unilaterally decided to use the rate authority twice a year despite the intention of Congress and the regulator to institute predictable annual rate increases.
Our comments to the PRC explain that the regulator assumed too much moderation by the USPS which has proven to be acting as a private sector monopolist would.
Now, after comments and reply comments have been submitted, USPS has thrown a Hail Mary hoping to convince the regulator that it is indeed “judicious” in its rate increases.
This rate deferral is significant for many mailers who already budgeted for the increase in January. This is especially true for mailers of flats who experience well over 2% more than the cap every six months.
The Postal Service, on the other hand, will add the authority to the July 2025 increase that it will file in April for about +7.8% and higher for flats and Periodicals. The agency could easily have decided that a short deferral of 1.5% is a good investment to convince the regulator to keep some or all of the above-inflation rate authority for many more years.
The mail agency is being snowed under by bad news. The “no rate increase in January” announcement could be a diversionary tactic akin to: “Pay no attention to that man behind the curtain.”
What bad news, you say?
The Postal Service proposed on August 22 something called the Regional Transportation Optimization (RTO) to save about $3 billion a year. The agency tried to put lipstick on the pig by saying that it would be a “net positive” for USPS customers. But RTO is a blatant discrimination against rural and small mailers.
Nonprofits should understand that the losers in this proposal are many of the donors, members, and subscribers who send them money via First-Class Mail. They enter their mail in a home mailbox, blue collection box, or at the local post office. For time immemorial, the mail has been picked up by a postal truck in the evening and brought to a processing facility to begin the secure journey back to the nonprofit organization.
Under the proposal that mail will sit in the local post office overnight or over the weekend until the truck bringing the day’s outbound mail arrives. It’s an obvious way for the agency to save money. But does it violate the USPS Universal Service Obligation? Without a clear definition by Congress, it’s hard to say, but it sure looks and quacks like a duck. And the PRC will have to determine whether the proposal discriminates against certain citizens.
The author of the website SavethePostOffice.com, Steve Hutkins, has done a much better job than USPS of breaking it down than the agency proposing the discrimination. His state-by-state analysis shows that 22,735 post offices out of 30,812 will have mail held overnight. That’s 74% of post offices serving 47% of our population. “Overall, about 93 percent of the downgrades will apply to single-piece mail, and 7 percent to presort. Conversely, about 91 percent of the upgrades will apply to presort, and 9 percent to single-piece.”
Steve Hutkins describes the impact on service standards:
Since mail will sit overnight in the post office rather than being collected at the end of the day, the plan requires changing the service standards.
For mail sent from impacted post offices, most single-piece First Class mail currently with a 2-day standard will become subject to a 3-day standard; most 3-day mail will become 4-day; and most of the 4-day will become 5-day.
The Postal Service says that despite the RTO changes, all First Class mail will retain a 1-to-5 day service standard, so none of the mail that’s currently 5-day will need a 6-day service standard. As the USPS Fact Sheet promises, “no First-Class Mail will be delivered later than 5 days within the continental United States.”
The Postal Service apparently believes improvements in the processing network will allow it to make up the lost day at the originating post office and achieve a 5-day standard. That may be wishful thinking.
During the third quarter of fiscal year 2024, for single-piece mail with a 5-day standard, only 76 percent was on time. It’s hard to see how changes in the network will make it possible to deliver this mail in five days when the first day is spent in the back of the post office. But clearly the Postal Service did not want to say that service standards are going from 2-to-5 days to 3-to-6 days for RTO areas.
At the pre-filing conference, the Postal Service didn’t have much to say about the impacts of RTO on packages, Priority and Express mail sent at one of the impacted post offices, but if these items aren’t collected until the next day, it’s likely that the service standards for these products will need adjustments as well.
The next step will be for USPS to request a non-binding advisory opinion from the PRC on a detailed proposal. The agency said it will not implement the RTO until after this year’s election. If it is such an improvement, what are they concerned about?
The “pot of gold” that USPS is promising is dominance in the package market to the degree that the shipping profits offset all of the losses from delivering universal service with ever-declining mail volume. As the mythology teaches, a pot of gold is very enticing but not achievable.
A growing number of private sector analysts are modeling USPS finances and finding that a financial crisis within a few years is inevitable. Declining mail volumes even with excessive rate increases are delivering shrinking revenues. The fixed costs of delivering 6 days to a growing number of addresses cannot be reduced enough to offset revenue declines. The amount that some combination of package volume and pricing would need to increase to offset the built-in losses is unrealistic.
The Postal Service has not provided a public financial forecast demonstrating credible success under the current business model and strategic plan. The results for FY 2023 and 2024 will miss the published Delivering for America plan by over $15 billion. The trend is getting worse.
Mailing industry participants and the USPS Office of Inspector General have suggested the investment of USPS pension and retiree healthcare funds consistent with most other pension funds as a solution. Instead of non-marketable U.S. Treasury securities, the funds would be invested in balanced portfolios of stocks and bonds. The OIG found that if the funds had been invested that way since inception, they would contain $1.2 trillion instead of $300 billion. That type of performance could wipe out unfunded liabilities and potentially offset operating losses.
Such a change would require legislation that likely would meet opposition by the U.S. Treasury which finances a chunk of the massive national debt with non-marketable Treasuries. The concern would be setting a precedent for other government funds. Shifting the borrowing to the open market could drive up interest rates or worse. About 20% of U.S. public debt outstanding is intragovernmental nonmarketable debt.
Others, including the Alliance, have suggested a reexamination of the Universal Service Obligation, full costing of the public service mandates performed by USPS, and a return to taxpayer funding of purely government functions. The main objection to this approach is the difficulty of requesting and receiving annual appropriations from Congress, and the likely political interference with operations that accompanies it.
In the coming days, USPS is required to publish an updated strategic plan. Will it be meaningful and credible, or will the pot of gold persist?