Postal task force releases recommendations

The Task Force on the United States Postal System has issued its recommendations for reforming the nation’s mail service.
The task force, established in 2018, was charged with recommending administrative and legislative reforms to create a sustainable business model to continue to provide mail services for all Americans. The resulting 74-page report concluded the USPS has an outdated business model and is on an unsustainable financial path. Additional findings include:
• The USPS suffers from a lack of institutional governance. From December 2016 to August 2018 there were no seats filled on the ruling Board of Governors. Presently only two of 11 governors’ positions are filled.
• The Universal Service Obligation (USO) is not clearly defined.
• The USPS’ current cost allocation methodology is outdated.
• The USPS is forecast to lose tens of billions of dollars over the next decade in addition to current unfunded liabilities of over $139 billion.
• The USPS dual-labor model, combining private-sector collective bargaining law with government employee compensation law, creates unsustainable labor costs.
• Total mail volume and revenue have been in decline since 2007, with first-class mail volume peaking in 2000. This decline is projected to continue.
The mission of the USPS is broadly defined via the “universal service obligation” (USO) which is intended to ensure that all citizens and businesses in the United States receive a minimum level of postal services at a reasonable price. The elements of USO include specifying the geographic coverage for delivery, frequency of delivery, processing standards, mode of delivery, range of required postal products, level of access to post offices and rules for affordable postal rates. The task force recommends the USO be more clearly defined, both by legislation and postal regulations. Current frequency of delivery is set by law at six days a week. The task force recommended that the USPS have greater flexibility to determine mail and package delivery frequency and the discretion to lower service standards.
The task force said the USO must distinguish between delivery of essential services versus mail that is commercial in nature. Essential services would include mail and packages with a strong social or economic rationale for government protection in the form of price caps and mandated delivery standards. For example, essential services might include the household delivery of pharmaceuticals, non-commercial mail, consumer notices and transactional mail (first-class mail). The task force said the USPS should optimize revenue and costs on other products and activities not deemed essential services in order to fund the estimated $4 billion cost of the USO.
The task force does not mention periodicals in reference to essential services. Historically periodicals, especially newspapers in rural areas, have been considered a valuable resource in disseminating news and information. However, the task force only mentions periodicals directly in reference to declining mail volumes. Periodicals currently represent 3.9 percent of mail volume, having declined from 10.7 billion pieces in 1990 to 5.3 billion pieces in 2017. 
The task force suggested any long-term solution to the USPS financial problem should include policy reform, cost reductions and new revenue sources. The panel also suggested that USPS explore licensing access to mailboxes and providing additional government services, such as licenses for fishing and hunting. 
Not mentioned in the report is a 2017 Office of Inspector General (OIG) white paper titled Postal Service Retiree Funds Investment Strategies, which offers alternative investment options to fund USPS retirement funds. The USPS currently has more than $300 billion in assets in three retirement funds. Currently, by law, these funds are invested solely in U.S. Treasury securities. This requirement costs the USPS several billion dollars per year in potential investment income when compared to adopting even a very conservative investment strategy. This change would require legislation and has political considerations.
The task force identifies rising labor costs as a serious obstacle to USPS’ financial sustainability. The recommendation is to align employee rights with other federal employee rights by eliminating collective bargaining, stating USPS employees should not be afforded protections and rights not enjoyed by other federal employees. Not mentioned in the report is a 2010 OIG audit report addressing the USPS area and district field office structure effectiveness and opportunities for consolidation.
In 2009, the USPS completed a consolidation resulting in eight area and 74 district offices. The OIG report identified three options for further consolidations. Those options included eliminating 14 district offices by consolidating offices within 50 miles of another district office, eliminating four area and 32 district offices with work hours and mail volume below the mean mail volume and work hours, and relocating all area offices to headquarters. 
As of 2018, the USPS maintains seven area and 67 district offices.
Congress requires the USPS to fund the retiree health benefits of its employees. This policy allows retirees to choose between enrolling in Medicare or remaining in a USPS subsidized health plan. Retiree health care costs the USPS billions of dollars per year. The task force does not recommend this general policy be changed or that the liability for USPS retiree health benefits should be shifted to the taxpayer. This seems to be in contrast to administration comments and proposed legislation that would require USPS retirees to enroll in Medicare. 
The discussion on product pricing, cost allocations, subsidies and cross subsidies, rate caps and essential services is woven throughout the report. The task force said:
• The current pricing and cost allocation methodology are outdated, lack transparency, and do not capture the cost implications that the rapid decline in mail volume and the rapid rise of package volume have on the USPS cost structure. 
• The USPS monopoly on letter mail and the mail box is no longer sufficient to subsidize package delivery. 
• The USPS should optimize revenue and costs on products and activities not deemed essential services.
• Given volumes and revenues are in persistent decline, an across-the-board rate cap is unnecessary.
• Purely commercial use of package delivery services should be priced to maximize revenue. 
• Marketing mail and any mail outside of essential services should not be subject to a rate cap. 
• An updated business model would offer price protection for mail that represents an essential service.
• The growing package business will represent the key products driving future USPS decisions and policies.
• Data indicates that mail is largely price-inelastic and modest price increases will not lead to less demand.
The USPS reported that in FY 2017, several mail products did not generate income sufficient to cover attributable costs. One chart showed that periodicals, both in-county and outside county, paid less than 70 percent of their “calculated” cost per piece. 
The task force does not recommend USPS privatization, saying it is not necessary and could not be accomplished without significant taxpayer funding. The panel said maintaining the USPS comprehensive delivery network should be a primary business objective under a new business model, and that there are areas of USPS operations where third-party relationships could provide services in a more cost-efficient manner.
The task force findings and recommendations should be considered seriously, but history tells us that task force recommendations seldom lead to policy or legislative results. The more significant recommendations are politically charged and will be a tough sell. The six-day delivery requirement is expected to remain in place for the near future. It would be difficult for the USPS to drop Saturday delivery while soliciting packages to deliver on Sunday.
The USPS has reduced processing/service standards in the past and will surely do it again in the future. It’s critical to newspapers that periodical mail is deemed to be an essential service, whether that is by legislation or USPS regulation or policy. There will be increased pressure for a 5-percent increase in periodical rates in 2020 and beyond, especially as PRC has ruled it would allow a CPI inflation cap plus 2 or 3 percent. 

TPA postal consultant Joel Allis may be reached for questions at jallis@texaspress.com.