Priority Mail: The Case for Postal Reform, Part 2

In July 2013, Postmaster General Patrick Donahoe told the House Oversight and Government Reform Committee that the current business model does not allow the US Postal Service to adapt to changes in the marketplace and that it lacks the legal authority to make the changes necessary to achieve long-term financial stability. Urging Congress to pass postal reform, Donahoe declared the need for savings of $20 billion by 2016 and presented components of the USPS Five-Year Plan to accomplish this:

  • • Provide the USPS authority to control health care and retirement costs, eliminating prefunding mandated in 2006
  • • Establish a defined contribution (rather than defined benefit) retirement system for new employees
  • • Change the delivery schedule to six days for packages and five days for mail
  • • Develop a more streamlined and flexible governance model that allows the USPS to develop, price and implement products quickly
  • • Refund $6 billion dollars in overpayments to the Federal Employees Retirement System (FERS)
  • • Require arbitrators to consider the financial condition of the USPS
  • • Reform workers’ compensation

Both the House and Senate introduced postal reform legislation in 2013. The House version, The Postal Reform Act of 2013 (H.R. 2748) focused on cutting operating costs by reducing services (ending Saturday delivery of mail, ending door delivery), facilities (closing under-used post offices and mail processing facilities), and workers. The Senate version (S. 1486) restructured the retirement prefunding requirement.

Here are the highlights of H.R. 2748 as originally introduced in July 2013, taken from House Committee on Oversight and Government Reform website (oversight.house.gov/postalreformact):

Prevents Taxpayer Bailouts. If USPS cannot pay its bills, the American taxpayer will almost certainly be asked to pick up the tab. This plan will give the Postal Service new tools to cut costs and restructure its finances, while ensuring it has the capital necessary to do so.

Allows the Postal Service to Shift to a Modified-Saturday Delivery Schedule. Allows the Postal Service to maintain Saturday delivery of packages and medicine while phasing out the Saturday delivery of mail such as bills and advertisements. According to Ipsos, this change is supported by 80 percent of the American people.

Offers an Affordable Payment Plan for Retiree Health Care Benefits. Allows the Postal Service to forgo past due payments owed to prefund retiree health care benefits, and eliminates the fiscal year 2013 and fiscal year 2014 payments. Beginning 2015, all future payments will be based strictly on an actuarial calculation designed to achieve full funding in 2056.

Brings New Leadership in to Manage the Postal Service During Restructuring. Replaces the current part-time Board of Governors with a temporary panel of five full-time executives that have a clear mandate to turn around the agency and implement cost-cutting reforms. Once the Postal Service is able to earn a profit and has a path forward to ensure it can meet its obligations to its retirees, the temporary panel dissolves and the Board of Governors is reconstituted.

Modernizes Mail Delivery. Standardizes how mail is received around the nation by phasing out the expensive “to the door” delivery of mail, which only a quarter of addresses receive today, in favor of curbside and secure clusterbox delivery.

Normalizes Rates. Phases out many special rates for certain customers that force the Postal Service to actually charge certain customers less than the true cost of delivery while preserving the ability of non-profits to fundraise and communicate in an economical manner.

Ends Special Treatment for Political Parties. Immediately eliminates the ability of the national and state political committees to use the non-profit mail rate.

Normalizes Pay & Benefits. Requires postal workers to pay the same premium contribution that other federal workers now pay for health and life insurance benefits and clarifies the existing compensation parity required to exist between postal and private sector workers.

Enables Postal Service to Pursue New Revenue. Allows the USPS to sell advertising space on vehicles and facilities and offer state and local services, such as the sale of fishing licenses.

Uses Surpluses in Pension Accounts to Help Address Other Employee Benefit Costs. Creates a permanent mechanism that ensures projected surpluses in the Postal Service’s pension system do not go to fund operating losses at the Postal Service, but instead protect other benefits already earned by its employees.

Subjects Postal Workers to Same Reduction in Force Regime as other Federal Workers. Currently, no-layoff clauses are prospectively barred in Postal Service collective bargaining agreements. Subjects postal employees to the same Reduction-in-Force authority as the rest of the federal workforce. Any employees who lose their jobs due to current restructuring will have preferential hiring status among Postal Service contractors.

Postal Specific Pension Assumptions. Uses Postal Service specific demographic assumptions to more accurately calculate the Postal Service’s total liabilities and annual payments for both the FERS and the CSRS pension systems.

Protects Rural Post Offices. Limits the closure of rural post offices and requires the Postal Service to consider broadband penetration, cellular phone service, and distance to closest replacement service in determining whether to close post offices.

Creates a Chief Innovation Officer. Creates a Chief Innovation Officer to focus the Postal Service’s efforts to identify and grow new postal and authorized non-postal products to help enhance the Postal Service’s revenue.

Enhances Innovation Cap Limits. Raises the limits on experimental products market test cap limits to help encourage innovation and develop new products.

Here are the highlights of S. 1486 as originally introduced in August 2013, taken from Senate Homeland Security and Governmental Affairs website (www.hsgac.senate.gov/media/minority-media/chairman-carper-ranking-member-coburn-introduce-bipartisan-postal-reform-bill):

  • • Pension Reforms. Requires the Office of Personnel Management (OPM) use actuarial data to determine how much the Postal Service must pay into the two federal pension programs—the Federal Employees Retirement System (FERS) and the Civil Service Retirement System (CSRS) to more accurately reflects the amount of the Postal Service’s projected liability. This reform is expected to result in a Postal Service FERS surplus. The Postal Service would be permitted to request and receive up to $6 billion of any surplus, which could be spent to retire Postal Service debt and give it needed liquidity. In addition, the bill would allow the Postal Service and postal unions to bargain over the extent of new postal employees’ participation in FERS and the Thrift Savings Program (TSP).
  • • Health Care Reforms. Eliminates the Postal Service’s statutory retiree health pre-funding and replace it with a less aggressive 40-year amortization of the Postal Service’s retiree health liability. Implements provisions requiring that 1) health plans be created to meet the needs of postal retirees enrolled in Medicare parts A and B, some of whom currently purchase full Medicare and Federal Employees Health Benefit Plan (FEHBP) coverage; and 2) postal retirees not enrolled in Medicare be given the opportunity to do so penalty-free. Allows the Postal Service and the postal unions to bargain over the creation of a new health plan for postal employees, either within or outside of FEHBP.
  • • Service Changes. Places a moratorium on service standard changes and plant closings for two years, keeping all plants open as of the date of enactment in operation for the duration of the moratorium. Codifies the Postal Service’s current plan to find savings in its retail operations without closing post offices. Preserves Saturday delivery for at least a year. Requires the Postal Service to use the most cost effective means of mail delivery, requiring centralized or curbside delivery for new addresses and business addresses, and requires the Postal Service to seek to convert residential addresses from door delivery to centralized or curbside delivery on a voluntary basis.
  • • Revenue and Innovation. Streamlines the current rate-setting process, giving the Postal Service more authority to set prices on its own while preserving a more flexible CPI rate cap until 2016, when the rate cap would expire. Gives the Postal Service enhanced authority to innovate and introduce new non-postal products that take advantage of its retail and mail processing, transportation, and delivery network. Authorizes the Postal Service to offer services on behalf of federal, state, or local government agencies. Lifts the current prohibition on shipping beer, wine, and distilled spirits, allowing the Postal Service to deliver under the same rules as private sector shippers.
  • • Federal Workers Compensation Reform. Contains the Workers Compensation Act of 2013, which reforms the workers’ compensation program for federal employees who are injured on the job. The act brings compensation levels for older workers more in line with retirement benefits, strengthens programs for helping injured workers get back on the job, makes other updates and improvements.

Both the House and Senate bills have a lot in common and are consistent with the USPS 5-Year Plan. There are changes in services and facility closures, pension and health care reform, and revenue innovation. The main differences are in the specific approach to achieving these changes.

However, in mid-December, after one last effort to get the Senate bill to the floor for debate and vote, time ran out and Congress adjourned for 2013. Senators Tom Carper and Tom Coburn hoped to return to the legislation in 2014.

 

Finally, Some Good News

Two recent announcements have brought good news to the USPS. In October 2013 the PRC approved a National Service Agreement (NSA) between the USPS and Amazon for seven-day delivery of packages to residential addresses in Los Angeles and New York metropolitan areas. Delivery began in November 2013 and is expected to quickly be expanded to other major cities like Dallas, Houston, New Orleans, and Phoenix.

And 2013 ended with the announcement on December 24, 2013 that the PRC had partially granted the USPS request for an exigent rate increase to recover losses from the 2008 recession. The PRC found that the USPS had experienced financial harm and was legally entitled to implement a price increase that exceeded the CPI-U.

The increase will not, however, be permanent as requested by the USPS, but only in effect until the exigent losses of $2.8 billion are collected—less than two years. The 4.3 percent exigent rate increase was implemented in conjunction with the inflation-based adjustment of 1.7 percent that was approved earlier by the PRC. The overall adjustment of six percent became effective on January 26, 2014.

 

Nancy DeDiemar is a former chairman of NAQP and Printer of the Year. She is the co-publisher of Printips (MyPRINTResource.com/10206473), a newsletter subscription service for printers. Contact her at Nancy91762@gmail.com.

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