April 2012

The Case Against Consolidation: Rebuttal testimony challenges Network Rationalization

April 29, 2012

While the week’s postal news was dominated by the Senate vote on postal reform, something else important was going on.  Opponents of the Postal Service’s plan to consolidate the processing network submitted their rebuttal testimony to the Postal Regulatory Commission (PRC). 

This testimony — along with that of two independent experts brought in by the Commission — paints a vivid picture of what’s wrong with the Postal Service’s Network Rationalization plan.  The testimony presents a devastating indictment of the plan — its underlying assumptions, its modes of analysis, and its potentially disastrous effects.  The testimony is not just critical, however.  There are also many suggestions for how to improve the plan or how to replace it with alternatives that realize substantial cost savings without reducing the service standards for First Class mail and periodicals. 

Although the PRC’s Advisory Opinion won’t be completed for several months, the rebuttal testimony provides a good preview of where things are headed.  While the PRC is likely to confirm the view that there's some excess capacity in the network, it's hard to imagine that the Commission will come out with a ringing endorsement of the plan.  There's just too much that's obviously wrong with it.


Midway in the Advisory Opinion process

The process officially began on December 5, 2011, when the Postal Service filed its Request for an Advisory Opinion on the Network Rationalization initiative — a plan to close or consolidate about 250 mail processing plants.  The Postal Service submitted testimony from a dozen witnesses (a summary is here).

Behind the scenes, the process actually had begun months before.  In August, the Postal Service was briefing industry insiders on the plan and saying it would submit a Request for an Advisory Opinion in September or October.  For reasons that have never been made public, the Request was delayed for two months.  There’s circumstantial evidence that the postponement was caused by a market research survey — conducted in August and completed in September — showing that the plan would cause significant volume and revenue losses.  It took a few weeks to re-do the survey and come up with less damaging market research, and that may explain the delay.

Once the Request and USPS testimony were submitted, it was time for the discovery phase (which ended Feb. 24), during which intervenors in the process posed interrogatories to the Postal Service witnesses.  These intervenors included the postal worker unions, newspaper and magazine associations, industry stakeholders like Valpak, Time Inc, Pitney Bowes, and the Greeting Card Association, as well as several other interested parties, including David Popkin, Douglas Carlson, and the cities of New Orleans and Pocatello, Idaho. 

The questions sought clarifications and information, and they produced a mountain of additional testimony.  Some of the interrogatories looked for evidence that would help justify the plan for those who favor it, but mostly they picked apart the Postal Service’s testimony and began to reveal the flaws in the plan.

Next came a period for oral cross-examination of the Postal Service witnesses (March 20-23).  More questions were posed, and more weaknesses in the case for consolidations were exposed.  But the Q&A format of the interrogatories and cross-examinations did not always make it clear what the questioners were driving at and how the opponents to Network Rationalization were building their cases.

Things got much clearer this week.  April 23 was the deadline for filing rebuttal testimony challenging the Postal Service’s case, and some seventeen witnesses submitted testimony.  Most of it is very critical of the plan, and the Postal Service has its work cut out if it wants to undermine, discredit, or otherwise challenge the evidence presented by these witnesses.

The PRC’s procedural schedule indicates that the Postal Service has until Tuesday of this week to submit supplemental testimony that revises earlier testimony by taking into consideration that not all 252 consolidations were approved. 

Over the coming weeks, the Postal Service will have a chance to submit interrogatories to the rebuttal witnesses, and then in mid-June, these witnesses will be cross-examined in person as well.  The process is expected to continue through most of July, and then the Commissioners will need some time to digest everything and prepare their Advisory Opinion.  It might be done in August, but September is more likely.  

The PRC is basically halfway through the process, and we can now see both the case for and the case against Network Rationalization.  Here's a summary of the rebuttal testimony.


The Nine Towns Study: The economic impact of post office closings on small places

April 27, 2012

How do post office closings affect the economic life of small towns?  The Postal Service has not done any studies about the question, but a consulting firm has just released a report analyzing how closing the post offices in nine towns in Iowa would affect residents and small businesses.  Like a similar study done about the economic impacts of closing a mail processing plant in Illinois, the Iowa report shows that closing postal facilities can have seriously adverse economic consequences for customers, residents, and small businesses.

The study could not be more timely.  Among the amendments added to the Senate bill on postal reform passed this week was one proposed by Senator Mary Landrieu (D-LA), which, if it makes into the final legislation that's sent to the President, will require the Postal Service to determine the impact of postal facility closures or consolidations on small businesses (section 205 of the bill).

Entitled “Impact of the Closure of Post Offices 
in Northwest Iowa,” the new study concludes that the money the Postal Service would save by closing small rural post offices “will be far less than the additional costs that will be placed on the businesses and residents in those communities.”  In fact, the report estimates that these communities will suffer economic losses that are five times greater than what the Postal Service will save.

The report focuses on nine very small towns — average population, 180 — so one can only imagine how much more severe the impacts would be on larger towns.  As for the country as a whole, if closing small post offices can have this kind of effect on small towns, what will happen when the downsizing is writ large?

The nine-towns study is a microcosm of how the Postal Service's plans will affect the country.  If closing one post office has indirect effects on the rest of the town's economy at a ratio of one-to-five and anything like that happens nation-wide, the Postal Service's plan to save itself $2 billion a year by downsizing the retail network could cost the country $10 billion.  You don't dismantle something as big as the U.S. Postal Service without suffering some serious side effects.

The report identifies several areas where communities would lose out economically:

Why Postal Reform Will Fail

April 25, 2012


By any meaningful measure, whatever postal reform bill emerges from the current legislative process, it will be insufficient to staunch the flow of blood draining from the Postal Service.  More likely than not, the bill will facilitate the destruction of a national treasure by strangling the principles that support its existence.  Postal reform is going to fail because Congress cannot understand the fundamental role of a national post as essential infrastructure.  

Congress will do nothing to stem the slow evisceration of the network.  It will do nothing to prevent the wholesale destruction of the value of First Class mail.  It will do nothing to imbue a real spirit of innovation and service that restores and reinvigorates the positive role of government in ensuring the health and progress of society through promotion of the general welfare.

Congress will do nothing to hold the current management of the Postal Service accountable for the destructive and dysfunctional culture it has fostered and promoted.  It will do nothing to prevent the further perversion of the national trust embodied in the social and aspirational values that led to the provision of a means to bind the nation together in our founding documents.  It will do nothing to hold itself accountable for its desultory and self-interested approach to governing, for abandoning basic democratic values in constructing legislation.

The current administration will do nothing to stand for our basic principles either.  The legislation the President is likely to sign will result in the destruction of least 100,000 — perhaps as many as 200,000 — good, solid, middle-class jobs.  The legislation will ultimately result in large sections of the American public being abandoned in order to better serve very narrow interests.  It will transfer billions of dollars of revenue into the hands of a corporate elite, cause the deterioration of the security of our communications, and undermine one of the basic strengths of our democracy, the free flow of information and opinion.

Yes, postal reform is going to fail, and it will be as a result of our continuing self-immolation by the partisan bickering that masquerades as political dialog.  Both of our political parties have become captured by an almost mystical worship of free markets as some sort of sacrosanct natural phenomenon.  With few exceptions, our political class has succumbed to the proposition that every transaction, even basic discourse, is simply a matter of economic exchange.  

This belief has led to arcane and destructive budgeting procedures like those that created this fictional postal crisis.  It has also produced a complicated, obtuse, and impenetrable tax system that transfers the wealth, promise, and progress of the nation into the hands of an elite few.  At its most basic level, the system refuses to pay for the basic services a society must have to be deemed civilized.


THE CURRENT POSTAL CRISIS can be most directly attributed to the 2006 Postal Accountability and Enhancement Act (PAEA), which placed imponderable burdens on a basic piece of our national infrastructure.  Financially the greatest of those burdens was the massive transfer of postal revenues to the Treasury, ostensibly for the purpose of funding long-term liabilities to the retiree health care fund (RHBF).  In reality, this was simply a means of masking the continuing and ongoing profligacy of Congress.

More damaging, though, was the philosophical underpinnings of the law.  The PAEA abandoned the notion that the Postal Service is an essential service provider.  In its place, the PAEA has contributed to transforming a national institution into little more than a corporate behemoth whose primary focus is promoting “stakeholder” values.  It gave imprimatur to a long simmering agenda to abandon the promise of universal service, the utility of a broad wide ranging neutral network, and a commitment to employment in favor of a model that curried favor with a relatively narrow segment of the postal market — advertisers and marketers.

The financial crisis of 2008 and the Great Recession that followed was, at its cold black heart, the result of our increasing enthrallment with the idea of “something for nothing.” The crisis was created when the sector of the economy known as Finance, which is supposed to facilitate flows of capital in order to enhance meaningful economic activity, ascended to primacy based on the idea that the simple manipulation of money — rather than basic hard work and traditional economic activity — could produce endless profits and capital accumulation.

The GAO report on post office closings: Congress gets what it asks for—more misinformation

April 24, 2012

Last week the Government Accountability Office (GAO) issued its second report this month about the Postal Service.  This one is about post office closings (GAO-12-433), and it’s apparently intended to give lawmakers information that will help them craft postal legislation.  

The cover letter for the report is addressed to Senator Tom Carper and Representative Darrell Issa, the two lawmakers leading postal reform.  Presumably they’re the ones who requested it.  They certainly knew where to go for evidence supporting their radical downsizing plans.

Like the report on the processing network that came out earlier in the month (which is discussed here), the post office report is written by Lorelei St. James, but it’s based on previous GAO reports written by Phillip Herr, whose theme has been consistent: The Postal Service is going broke and it needs expanded authority to downsize. 

The new GAO report doesn’t make any additional recommendations, but the title gives you an idea of where it's headed: “Challenges Related to Restructuring the Postal Service’s Retail Network.”

The report is clearly designed to support the thesis that the retail network needs to be radically restructured and thousands of post offices need to close.  To make its case, the GAO doesn’t hesitate to spin the facts.  Here are just a few examples.


Visits to the post office are down by 16%

The report says that visits to the post office have decreased by 16% over the past five years.  A table shows where the 16% comes from: In 2007, there were 1.22 billion visits, and in 2011, there were 1.02 billion.

But how did the Postal Service come up with these numbers? A footnote tells us:  “USPS does not track retail transactions and customer visits at all facilities.  Therefore, USPS uses an extrapolation to determine the transaction and customer visit information for all USPS-operated retail locations.”

In other words, the numbers are just a guess.  No one is counting how many times people go to the post office to check their p.o. box, pick up a flat-rate box, ask a postal worker a question, and so on.

The Postal Service does have a way of estimating visits to the post office, however, and the numbers are much different than those cited in the GAO report.  Every year, the Postal Service conducts something called the “Household Diary Survey” (HDS), in which 8,500 families are surveyed over the telephone or Internet about their postal habits, including how often they go to the post office every month.  Here are the results for 2006 to 2010 (the 2011 report isn’t out yet):

1-2 visits/month
3-6 visits/month
7+ visits/month
Total (at least one visit per month)

As the table shows, the average number of visits has been fairly steady, and just comparing 2010 to 2006, the number of people visiting the post office at least three times a month has increased significantly.  (The averages were calculated using 1.5 visits a month; 4.5 visits; and 10 visits, for the three categories.  That's conservative for the most frequent category, if you consider that people with post office boxes go to the post office almost every day.)  You can see the trend lines in this chart:

As the chart shows, the number of households visiting the post office at least once a month has remained stable (about 82%), but the percentage of those that visit more frequently — 3 to 6 times a month and 7 or more times — has increased fairly steadily over the past five years.  As the 2010 Household Diary report concludes: “Even with the continued availability of mail-related products and services through alternative modes (such as Internet orders), in-person visits to postal facilities remain stable.”

As for how many people visit the post office each year, the GAO report puts the figure at about one billion visits a year.  The Household Diary tells a different story.  There are 115 million households in the U.S.  If each household visited the post office an average of 3.85 times a month in 2010, it comes to 5.3 billion visits a year.  That’s five times the Postal Service’s estimate in the GAO report.

The Postal Service doesn’t really know how many people visit the post office each year, and there's little foundation for the claim that visits are down 16%.


The Senate does postal reform: An overview of S.1789

April 22, 2012

If all goes according to plan, Senate bill S.1789 will come to the floor for a vote this week, perhaps as early as Tuesday.  The “21st Century Postal Service Act of 2012" is sponsored by Senators Lieberman, Carper, Collins, and Brown.  (A good summary of the bill is here.)

Though a few shades better than what Darrell Issa and the House will come up with, there’s little in the Senate bill to make one hopeful about the future of the Postal Service.   S.1789 just buys into postal management’s view of what needs to be done to right the ship — close post offices, consolidate the processing network, slow down the mail, reduce delivery days, cut back on delivery points to the door, and downsize the workforce by over 150,000 jobs. 

These steps are being touted as necessary to save the Postal Service, but they are really designed to turn the Postal Service into an enterprise that serves a corporate elite — the Postal Service’s biggest customers and suppliers — rather than the general public.  At the heart of the plan is hostility toward public-sector workers, unions, government, and public services. 

In order to get the country to go along with the plan, this elite has lobbied Congress, exercised its influence on postal executives, and shaped the media narrative.  The storyline has been simple and consistent: The Postal Service is hemorrhaging billions of dollars — millions each day — because everyone is using email and paying bills online.  The deficit is now $25 billion, mail volumes will continue to plummet no matter what, insolvency is weeks away, and millions of jobs and the entire mail industry are threatened.  The only way to save the Postal Service is by “rightsizing” it, i.e., dismantling.

With the New York Times, the Washington Post, and the rest of the mainstream media constantly reiterating this narrative, it’s been virtually impossible to hear another view.  The postal worker unions and a few progressives — notably John Nichols at Nation Magazine and Senator Bernie Sanders of Vermont — have tried to explain what’s really going on, but it’s been tough.

The postal deficit, they explain, has been caused not by the Internet but by the Great Recession and the 2006 congressional mandate to pay $5.6 billion a year into the retiree health care fund.  Were it not for those unnecessarily onerous payments, the Postal Service would have broken even for the past five years, and were it not for the recession, it would be showing a profit.  Draconian downsizing plans will not save the Postal Service: they will doom it.

The Senate bill that will come to a vote this week fails to acknowledge these basic facts.  Instead, it’s based on the false premise that the only way to deal with the deficit and the projected declines in First-Class mail is by dismantling the postal system.  The bill doesn’t try to correct the disastrous course postal management has elected to take.  It just slows things down.  It puts up a few more hurdles for closing post offices and processing plants, and it makes a rhetorical nod in the right direction when it comes to things like giving the Postal Service more freedom to innovate and diversify.  But the bill won’t stop the madness.

As weak as it is, the bill may yet turn into something halfway decent if a number of key amendments are passed.  There are several amendments on the table that would do more to protect post offices, plants, workers, and service.  But it will be tough getting any of them approved because Senate leaders have decided that it will take 60 votes to pass an amendment — an almost impossible threshold considering how evenly split the Senate is along party lines.

As is, the bill leaves much to be desired, and it will only get worse after it goes on to the House, which will pass some version of Issa’s bill, the ultimate goal of which is clear — privatization.  The two versions will then be sent to a conference committee to work out a compromise, which can only end up making worse whatever the Senate passes this week. 

From the looks of things, we’re going to end up with postal reform legislation that doesn’t save the post office from an untimely demise.  It will just do hospice.  Here’s an overview of  what’s in the bill.  Read it and weep.


Expanded products and services

While the postal deficit is a manufactured crisis, the slow erosion of First-Class mail due to the Internet is a fact of life, and as the secret markeing survey revealed, the declines will accelerate if the Postal Service implements its downsizing plans and reduces service standards.  It would definitely help if the Postal Service could develop new sources of revenue.

The Senate bill authorizes the Postal Service to provide new products and services that are not strictly speaking “postal,” but only after the Postal Regulatory Commission (PRC) has determined that the new service doesn’t create unfair competition with the private sector.

That proviso eliminates just about any profitable innovation that the Postal Service could come up with.  If a new service can bring in significant amounts of revenue, it will inevitably compete with the private sector, and there’s sure to be a corporate executive or lobbyist complaining that the competition is unfair.

That’s how it’s always been.  There’s a good article in this week’s New York Times (one of the few decent pieces it’s run on postal matters) about how Congress has prevented the Postal Service from diversifying the way foreign posts have done.  In the 1990s, for example, the Postal Service wanted to get into phone cards, money transfers, and e-mail, but Congress said no.  With the 2006 Postal Accountability and Enhancement Act (PAEA), Congress made the attitude a matter of law and “told the agency to stick with delivering the mail.”  In 2008, the Postal Service wanted to sell postal meter cartridges branded with its logo, but Pitney Bowes complained that the service would cause “immediate harm” to its business.

Although the Times doesn’t look back to the earlier history of the post office, this excellent monograph by postal scholar Richard B. Kielbowicz examines the period 1790 to 1970.  Kielbowicz shows how the post office has had to deal with criticisms that it was unfairly competing with private businesses since its very inception.  The post office could have “postalized” the telegraph and telephone systems (i.e., turned them into public entities), it could have gotten into the e-mail and Internet business, it could have expanded its low-cost parcel post business, and it could still be in the banking business (as it was from 1910 to 1966).  But in every case, private corporations complained about the unfair competition and lobbied Congress to handcuff the post office.

The new Senate bill does little to remove those handcuffs.  The only innovation that is specifically approved and not subject to the “unfair competition” restriction is the authorization to deliver beer and wine.  While that may come as welcome news to a few wine clubs and people living in remote rural areas thirsty for a nice bottle of pinot noir, this is just a parody of the idea that the Postal Service needs more freedom to innovate and diversify. 


How Network Rationalization speeds up Standard Mail and hastens the demise of First-Class

April 18, 2012

Sometime over the next few days, the Postal Service is expected to publish the final rule implementing the service standard changes that are the foundation for the Network Rationalization plan to consolidate over 220 mail processing plants.  First-Class Mail that is currently delivered overnight will be delivered in two days, and much of the mail delivered in two days will take three.  Periodical mail will slow down as well.

When it published the proposed changes in service standards in the Federal Register in December, the announcement stated, “The Postal Service is not proposing any revisions to the service standards for Standard Mail and Package Services pieces mailed within the contiguous forty-eight states.”

That’s only partly true.  The service standards for Standard Mail will remain 3 to 10 days for the continguous US, but the plant consolidations will lead to some significant changes in delivery times for most Standard Mail. 

The changes are probably not what you’d expect.  The Postal Service is actually planning to speed up Standard Mail. 

The Postal Service hasn’t said much about this, but the big customers who send a lot of Standard Mail are probably well aware of what’s going on.  The changes, after all, are being made for their benefit.

The reconfiguration of the processing network is not simply about eliminating “excess capacity” — like sorting machines that run eight hours instead of twenty — or about adapting the system to declining volumes of First-Class Mail.  It is also about reconfiguring the network to better serve the big mailers.

The Postal Service’s biggest customers — its National and Premier accounts — have been among the staunchest advocates of downsizing because they see it as key to keeping postal rates low.  At the same time, these customers are concerned about relaxing service standards for First-Class Mail and Periodicals, as we saw in their responses to the marketing survey that showed slowing down the mail would cost the Postal Serive $5 billion worth of business. 

It turns out that the reconfiguration of the processing system may have an effect no one has been talking about: faster delivery for Standard Mail.


Changes in Service Standards for Standard Mail

You can see the changes in the service standards for Standard Mail on the USPS website.  There’s a page on the site called the “National Customer Support Center,” which provides information primarily useful for big mailers and members of the MTAC — the Mailers' Technical Advisory Committee, a group of important industry stakeholders.  The Support Center has a page called “Modern Service Standards,” with links to database tables for the current and future service standards.  You can also see a visualization of the data on a map page.

Looking at the maps for a particular three-digit ZIP code, it’s easy to see how First-Class mail will be affected.  The website provides a map of current standards and a second map for the future standards.  in comparing them, you can see the area for one-day delivery disappears, and the area for two-day gets smaller; the area for three-day takes over most of the map.


Mid-Island, NY (005)

If you look at a pair of maps for Standard Mail, however, something much different happens.  Here, for example, are the maps for Mid-Island, New York.  The first map shows the service standards for Standard Mail under the current system, and the second map shows how things would change with the Network Rationalization plan.

As the first map shows, in the current processing system, there’s a checkerboard pattern with the area nearest the Mid-Island facility getting the mail in five days (light blue); regions in the northeast get delivery in six days (dark blue) or seven (yellow); the Midwest and most of the West, seven or eight days (brownish-red); and the Northwest, eight or nine (dark green). 

Under the new system, as seen in the second map, the checkerboard disappears, and there are basically three homogenous zones, with delivery ranging from six to eight days (for the continental US).  The three-day area close to the facility gets a little bigger as well.

It was sad when that great ship went down: The Postal Service heads for an iceberg

April 14, 2012

A hundred years ago this Sunday, the Titanic collided with an iceberg and sank in the icy waters of the North Atlantic, causing the deaths of over 1500 people.  Researchers have recently announced a new theory on the cause: Unusual weather conditions produced a false horizon that hid the iceberg from view.  In other words, a mirage

Whatever the immediate cause, the disaster could have been avoided if the ship’s captain had listened to warnings and sailed more slowly in those dangerous waters.  But he and his officers believed the great ship was "virtually unsinkable," and it was ultimately their own hubris that sunk the Titanic.

The leaders of the Postal Service are under the influence of their own form of hubris.  They’re always right “because they said so," and they’ve convinced themselves that the only way to deal with declining mail volumes is by radically downsizing the workforce.  They are even willing to cause self-inflicted damage by implementing plans they know will drive away billions of dollars of business.  

The officers at the helm seem determined to sink the Postal Service.  Their business plan will send the Postal Service into a downward spiral of falling revenues and deeper and deeper cuts.  But it's full speed ahead, and nothing will steer them in another direction, even though it's clear they are heading straight toward an iceberg of their own creation.  

Blame it on unusual weather conditions.


Bad directions from the GAO

It didn’t help matters this week that the GAO issued a new report (GAO-12-470) on the Network Rationalization plan to consolidate over two hundred mail processing plants.  The GAO doesn’t make any new recommendations, but the title of the report says it all: “Mail Processing Network Exceeds What Is Needed for Declining Mail Volume.”  And that's what all the headlines are repeating.

The report, though it makes a nod toward being balanced by including dissenting voices, is an obvious endorsement of the Postal Service’s consolidation plan.  That’s why it's been warmly embraced by Congressman Darrell Issa, whose House bill would completely dismantle the Postal Service.  “We cannot allow political interests to trump our responsibility to restore the Postal Service to solvency and protect the taxpayer from picking up the tab for surplus facilities,” said Issa in response to the report.  Issa was probably also pleased to see that the GAO had some kind words to say about his proposal to create a BRAC-like Commission empowered to close post offices and processing plants without a lot of bureaucratic oversight or community input.

The GAO report doesn’t introduce new evidence that the processing network is too big, nor does it provide any analysis demonstrating that the Network Rationalization plan will actually help matters.  The report basically just reviews the Postal Service’s plan, and then goes over some of the objections raised by postal unions and mailers, along with the Postal Service’s responses.

The authors of the GAO report do not seem to have spent much time studying what the Postal Regulatory Commission has learned about the Network Rationalization plan.  The PRC's Advisory Opinion won't be completed until late summer, but if the GAO had looked at the testimony, interrogatories, and transcripts, the report would be a lot more useful.  Instead, as we learn in a footnote on page 14 of the report, the GAO says, "Since PRC is examining USPS’s proposal and cost estimates for revising its delivery service standards, we did not assess the reliability of USPS’s database used for estimating the cost savings."

Much of the report is a rehash of previous GAO reports.  For years now, the GAO has been arguing that the Postal Service needs to reduce costs by eliminating post offices, consolidating the processing network, and downsizing the workforce.  These earlier reports (almost all of them written, by the way, by Phillip Herr) include “U.S. Postal Service: Actions Needed to Stave off Financial Insolvency” (GAO-11-926T; Sept. 6, 2011); “Action Needed to Facilitate Financial Viability” (GAO-10-624T; April 15, 2010); "Strategies and Options to Facilitate Progress toward Financial Viability" (GAO-10-455; April 2010); and “Network Rightsizing Needed to Help Keep USPS Financially Viable” (GAO-09-674T; May 20, 2009).

Herr's reports develop one theme — downsize or else — and the latest GAO report, though not by Herr himself, is no exception.  Senators Tom Carper and Susan Collins, who requested the report, had to know what they’d get before they asked for it.  As Carper said in response to the report, “it confirmed much of what we already knew.”    


The Internet Mirage

The GAO’s argument on behalf of Network Rationalization spins the facts in numerous ways.  The report begins, for example, with a chart showing how the Postal Service has been running multi-billion dollar deficits since 2007.  It’s a familiar scare tactic, used countless times by the Postal Service and the GAO.  As we’ve heard so often, the Postal Service has wracked up a $25 billion deficit since 2006 because first-class mail is dropping fast due to electronic communications.

You’d need to go to page 11 of the report to find the word “recession,” and it appears only once in the entire document.  There we learn that “declining First-Class Mail volume is primarily attributed to the increasing number of electronic communications and transactions.  The recent recession and other economic difficulties have further accelerated mail volume decline.” 

It’s true that before the 2008, declines in first-class mail could be “primarily attributed” to the recession, but those declines were modest.  From peak first-class volumes in 2001 to 2007, before the recession began, first-class mail volumes declined from 103.6 billion to 96.3 billion — a total drop of 7%, or just over 1% a year.  From 2007 to 2011, first-class volumes declined from 96.3 billion to 73.5 billion — a drop of 23%, or about 6% a year. 

In other words, first-class mail has declined by 30% over the past ten years.  About 7% of that 30% happened in the six years before the recession, and the other 23% happened in the four years after the recession began. 

The Postal Service and the GAO thus have it backwards.  The Internet is not the “primary” cause of the volume drop; the recession is.  Looking at the average annual declines of 6% since 2007, it’s likely that about 1% was caused by the Internet, and the other 5% by the recession.

That’s almost exactly what the Postal Service has told the Postal Regulatory Commission in its case for an exigent rate increase.  In that context, the Postal Service argued that for fiscal years 2008 and 2009, the height of the recession, the economy was responsible for 67% to 97% of the losses, as well as a large part of the losses since then.

The reason the GAO and the Postal Service don’t like to mention the recession is simple.  If you want to permanently dismantle the Postal Service, you need a permanent problem — like the Internet — and not a temporary, cyclical one like the recession.  The GAO might have noted that were it not for prepayments to the retiree health care fund, the Postal Service has basically broken even for the past few years, despite the recession.  But that wouldn't have helped with its case for consolidation.


First-class volumes, not falling fast enough

The GAO report has a chart projecting first-class mail volumes through 2020, and of course, it shows that volumes will continue to drop precipitously.  It says that first-class mail volumes in 2020 will be 40 billion pieces, which represents an annual decline of about 5%.

The source for this chart is labeled as “GAO analysis of USPS data,” so it’s hard to know how they came up with the numbers or why they’ve decided that first-class mail will continue to decline at a rate comparable to the past four years.  That represents a pretty pessimistic view of the economic recovery.  The estimate is also worse than the one provided to the Postal Service by the Boston Consulting Group, which said 2020 first-class mail volumes would decline at about 3.5% a year.  

But BCG was only looking at the effects of Internet diversion on mail volumes.  Perhaps the GAO estimates take into consideration the volume losses that the Postal Service will inflict on itself by implementing service cutbacks. 

It’s crazy when you think about it.  The Postal Service is worried about declining first-class mail volumes, and what does it do?  It comes up with a plan specifically targeted at reducing service standards for first-class mail — as well as raising first-class postage by 11% to fifty cents.  It’s as if the Postal Service can’t wait to get out of the business of delivering first-class mail.  


Appeals in vain: The long odds on success at the PRC

April 9, 2012

Over the past fifteen months, more than two hundred communities have tried to save their post office from being closed by appealing to the Postal Regulatory Commission (PRC).  For nearly all of them, the effort was in vain.  

Between January 1, 2011, and April 6, 2012, the PRC issued orders on 180 appeals.  Only thirteen of them were successful, meaning the PRC remanded the Final Determination to close the post office back to the Postal Service for further consideration.  In the other 167 cases, the PRC affirmed the Postal Service's decision to close the post office.  Those aren’t very good odds for people trying to save their post office.


Ties favor the Postal Service

The PRC is supposed to have five commissioners, but the Commission is awaiting the Senate confirmation of Tony Hammond, and for the past several months, there have been only four commissioners.  Since December, when the moratorium on post office closings went into effect, every PRC order affirming a Final Determination to close a post office has ended in a split decision, two votes to two.  

Commissioners Mark Acton and Robert Taub have consistently voted to affirm the decision to close the post office, and Chairman Ruth Goldway and Vice-Chairman Nanci Langley  have consistently voted to remand the closing decision back to the Postal Service.   (For what it’s worth, Acton and Taub are Republicans; Goldway and Langley, Democrats.)

There's nothing in the PRC's written rules about how to handle tie votes, but the Commission has determined that in the absence of a majority, the Final Determination stands.  All of the tie votes have thus led to the Commission issuing an "Order Affirming Determination," that is, a ruling affirming the Postal Service's Final Determination to close the post office.  Whether or not the Commission has the authority to issue such orders may eventually be challenged in court.

In the meantime, with their votes, Commissioners Acton and Taub have sealed the fates of about 127 post offices — all those for which appeals were decided during the moratorium.  Unless Congress intervenes or the Postal Service changes its mind, these post offices will close in late May or early June, soon after the moratorium ends on May 15.

The cartoon at the right comes from 1986.  That was a period when a lot of post offices were closed — 111 in 1985, and 150 in 1986.  Appeals at the PRC (then the Postal Rate Commission) weren't usually successful either.  In 1985, twenty-four orders affirmed the closing, and there were only three remands.  Even those bad odds, however, were better than what we've been seeing lately.

In 2011, the Postal Service closed 430 post offices, and another 240 were issued Final Determinations — most of them will close when the moratorium ends.   Those kind of numbers are totally unprecedented.  With several thousand more closings on the horizon, what's that cartoon going to look like?


How the appeals have fared

Since the Postal Service was created in 1971, it has closed an average of a hundred post offices a year;  fewer than nine closings were appealed to the PRC each year.  In 2011, the Postal Service issued 671 Final Determinations.  A third of them were appealed.  

It's taken a while, but the PRC has rendered decisions on nearly all of the 225 cases that have been appealed.  There are thirteen cases still pending, and work on these appeals should be completed by May 3.  Here’s a summary of how the appeals have fared since January 1, 2011, along with some data on appeals going back to 1976, just to provide an historical perspective.  (The data for the past fifteen months comes from the PRC website; an unofficial list of the 2011-2012 appeals is here; information about the historic data is here.)

1976 - 2010
Jan. 1, 2011 - April 6, 2012
% affirm vs. remand
% affirm vs. remand

As the table shows, for the thirty-five years before 2011, one out of every four appeals ended with an order remanding the closing decision back to the Postal Service.  Over the past fifteen months, the chances of winning a remand have been about one in 14. 

Communities actually had a better chance with the Postal Service, which decided to withdraw the Final Determination in twenty-four cases — almost twice as often as the PRC issued a remand.  (Why the Postal Service changed its mind in these cases remains unknown.)  A few cases were also dismissed, usually because the PRC decided the issue was out of its jurisdiction, as was the case with Venice, California, where a beautiful New Deal post office is being closed and sold, but that's considered a "relocation," not a "closing."

In early 2011, before the number of appeals began to increase significantly due to the step-up in post office closings, the decisions to affirm a closing decision were almost always unanimous.  Then last summer, Chairman Goldway issued dissents on the Freehold, New Jersey, and Fort Smith, Arkansas cases; she followed with several more dissents during the fall.   In November, Langley also began to issue dissenting opinions. 

By December, when the moratorium went into effect, Goldway and Langley were consistently voting to remand the Final Determinations back to the Postal Service.  Since November, they have dissented on 127 decisions. 

It’s not clear why Commissioners Acton and Taub have made it so difficult to win a remand.  Perhaps they believe the Postal Service should have the authority to close post offices as it sees fit, without too much interference from the PRC, which has very limited power over appeals anyway.

Perhaps they think the Postal Service has been doing a satisfactory job with the closing process so that there are rarely grounds sufficient for a remand.  Maybe they feel that unless the Postal Service has blatantly failed to follow the law or obviously demonstrated bad faith, the decision to close a post office should not be remanded on procedural grounds.

The hundreds of thousands of people who filled out questionnaires and attended four thousand town meetings last year probably have a different view of how well the process was conducted.  There have been countless complaints about the Postal Service getting its facts wrong, giving out misinformation, failing to follow its own guidelines, abandoning its obligation to provide a maximum degree of service to rural areas, demonstrating a lack of responsiveness to customer concerns, and giving people the impression that the decision to close the post office was a done deal long before the process was completed.  

Another possibility is that Commissioners Acton and Taub are concerned, like everyone else, about the financial situation of the Postal Service.  Perhaps they believe that if the Postal Service thinks closing post offices is a good way to save some money, it's not up to the Commission to second-guess the decision.   

Whatever their motives, Commissioners Acton and Taub apparently don't believe it is the role of the Commission to help communities trying to save their post offices.  Instead, the Commissioners have taken a very narrow view of what the law requires of the Postal Service when deciding to close a post office. 

Connolly and Young Call on Congress to Develop 21st Century USPS Business Model

April 2, 2012


More than 100 Members of Congress sign letter in support of 6 Day Mail, Rural Post Offices, Innovation

Washington, D.C. –Virginia Congressman Gerry Connolly was joined by more than 100 members of Congress in calling on Speaker John Boehner and Minority Leader Nancy Pelosi to maintain robust mail service, including 6 day delivery and rural post offices, and develop a transformational 21ST Century business model for the USPS.  Republican Don Young of Alaska joined Connolly in circulating the letter.

“Legislation proposed in Congress, specifically H.R. 2309, presents a false choice to the American public,” said Connolly.  “Giving up six day mail service, closing rural post offices, and ending next day mail service will forfeit USPS’ competitive advantage, and would accelerate the decline of the Postal Service.”

“Rather than pass legislation which dismantles the Postal Service, Congress must be a partner in building a postal business model for the 21ST Century,” said Connolly.  “By allowing the Postal Service to innovate and relieving the retirement prefunding obligation imposed by Congress in 2006 we can protect the infrastructure of a $1 trillion mailing industry while maintaining universal service for all Americans—rural, suburban, and urban.”

Connolly and Young’s letter suggests alternatives to legislative proposals that cut mail delivery from six days to five, eliminate 3,600 or more rural post offices, end next day mail service, and stop 90% of door-to-door mail delivery.  The letter highlights the devastating effects H.R. 2309 would have on the Postal Service, including lost revenue and cuts in service.  Connolly and Young suggest there are alternatives, such as restructuring the $5.5 billion annual Retirement Health Benefit prefunding requirement, refunding USPS overpayments into FERS, and permitting USPS to adopt new business practices that would allow USPS to forgo these drastic cuts in service.  In contrast to HR 2309, bipartisan Senate legislation reschedules retirement health benefits payments to protect USPS solvency and allows the Postal Service to innovate and earn new revenue.

Connolly and Young look forward to working with congressional leaders to build a Postal Service business model  for the future which closes the current gap in funding while continuing robust mail service to all areas of the nation.

Text of the letter is below and a signed PDF version is attached.

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