March 2, 2021

It is important that nonprofit mailers be aware that there are several very important developments going on with our Postal Service that are very much interrelated.

• New rate authority—mid-2021 large increases
• New strategic plan
• Three new Governors nominated
• Congress working on reform
• Poor service

New rate authority—mid-2021 large increases

It’s full speed ahead for USPS implementation of unprecedented large rate increases in mid-year 2021.  The postal regulatory agency is rewarding USPS for the 10 percent drop in market dominant mail in 2020, failure to fully fund retirement promises it made to employees, and failure to cover its costs for processing flat-shaped and other excessive-cost mail.

The rate add-ons are 4.5 percent for the volume drop, 1.062 percent for the retirement promises, and 2 percent for the excessive-cost categories.  When you add about half a year in inflation, you get potential hikes of 6-6.5 percent for “compensatory” categories and 8-8.5 percent for “non-compensatory,” which includes excessive-cost periodicals, package services, marketing mail flats, carrier route, and parcels.  “Non-compensatory” is the “blame the customer” language used by the regulator.

On March 1, the U.S. Court of Appeals denied mailers’ request for a stay until the court rules on our appeal.  In its judgement, “Petitioner has not demonstrated the type of imminent and irreparable harm necessary for a stay.”  Perhaps the court will see more clearly the harm when USPS announces its specific rate increases, a filing we expect in early April.

In the meantime, the Alliance has urged the USPS Board of Governors to voluntarily defer use of the new rate authority in 2021, as many mailers are both struggling and performing very important roles during the pandemic and recession.

New strategic plan

USPS has been promising a new 10-year strategic plan for it seems like forever.  At the hearing of the House Oversight and Reform Committee last week, Postmaster General Louis DeJoy and Board Chairman Ron Bloom promised that a grand plan to bring USPS back to self-sustained, universal service, 6-7 days a week, financial breakeven is imminent.

The PMG said that 150 postal executives have been working for eight months on the plan, and would not disclose whether any consulting firms have been assisting.  He also said that the plan assumes only the limited legislative reforms of retirement benefit funding that the House committee has put out for discussion.  Chairman Bloom emphasized that the Board of Governors is involved in development of the plan and will ultimately approve and fully support it.  DeJoy estimated that the plan will be released in about two weeks.

PMG DeJoy emphasized that his plan relies on full use of the new rates authority recently gifted by the regulator.  He insisted that USPS remain “self-funded” which is agency-centric language for “mailer funded.”  And he assured listeners that he is committed to the full list of universal service obligations that add substantial cost to the agency beyond hat it would do if it were a business.  Being only mailer-funded and continuing to bear the full burden of universal service obligations virtually guarantees much higher rates.

Better cost control was given only lip service at the hearing.  Surely there will be hopeful goals in the plan to be more efficient.  As a 70 percent labor operation, USPS relies on its unionized workforce to achieve greater efficiency.  American Postal Workers Union President Mark Dimondstein testified at the hearing that his union has not been involved in development of the new plan.

Mailers, shippers, or any type of customers have not been involved in developing the plan either.  When asked about work-sharing, the public-private partnerships that carried USPS growth for decades, and yielded affordable, reliable mail to many mailers, DeJoy said “I am not a fan.”  He seemingly blamed work-sharing for “hollowing out” the USPS network, which he said caused the massive service failures this holiday season.

The new USPS plan, to be released during baseball’s spring training, could be facing:

• Strike 1: no union support;
• Strike 2: no customer support; and
• Strike 3: three new Governors arriving.

Three new Governors nominated

Think about this timing: during the House committee hearing on USPS, the White House announced three new nominees to the USPS Board of Governors.  With so much emphasis on the heavy involvement and support of the six current Governors, all appointed by the previous President, how will the new strategic plan fare with three new Governors arriving? Will its release be held up even longer?  If it is released, will the new Governors just go along and fully support it?  Not likely.  Will there be another long process of revising the plan?

The White House press release:

These nominations are historical and very thoughtful.  For one thing, they add diversity to the board.  As important, the nominees all bring very relevant experience with the Postal Service that has been lacking on the USPS Board of Governors for years, well before the current crew.

One is the former Deputy Postmaster General as well as a senior staff member of the House Oversight Committee.  One previously was a postal union attorney.  And one represents a very specific slice of USPS customer: vote by mail practitioners and advocates.  These three categories, as much as they seem like no-brainers, have rarely been on the USPS Board.

As ABC News said: “The current board is made up of six white men, and all have limited experience with the Postal Service. In contrast, Stroman is a former deputy postmaster general, and Hajjar is the former general counsel for American Postal Workers Union. McReynolds was the CEO of the National Vote at Home Institute and Coalition and former director of elections for Denver.”

Government Executive reported: “Stephen Kearney, executive director of the Alliance of Nonprofit Mailers, said it was unusual to see board members so well versed in postal issues.

“All three have real experience, and really relevant experience,” Kearney said. “So for me it’s a step up from what we’ve seen.”

Hajjar and Stroman are Democrats, and McReynolds is an Independent. If they are confirmed by the Senate, the USPS Board will have four Democrats, four Republicans, and one Independent, who many believe would caucus with the Democrats.

It is difficult to envision the current version of USPS strategic plan moving forward without significant scrutiny and change by the new Governors.  Of course, whether and when Leader Schumer moves the nominations through Senate confirmation will play a major role.

Congress working on reform

There is much interest on Capitol Hill in passing new legislation to reform the USPS.  The postal unions have really kept attention on the pre-funding requirement and schedule that was set up in the 2006 Postal Accountability and Enhancement Act.  The schedule to fully pre-fund the estimated future cost of lifetime federal health insurance for USPS retirees has contributed to most of the reported USPS losses since then.  In order to satisfy the federal budget-neutral rule in the Senate for new legislation, the pre-funding schedule was put in PAEA to match the ten-year timeframe that the Congressional Budget Office scores each new piece of legislation.

The House committee circulated a discussion draft of new legislation that would mainly address the retiree health benefit cost.  The bill would lengthen the pre-payment timeline and reduce the estimated obligation with “Medicare integration.”  It would require all USPS retirees to enroll in Medicare Part B as their primary health insurance.  Currently a bit over one-fourth of the retirees do not enroll in Part B, forcing the Postal Service to continue its generous contributions to the federal health care providers.  The draft also requires more reporting on service standards by the USPS and PRC.

The committee acknowledged that this is only part of the reform that USPS needs.  We and other mailers strongly agree and are working to help both the House and Senate Oversight Committees to take a broader view.  Other issues that need to be dealt with include:

• Ensure service standards are met by empowering the regulator to regulate service with penalties for non-compliance.
• Ensure excess operating costs are controlled.
• Retain the CPI cap on postage increases to protect captive mailers and keep volume in the mail.
• Accurately measure and fund with appropriations the non-businesslike functions of the Universal Service Obligation.
• Invest USPS retirement obligations funds in balanced stock and bond index funds rather than low-interest non-marketable treasury securities.
• Return to USPS overpayments for CSRS retirement.
• Fully evaluate USPS handling of “non-compensatory” products, especially flats, and ensure efficient, cost-effective solutions.

Poor service

Much attention continues to be given to the massive service failure by the Postal Service during the holiday season.  DeJoy’s written testimony admitted and apologized for the failure.  He also gave several reasons: “Throughout the peak season, the Postal Service faced multiple challenges, including significant employee shortages as a result of the COVID-19 pandemic, multiple winter storms in the Northeast, capacity issues with airlifts and trucking, and a historic high level of mail and package volumes.”

Much of the blame for service lies in the huge increase in packages the Postal Service accepted during the holiday season.  As Kevin Kosar of the American Enterprise Institute wrote: “And come late November, the agency got swamped by boxes. Consider: In 2010, USPS earned $8.7 billion (13 percent) of its revenue from packages. Last year, the agency got $28 billion (almost 39 percent) of its revenue from parcels. A postal executive told me, “The Postal Service delivered 1.67 billion more packages in 2020 than 2019, totaling more than 7.75 billion packages. … That’s a physical product that must be sorted, transported, and delivered. All told, if USPS stacked all the packages they delivered last year, one on top of each other, the stack would reach the moon three times over.”

So, USPS now has an embarrassment of riches, too much of a good thing with all the packages it is accepting.  A key public policy issue going forward is the role of our public postal agency in delivering mail versus packages.  Mail has been the raison d’etre of our post office since its founding 232 years ago.  Packages were added a little over 100 years ago with the advent of mail order catalogs.  Now, the rapid growth of e-commerce is swamping our postal system, even as the private sector is rapidly expanding the options for delivery of boxes.

Businesslike interest in being a major player in the lucrative package business should not be allowed to hobble affordable mail delivery.  Indeed, if done well, the two should complement each other.  USPS is competitive in the package business precisely because it has letter carriers delivering mail to every address every day.  And a profitable package service should help to keep mail affordable, rather than decimating service while rates skyrocket.

The combination of poor service and hints that the new strategic plan will include slowing down First-Class Mail service standards has prompted outrage not only among professional mailers but also in the general population and media.  Mailers have faced threat of higher rates and slower service for years.  It’s a sign of progress that the need for reform is really getting the nation’s attention.