August 14, 2017

Nonprofit mailers are not happy – and here are three reason why.

1. USPS is not responding to adversity like a business

On August 7, the National Association of Letter Carriers announced that they had ratified a labor agreement with the U.S. Postal Service.

Read the announcement by the NALC here.

And the vote wasn’t close: 78,935 to accept the agreement versus 4,732 to reject it, a margin of 16 to 1. It seems letter carriers know a great thing when they see it​!​

The disconnect here is that USPS is not doing the main thing that competitive businesses must do to stay in business: tighten its belt at least as much as other organizations. It agreed to guaranteed raises for the next three-plus years, plus cost of living allowances, plus gold standard healthcare funded at a higher level than the rest of the federal government, plus the promise of no layoffs. This might be great if the USPS business were performing well. But it is not.

Even before the latest round of raises, postal workers already are compensated well above their private sector counterparts. ​

The USPS, its unions, and independent mediators all agreed on this. The Alliance provided independent analysis to validate the degree of overcompensation this March. All of this is very hard for rate-paying customers of USPS to accept, as USPS management ​pleads ​for Congress to pass above-inflation rate increases and the Postal Regulatory Commission to eliminate the CPI inflation cap on postage increases.

Every other service used by nonprofits is subject to competition and competitive bids. The Postal Service is “take it or leave it”. The USPS holds a monopoly on delivery of hard-copy to America’s mailboxes. Many nonprofits rely on this service to deliver fundraising letters, thank you letters, invitations, calls to action, donations, newsletters, and magazines. If they could put hard copy out for bid, they certainly would. And if there were competition, USPS would never survive with price increases above inflation.

2.  USPS is inaccurately raising the fear of bankruptcy

On August 10, USPS released its latest quarterly financial results. ​I​t used the opportunity to continue to push for Congressional and PRC help to raise prices more than inflation. It used the fear of bankruptcy as its main argument, even though federal government agencies cannot declare bankruptcy. And the Postal Service has stable revenue, over $10 billion operating cash in the bank, and over $340 billion set aside for retiree benefits. The Alliance recently documented that USPS pre-funding of pensions and retiree healthcare is in better shape than all other sectors: federal, military, Fortune 500, and states.

How many businesses in a competitive environment would encourage press coverage that raises the specter of going out of business?​

Yet here is what AP reported, based on an interview with Postmaster General Megan Brennan:

“WASHINGTON (AP) — The U.S. Postal Service warned Thursday that it will likely default on up to $6.9 billion in payments for future retiree health and pension benefits for the fifth straight year, citing a coming cash crunch that could disrupt day-to-day mail delivery.

The service said it expected cash balances to run low by October and to avoid bankruptcy would likely not make all of its payments as required under federal law. Postmaster General Megan Brennan stressed an urgent need for federal regulators to grant the Postal Service wide freedom to increase stamp prices to help cover costs, citing continuing red ink due to declining first-class mail volume and the expensive mandates for retiree benefits.”

Yes, this is the same organization agreeing to all the nice raises and benefits for the next three-plus years. How many corporate boards and shareholders would allow generous labor agreements and threats of bankruptcy to co-exist?

The Government Accountability Office testified on February 7:

“USPS has no current plans to initiate new major initiatives to achieve cost savings in its operations.” 

What? And they’re talking about potential bankruptcy and the need for major price increases in the face of declining volume?

GAO further said:

“Growing Expenses: USPS expenses increased by $3.1 billion in fiscal year 2016 from the previous year, outpacing the $2.6 billion increase in revenues. Increasing compensation and benefits expenses were a key driver of expense growth. USPS reported that compensation and benefits for active employees increased by $1.2 billion, due to contractually obligated salary escalations and additional work hours associated in large part with growth in the more labor-intensive Service Shipping and Packages business.” 

Why should nonprofit mailers pay for no major cost saving initiatives​ and unnecessary overcompensation?

3.  USPS is proposing technical adjustments that arbitrarily raise rates

We reported in an Alliance Alert on August 1 that USPS is proposing additional rate increases to nonprofit Marketing Mail (formerly Standard Mail), to be offset by lower commercial rates.

Read the Alliance Alert here.

The nonprofit increases would be over and above all other increases. USPS is seeking to change a methodology that has been in place for the ten years since the 2006 PAEA law eliminated sub-classes of mail. It wants to conjure up pseudo-sub-classes, or synthetic sub-classes, or fake sub-classes – choose your cliché – to engineer a transfer of money from nonprofits to commercial mailers.

Here is how USPS describes the impact:

“Lifting Regular’s ratio to 60 percent from Docket No. R2017-1’s 57.8 percent would, on a revenue-neutral basis, require an average price change of +3.33 percent for Regular Nonprofit and -0.47 percent for Regular Commercial. Lifting Enhanced Carrier Route’s ratio to 60 percent from Docket No. R2017-1’s 56.0 percent would, on a revenue-neutral basis, require an average price change of +6.94 percent for Enhanced Carrier Route Nonprofit and -0.27 percent for Enhanced Carrier Route Commercial.”

How the Postal Service couches this major rate increase for nonprofits as a technical adjustment is very misleading: “the Postal Service requests that the Commission initiate a rulemaking proceeding to consider a proposal to change analytical principles relating to periodic reports and compliance determinations.” 

The PRC established Docket No. RM2017-12 to deal with this rates proposal by USPS; comments are due by September 18.

Read the Docket on the PRC website here.

The Alliance certainly will comment on behalf of all nonprofit mailers. Anyone is welcome to mail comments by September 18, referring to Docket No. RM2017-12, to the Commissioners:

• Robert G. Taub, Chairman
• Mark Acton, Vice Chairman
• Tony Hammond
• Nanci E. Langley

Address comments to:

Postal Regulatory Commission
901 New York Avenue, NE
Suite 200
Washington, DC 20268.

This rate increase positioned as a technical adjustment follows the 2015 surprise increases for lightweight, low editorial periodicals, and the 2017 large increases for drop-shipped Marketing Mail letters that are used by many nonprofits to raise funds. This type of “polishing the doorknobs” activity likely would not be​ entertained ​by a competitive business struggling for relevancy and survival in the face of declining volumes.