January 27, 2015
When the Postal Service closes a large mail processing plant, it doesn't just impact postal workers. There can also be significant indirect effects. Other people lose their jobs, business activity slows, tax revenues decline. The loss of postal jobs thus has a multiplier effect that ripples through the economy of the entire region. When dozens of plants are closed across the country, the multiplier effect has nationwide significance.
Last fall the American Postal Workers Union commissioned several studies about how consolidating mail processing plants and eliminating jobs would affect local and state economies. The reports show that the financial losses could easily exceed the amount the Postal Service expects to save from the consolidations.
The reports were prepared by the Fiscal Policy Institute, an independent, nonpartisan, nonprofit research and education organization based in New York. The reports examine five plant consolidations: Youngstown, Ohio; Dakota Central in Huron, South Dakota; Mid-Hudson in Newburgh, New York; New Orleans, Louisiana; and Tucson, Arizona. (The links go to the reports.)
The FPI reports look at how many postal jobs will be lost in the community and how many additional jobs will consequently be lost in other economic sectors — banking, food services, real estate, health care, etc., — as a result of the multiplier effect. On average, for every ten postal jobs that are eliminated, another seven jobs are lost in the community.
The reports then estimate how these jobs losses will impact the economy of the community where the plant is located. Since the consolidations also involve transferring some postal workers to another plant, the reports also look at the economic benefits that will be experienced in the gaining community. Finally, the reports examine the net effects for the state or region with respect to job losses, economic output, and tax revenues.
The reports all tell the same story: While the consolidations may save some money for the Postal Service, the local communities and the broader regions will pay the price.
Here’s a table summarizing the results of the five reports. (A more complete worksheet can be found here.)
The reports stay focused on the five communities and don’t venture any estimates about what the results mean for the country as a whole. However, using these numbers, one can make some estimates about the picture nationwide.
Taking the average for the five consolidations, we see that when 150 postal jobs are eliminated, the equivalent of another 80 jobs are lost in the community. This net loss of 230 jobs causes a loss of about $17.7 million in economic output to the state or region.
In order to extrapolate these averages to the plant consolidations nationwide, it’s necessary to have an estimate for how many postal jobs will be lost. There have been various estimates for that number.
In the early stages of Network Rationalization, back in February 2012, the Postal Service prepared an environmental assessment that said the plan would close 250 plants and eliminate 34,000 jobs (p. 47). After the number of plants was reduced, a Postal Service press release put the number at 28,000 jobs. In testimony to the Postal Regulatory Commission (in June 2012), the Postal Service indicated that 13,000 of these jobs would be eliminated as a result of phase 2 of the plan.
More recent estimates have been lower. An article in a union publication estimates that about 10,000 jobs will be eliminated by phase-2. An article in Government Executive in September 2014 broke down the job losses plant by plant and came up with a total of 7,320. These lower estimates may reflect the fact that some workers had already left the Postal Service as a result of retirement incentives, or perhaps the estimates simply use different methodologies.
In any case, depending on just how many jobs are lost, the estimates for lost economic activity due to phase 2 of the consolidations would range from about $860 million to $1.5 billion. If it turns out that the total plan, with both phases, ends up eliminating 28,000 jobs, it could cause a net loss of almost 43,000 jobs and $3.3 billion in economic output nationwide.
The Postal Service’s latest estimate (in a recent FAQ page) is that phase 1 will save $865 million annually and phase 2 will save $750 million.
In other words, the Postal Service may save about $1.6 billion while the country stands to lose twice that amount in economic output. That’s why the five reports all observe that the “savings” for the Postal Services “come at a dear economic and individual cost” for the community.
The impacts on state, local, and federal taxes are also significant. Based on the averages of the five studies and the Postal Service’s estimate of 28,000 jobs eliminated, the total in lost taxes would be on the order of $70 million in state and local taxes and $500 million in federal taxes.
The numbers in the five reports, it may be noted, are consistent with a similar report done back in October 2011 by the Regional Development Institute at Northern Illinois University on behalf of the Greater Springfield Chamber of Commerce. (The APWU had nothing to do with this earlier study.)
The NIU study examined how Postal Service reductions in the workforce impacted the economy of Sangamon County. The study showed that a loss of 300 postal jobs would cause another 145 jobs to be lost in other sectors of the economy. The total lost to the county’s GDP (the community’s wealth) would be over $31 million, and total economic output would fall by almost $43 million.
As all of these studies show, the Postal Service does not operate in a vacuum. When it cuts jobs, it saves some money, but the savings come at a high price to communities, states, and the nation as a whole. If the Postal Service were a private corporation focused on maximizing profits, that might make some sense, but the Postal Service is still part of the federal government.
Members of Congress should be asking why it makes sense to close more plants, eliminate thousands of jobs, slow down the mail, drive away postal business, reduce tax revenues, and harm local economies. Is that what Congress really means when it says the Postal Service should act like a business?
(Photo credit: New Orleans mail processing center)
January 18, 2015
On Thursday the Postal Service filed a notice with the Postal Regulatory Commission saying it intends to raise postal rates on April 26, 2015, under its price cap authority.
The USPS press release says that the price hike will generate $400 million in contribution during FY 2015 (there will be only five months left in the fiscal year) and $900 million on an annualized basis.
The maximum rate increase permitted under the price cap authority at this point in time is 1.966%. This number is derived from calculations based on the previous twenty-four months of the Consumer Price Index – All Urban Consumers (CPI-U).
As Dead Tree Edition pointed out in an excellent post about the rate increase, the Postal Service submitted its filing late in the afternoon on the day before the Labor Department published the CPI numbers for December. Because of plunging energy prices, consumer prices fell 0.4% last month, the largest drop since the end of 2008. If the calculation of the postal rate increase had included December, the price cap would have been a bit lower. A back-of-the-napkin estimate suggests it might have made a difference of $25 million annually.
Overall, First Class mail will go up 1.949 percent, Standard mail will go up 1.886 percent, and Periodicals will go up 1.965 percent.
Since these numbers are slightly below the price cap authority, the unused authority can be rolled over to the next increase. But the differences are very small, and the rollover amounts are small fractions of one percent.
While each class of mail will go up about 1.9 percent, there’s a considerable degree of variation for the service categories within each class. To address concerns expressed previously by the PRC, the Postal Service will increase rates more for products not covering their costs (they’re underwater), such as flats and parcels.
For example, First Class parcels would increase by 10.2 percent, and Standard parcels will increase 9.8 percent. Standard mail flats will increase by 2.5 percent, and Every Day Direct Mail (EDDM) will increase by 4.8 percent. By contrast, single-piece letters and postcards, both of which are very profitable, will increase by only 0.6 percent. Forever stamps won't be going up at all.
January 13, 2014
Yesterday the Postal Regulatory Commission issued an order regarding the removal of the exigent rate increase, which will take place sometime late this summer. The order addresses several issues, like providing advance notice to the mailers, what to do about Forever stamps purchased before and during the surcharge period, and so on.
The discussion in the order also makes it clear that the Postal Service is considering implementing a CPI price cap increase at the same time that the exigent increase is removed. This is an increase permitted by the 2006 Postal Accountability and Enhancement Act, tied to the Consumer Price Index and the rate of inflation. A CPI increase for 2015 could have been implemented this month, but the Postal Service chose not to do that, perhaps because it would been on top of the exigent increase and last year's CPI increase. But the Postal Service never said it wouldn't do a CPI increase in 2015.
In December of 2013, the Commission granted the Postal Service’s request for an exigent rate increase of 4.3 percent, but only for a limited amount of time — the time it took the Postal Service to recoup $3.2 billion in gross revenues or $2.8 billion in net contribution. This’s the amount, according to the Commission’s analysis, that the Postal Service had lost “due to” the Great Recession.
The Commission’s ruling is being challenged in court by both the Postal Service and several associations of mailers. In the meantime, though, there are details to be worked out concerning what happens next.
The Postal Service filed its plan for removing the exigent surcharge in June 2014, and while not definitive, it identified two options. One involved filing a notice to remove the 4.3 percent surcharge. A second option involved using its available rate adjustment authority to increase rates under the price cap tied to the CPI. In other words, the exigent increase would be removed but some of it would be offset by a new CPI increase.
It’s not clear yet what that new CPI increase would be for each type of mail, but it’s likely to be similar to the previous increase of 1.7 percent that went into effect in January 2014. (Tables showing the monthly rates of changes in the CPI and the available price cap can be found here. The calculations will also include the rate for December 2014, which will be announced on Friday, Jan. 16.)
If the CPI increase turns out to be 1.7 percent, when the 4.3 percent exigent surcharge is removed and the new CPI increase is added, postal rates would fall about 2.6 percent — at least temporarily, until the next CPI increase takes place.
The PRC received several comments from the mailers about the plans for removing the exigent increase. One issue was whether there should be a single “ratemaking event” in which the Postal Service essentially rescinded the surcharge and implemented the inflation-based adjustment at the same time, in the same docket. The Commission’s order tells the Postal Service that it will need to do this separately in two dockets.
Then there’s the issue of how the Postal Service will notify everyone that it is approaching the $3.2 billion limit. The PRC has already told the Postal Service that it should provide 45 days notice prior to the removal of the surcharge so that the mailers can make adjustments. That order still stands.
In order to ensure that the Postal Service does not go under or over the $3.2 billion limit, the Commission is also requiring the Postal Service, once it gets close to the end, to provide a bi-weekly estimate of the incremental and cumulative surcharge revenue.
The order also addresses what to do about Forever stamps purchased before the exigent increase went into effect but then used to mail letters during the surcharge period, along with the related question of what to do about Forever stamps purchased during the surcharge period but not yet used. These two phenomena might cancel each other out, but the methodology used to do the calculations is important since almost $120 million is at stake. That’s a relatively small percentage of the total surcharge, but it’s still a significant amount.
Overall, it seems clear from the details in the PRC’s order that the Postal Service is looking at implementing the CPI increase as soon as the exigent increase is removed late this summer. Of course, a lot could happen before then, like a decision on the court case over the Commission’s exigent ruling or perhaps even postal reform legislation, which might make the increase permanent.
January 11, 2015
The mail is slowing down again, but it's not clear how much. There's good reason to be believe, though, that it will more than the Postal Service is saying.
The first slowdown took place in July 2012, when the Postal Service implemented phase one of the Network Rationalization plan, which closed about 150 mail processing plants and established interim service standards that eliminated overnight delivery for about 20 percent of the mail that had been getting it.
The mail slowed down again in March 2013, when the Postal Service implemented its Load Leveling plan, which added a day to the delivery of much Standard Mail so that ad mail normally delivered on Monday could be pushed to Tuesday.
Then on January 1, 2015, the Postal Service began implementing phase two of Network Rationalization. Service standards for First Class Mail were relaxed yet further — no more overnight delivery for any single-piece mail, and an extra day of delivery time for about half of all First Class Mail. The change paves the way for closing 82 more processing plants and eliminating thousands of jobs.
The Postal Service has not put out a lot of information about how much mail will be affected by the new service standards, and the estimates that have been provided are inconsistent and a little misleading. That may be because postal officials want to limit the damage the changes could have on mail volumes and revenues.
Relaxing service standards is, after all, another form of raising postal rates. It’s like when the candy bar gets smaller and the price stays the same. For mailers, such hikes usually mean they send less mail.
When the Postal Service was planning Network Rationalization back in 2011, it wanted to know how reducing service standards would affect mail volumes. It contracted with a market research company to survey mailers about how they would react.
The market research study showed that mailers would significantly curtail their volumes. The losses to the Postal Service could top $5 billion a year in gross revenues and $2 billion in profit, which would have erased the savings from the plant closures.
The Postal Service buried the study, had another one done instead, and tweaked the format and questions to come up with more palatable results.
Now the Postal Service is trying to downplay the scope of the changes in service standards in order to minimize the impact on mail volumes and revenues.
"The bottom line is this"
A USPS Fact Sheet issued in December 2014, shortly before the service changes went into effect, poses the question, "Won’t this slow down service?" and then provides this answer:
"Overall, the time it takes First-Class Mail to reach its destination will increase slightly from an overall average of 2.14 days to an overall average of 2.25 days."
That makes it seem as if the mail is doing to slow down by just two or three hours when in reality much of the mail will be delivered a full day later. Providing an average delivery time like this is misleading and doesn't really capture what the changes will mean.
Earlier this week, the Postmaster General tried to downplay the significance of the changes in another way. During the Q & A after his speech at the National Press Club on January 6, the PMG explained how it will be more efficient to operate fewer plants for more hours per day. The PMG then went on to say the following:
“The bottom line is this. With the exception of the holiday and your birthday, okay, you think about your own mail box. When is the last time you got a piece of mail that had a stamp on it? Yeah. You don't get it. This whole change represents at most 4% of the mail. We think it's closer to about 2.5%. So you can't hold an entire system hostage and continue to run up debt and continue to avoid making investments over 2% to 4% of the mail, and that mail is, unfortunately, for us going away at the fastest pace.” (The video and transcript are here.)
Apparently the PMG did not get that USPS Fact Sheet. It says, “In January 2015, the Postal Service will change its First-Class Mail service standards, which will affect roughly 14 billion pieces of the total volume (or 9%) and up to 16% of First-Class Mail. The affected volume represents primarily single-piece First-Class Mail. The majority of this mail will be delivered in two days instead of one.”
So while the PMG was minimizing the delays and telling the Press Club that they would affect 2.5 to 4 percent of the mail, the Postal Service was acknowledging that it would impact 9 percent.
The bigger estimate is more realistic, but even it probably lowballs the numbers by a significant amount. As the following analysis will show, the changes in service standards could slow down 80 percent of single-piece mail, half of all First Class mail, and over 20 percent of total mail volumes — several times what the PMG told the Press Club.