Busy week at the PRC: The union complains, the Postal Service shares numbers, and the senator sends a letter
June 17, 2012
It was a busy week at the Postal Regulatory Commission. On Wednesday and Thursday, the Commission heard cross-examination from witnesses challenging the Postal Service’s Network Rationalization plan to close over 200 processing plants. The APWU has also filed a complaint about the plan as well as a motion for an emergency order seeking to prevent the Postal Service from implementing the service standard changes at the end of June.
On Friday, several interesting documents concerning POStPlan — the plan to cut hours at 13,000 post offices — showed up in the PRC’s daily listings. There’s a spreadsheet showing the cost savings on the plan, a response to an inquiry about the revenue losses the plan might cause, and a request for non-public status on another library reference containing the revenue numbers for all the POStPlan post offices.
The PRC also received a letter from Senator Carper on Friday, urging the Postal Service to speed up its Advisory Opinions.
We’ll get to the latest developments on Network Rationalization in the next post. For now, here’s the latest on POStPlan, plus a comment on Senator Carper’s letter.
Cost savings on POStPlan: No great expectations
The Postal Service has provided the PRC with a spreadsheet showing how POStPlan could save $500 million. There’s not much to the analysis, and it looks a lot like the guestimates we made a couple of weeks ago.
The Postal Service says that the goal of POStPlan is not to save $500 million or to achieve any particular cost savings. In a reply to an information request from the Commission, the Postal Service simply says, “Postal management's goal in pursuing the POStPlan is to improve efficiency and meet customer needs by matching retail hours and services to community postal needs and use patterns” (POIR 1-10).
According to the Postal Service, then, it will be better able to “meet customer needs” if it closes their post office a few hours a day. That’s pretty much along the same lines as its view that closing 3,700 post offices would be a form of “retail access optimization.” The new plan is not about saving money, says the Postal Service. Its purpose is simply to “match” retail hours to postal needs. “The goal,” says the Postal Service, “is not contingent on a specific cost savings estimate or expectation.”
While a specific cost savings estimate may not be the goal, the Postal Service is justifying the plan by saying it will save $500 million, and the spreadsheet shows how. The total cost for labor for the 17,727 impacted post offices is currently $1.26 billion. Under POStPlan, the labor costs would be $0.75 billion. The total savings is around $517 million.
You can see the original USPS spreadsheet on Google docs, here. For some reason, it includes not only the 17,727 post offices that are part of the plan, but another 4,100 Level 18’s that aren't. Just to make things a little clearer, here’s the spreadsheet with those Level 18s removed, and some numbers on hours of operation and hourly wages added:
As you can see, the cost savings analysis compares the total labor costs for full-time postmasters to the lower costs for using part-time replacements. The difference between them is the savings. There’s nothing in the analysis about other costs that POStPlan might incur, like training thousands of part-time workers or sending someone from an Administrative Post Office to a Remotely Managed Post Office to open or close the lobby, having a carrier go the post office to distribute the mail for PO boxes in the morning (the office may open only in the afternoon), and all the other expenses in managing part-time post offices from afar.
What revenue losses?
As part of its inquiry into cost savings, the PRC also asked the Postal Service to “explain any efforts the Postal Service has made to estimate the expected impact on revenue from reducing window service hours under the POStPlan. Include electronic worksheets showing how this estimate was calculated.”
The Postal Service could provide no such worksheets. It says it wouldn’t know how to do such calculations. In reply to this request, the Postal Service says the following. It’s worth quoting in full.
“The Postal Service has made efforts to estimate the POStPlan’s expected impact on revenue, but has been unable to identify or determine any accurate method for doing so. This is true, at least in part, because the Postal Service has not reduced window service hours in this manner before and therefore has no empirical evidence on which to base such an estimate. Efforts to estimate the impact on revenue have consisted of observation of the correlation between window service hours and revenue, and inferences there from. Such inferences do not provide an accurate or representative assessment of causation between a decrease in window service hours and consequent decrease in revenue. Unchanged customer access to Post Office boxes and mail receptacles, as well as the availability of alternate access opportunities, many of which are not tied to a particular location, helps illustrate the reasons why it is difficult to draw any legitimate conclusions in today’s retail environment about the specific effects that a change in window service will have on revenue.” (POIR 1-11)
In other words, the Postal Service will provide no estimate of lost revenue because it doesn’t know how to do such a calculation because it’s never reduced window hours like this before.
That’s a strange explanation for not estimating potential lost revenue. The Postal Service has not eliminated Saturday delivery before, and it hasn’t reduced service standards on First-Class mail before, but that didn’t stop it from paying a market research firm to come up with some very specific estimates about how much revenue loss these changes might cause.
Indeed, the Postal Service did hire a research company to survey customers in connection with POStPlan. It’s the same company that did the market research for these other proposals — Opinion Research Corporation (ORC).
ORC's survey instrument for POStPlan asks about 27 questions. Participants are asked to provide detailed information about their mailing habits, their view of the Postal Service (in terms of reliability, trustworthiness, quality, etc.), and their preferences about alternatives to a full-time post office — close your post office and use a full-time post office in another town, get a village post office, use a rural carrier, or have the hours reduced at your post office. In testimony to the PRC on POStPlan, the Postal Service uses the survey results as evidence that customers would prefer shorter hours to seeing their post office closed. (As if we needed a survey to learn that.)
In spite of how detailed the survey is, there are no questions about how much less business customers might do with the Postal Service if the post office were open fewer than eight hours. There are no questions analogous to those that were used in the quantitative market research on Network Rationalization or Five-Day Delivery. The earlier research studies asked participants about how their mailing volumes would change under a hypothetical situation. For some reason, the Postal Service decided that could not be done for POStPlan.
Actually, when it comes to reducing hours, it’s not all hypothetical. There are over 1,500 post offices operating at two, four, and six hours a day right now. Presumably most of them were full-time at some point. Has the Postal Service looked at revenues for those post offices to see how they declined when the hours were reduced?
[Update: In reply to a subsequent request for information, the Postal Service said it has not undertaken any analysis of revenue, costs, community impacts, etc., at post offices where the hours have been changed (POIR 2-11).]
There’s even another option for estimating the revenue that might be lost if a post office had its hours cut. Unlike eliminating Saturday delivery or changing service standards on First-Class mail, it would actually be possible to do a pilot program in which the hours were cut at a few post offices. Rather than proceeding with cutting the hours at 13,000, why not try out the plan on a couple of hundred and see what happens?
Not that this would tell the whole story. One of the issues with POStPlan is that it will not only cause a loss of incoming revenue at the post offices with reduced hours. It will also cause lost revenue at other post offices. If a customer can’t pick up packages at the post office because it’s only open four hours a day, the customer may ask shippers to use an alternative. UPS or FedEx may cost more, but at least they deliver to a house and you don’t have to get yourself to the post office during its abbreviated hours of operation. Those revenue losses won’t show up at the post office with reduced hours. They’ll show up at the post office where the shipper sends packages, and it will be very difficult to measure those losses.
Walk-in revenue, no can see
Included in the PRC’s daily listing on Friday was a library reference submitted by the Postal Service containing the revenue numbers on the POStPlan post offices. The Postal Service has asked that the spreadsheet remain “non-public” because it deems the data to be “commercially-sensitive and proprietary information.” As an example of the kind of “harm” it might experience were the data made public, the Postal Service asks the PRC to imagine a hypothetical:
“Walk-in revenue at a particular location is revealed to the public. A nearby private mailbox and shipping services provider reviews the information, and determines that there are enough potential customers at the postal location that an advertising campaign would be justified. The private company directs advertising for its mailbox and shipping service to the postal customers, perhaps using a billboard near the postal location and offering to match postal prices for a three-month trial” (USPS-LR-N2012-2/NP1).
That scenario is a real possibility, and the PRC is likely to honor the Postal Service’s request. It does raise a question, though. Why would the Postal Service be worried about giving its competition a leg-up, when it can’t wait to get out of the retail postal business in the 13,000 communities where post offices don’t generate enough revenue? The Postal Service has already said that it would prefer to just close all these offices. Cutting hours is a second-best, in-the-meantime alternative. If a private business can replace the post office, isn’t that just what the Postal Service wants?
Besides, it's not as if competitors don’t have their own ways of figuring out where good locations might be. They can look at census data, check the locations of other businesses, hire market research firms, and so on. They don’t need the Postal Service’s revenue data.
In any case, the Postal Service has already made enough information publicly available to enable one to make estimates about walk-in revenues at the 17,000 post offices on the POStPlan list, as we did a couple of weeks ago. You can see the estimates on this Google Fusion table, and there’s an explanation of how we came up with the numbers here.
Hopefully the disclosure of these estimates will not cause commercial harm to the post offices in these communities. Perhaps they will instead reveal that small post offices are not the big money losers that postal management and privatizing politicians would have us believe.
What’s it all for, anyway?
One of the most striking thing about the numbers released to support the Postal Service’s case for POStPlan is the fact that these post offices don’t really lose very much money. The Postal Service likes to tell us that 80% to 90% of post offices lose money, and one gets the impression that if these post offices could be closed, it would take care of a big part of the postal deficit. But take a look at this profit-and-loss spreadsheet.
The country has 32,000 post offices. The smallest 17,727 of them run $200 million in the red. That’s about one-third of one percent of the Postal Service’s annual budget. It’s also just 3.5 percent of the $5.6 billion annual payment to the retiree health care fund — a payment that could be reduced or erased with a simple act of Congress. One can’t help but ask, why is prefunding the healthcare costs of future retirees — costs that will be incurred decades from now — more important than providing an all-day post office to millions of people?
The Postal Service could cover that $200 million loss in a number of ways. For example, according to the PRC’s 2012 compliance report, “ten market dominant products failed to generate revenues sufficient to cover attributable costs, losing in the aggregate $1.6 billion.” Sixteen workshare discounts exceeded the cost that the Postal Service avoids — in violation of section 3622 of Title 39. If the Postal Service simply raised rates to bring this mail into compliance, it would take in far more than it’s losing by operating these 17,700 post offices.
Or look at it another way. The Postal Service outsources $15 billion a year to 20,000 suppliers, $12 billion of it to 150 large corporations like FedEx, Northrup Grumman, IBM, and Accenture. The $200 million it’s losing on post offices represents 1.3 percent of that $15 billion. Wouldn’t it be better for the country if the Postal Service trimmed outsourcing instead of reducing post office hours?
As a matter of fact, last September the Postal Service did say it would be pressing its suppliers for $1 billion a year in cost cuts. Perhaps that’s happening in FY 2012, but in February of this year, Husch Blackwell issued its annual list of top USPS contractors and revealed that in FY 2011 total USPS spending had actually increased, from $12 billion to $12.3 billion.
Perhaps closing post offices or cutting their hours isn’t really about saving money. Maybe it's just a way to distract attention from other things, like the deal making that goes on when $15 billion gets handed out to private corporations and millions more are contributed to politicians by the big postal stakeholders. Maybe it’s a way for postal managers to show that they’re running the Postal Service “like a business.” Maybe it’s a way to cut public services, just as they’re being cut in transportation, education, and health care, and for much the same reason — the well-to-do don’t care about public services. Maybe it's a way to replace good-paying, full-time jobs with low-paying, part-time jobs so that the "one percent" can make sure the country’s working class earns no better than Wal-Mart wages.
Who knows what the attack on small post offices is all about? It can’t be about eliminating a paltry loss of $200 million.
The Senator sends a letter
Speaking of politicians, also in the PRC’s daily listings on Friday was a letter from Senator Tom Carper commenting on the PRC’s proposal to modify its Advisory Opinion process. The senator wanted to reiterate his complaint that the process takes too long.
The Postal Service has been registering the same complaint, and the PRC has opened a docket inviting “input as to how best to expedite the process.” In the meantime, the PRC has made the procedural schedule on the POStPlan Advisory Opinion much shorter than for previous Opinions.
The senator expresses concern that if the PRC takes too long doing an Advisory Opinion, it runs the risk "that the Postal Service could be forced to act on its proposal before the Commission has had a chance to share its thoughts and findings," which would "call into question the legitimacy of the Commission's role."
That's already happening. The APWU has had to file a request for an emergency order to prevent the Postal Service from implementing service standard changes before the Advisory Opinion on Network Rationalization is completed. And the Postal Service began implementing POStPlan virtually on the same day it submitted a Request for an Advisory Opinion. The PRC's process has barely begun, yet already postmasters are signing up for early retirement and searching for another job.
There's definitely an issue here, but it's not the "legitimacy" of the PRC's role. The issue is whether anyone in Congress cares to insist that the Postal Service wait to hear what the Advisory Opinion says.
There’s more to Senator Carper’s letter than a request to speed up Advisory Opinions.
The letter begins by reminding the PRC that the Postal Service is losing $25 million a day. There’s no indication where that number comes from, but the senator’s website has a page with a whole slew of pseudo-facts like that, including a dramatic ticker showing the losses adding up — by the second.
The website tells us that the Postal Service lost $6.5 billion during the first half of fiscal year 2012. It fails to mention, however, that during that period, the Postal Service actually lost only $146 million — less than one half of one percent of revenues.
About $6.1 billion of the so-called losses were due to prepayments to the retiree health care fund. And not just the regular annual payment of $5.6 billion a year, but a double payment, since the Postal Service skipped its contributions in 2011 and now has to make them up.
Saying the Postal Service is $6.5 billion in the red for 2012 leaves out the most important fact in the story. The payments to the retiree health care fund are the main cause of the deficit, and they are totally unnecessary. The main reason the fund even exists is that the Postal Service was overpaying into one of its pension funds, but fixing that would have added to the federal deficit, so Congress came up with the retiree health care fund. The Postal Accountability and Enhancement Act (PAEA), which Senator Carper helped write, mandated payments to the new fund as a way of shifting money around in the Treasury rather than returning overpayments to the Postal Service. Plus, according to the USPS OIG, there’s more than enough in the fund right now. The interest alone would grow the fund to its projected liability by 2033.
Needless to say, Senator Carper’s letter does not go into such matters. Instead, it proceeds to explain how the PRC could expedite its Advisory Opinion process. The senator has basically two suggestions: Don’t turn the Opinion into an "adversarial," “courtroom-style” process, and don’t spend so much time examining the Postal Service’s assumptions about cost savings.
The senator’s letter makes it sound as if the PRC invented its procedures out of thin air. Actually, Title 39 (39 USC § 3661) describes the Advisory Opinion process as a “hearing on the record under sections 556 and 557 of Title 5.” That’s a reference to the U.S. Code on “Government Organization and Employees,” sections 556 and 557 of which describe procedures for conducting the hearings of government agencies.
The language clearly intends for these hearings to be conducted as a legal process. There are details about administering oaths, taking evidence, issuing subpoenas, dealing with procedural requests, making and reviewing motions, issuing findings, and so on. The presiding officer is essentially an “administrative judge,” and the point of the whole exercise is to ensure that there is due process protecting all interested parties.
As for whether the PRC should be looking so closely at the Postal Service’s financial rationale for service changes, that seems like an obvious responsibility for a regulatory agency.
Changes in service are all about saving money, and they always involve a trade-off: Will the cost savings be worth the decline in service? It only makes sense to do a cost-benefit analysis of such a question, and you can’t do that if you don’t know what the benefits are. If the Postal Service says the decline in service will save a billion dollars, and an outside analysis shows that it’s more like half a billion, that has to figure into the cost-benefit analysis.
Perhaps rigorous oversight would not be necessary if the Postal Service could be trusted to come up with a reliable cost-saving analysis. But it often seems that postal management makes a decision and then shapes the numbers to justify its plans. It has a habit of overestimating savings in operational costs and underestimating lost revenue.
In the five-day case, for example, the Postal Service said eliminating Saturday delivery would yield a net savings of $3.1 billion. The PRC found that it would be more like $2.4 billion. In the case for the Retail Access Optimization Initiative (the plan to close 3,700 post offices), the Postal Service estimated a savings of $200 million, and the PRC’s Advisory Opinion showed that it would be more like $100 million.
As for the Network Rationalization plan to consolidate processing plants that’s now under review, the Postal Service hid a marketing study that reveals its revenue losses will be four times greater than shown in the study it presented in testimony. The cost-savings analysis in this case is flawed not simply by bad math but by bad faith.
Examining the Postal Service’s financial rationale for a service change is one of the PRC’s most important functions. If that rationale is flawed, it’s important for the PRC to point out the problems, and both the Postal Service and Congress benefit from such a review. Rather than suggesting the PRC is spending too much time on such analyses, Senator Carper should be encouraging even more rigorous oversight — no matter how long an Advisory Opinion takes.
Adding Insult to Injury
Something else showed up on Friday. It’s not in the PRC docket, but it’s about POStPlan. The Postal Service has sent a letter to postmasters who are considering retirement to make them aware of “an opportunity to continue serving their communities.”
Retiring postmasters will be eligible to apply for Postmaster Relief positions (PMR) at post offices open for 2 or 4 hours a day. The pay rate will be $11.76 an hour — about a third of what most postmasters currently earn (including benefits).
Imagine you’re a full-time postmaster in a small town, and you've been working for the Postal Service for two or three decades. You’ve just learned that in two years, you’ll be out of a job. Maybe you can take early retirement, but your pension isn’t enough to live on, and you’re figuring you’ll need a part-time job. Now the Postal Service comes along and says it has a nice way to “transition” you into retirement. You can reapply for a part-time postmaster job as a PMR at less than $12 an hour. And the Postal Service thinks it’s doing you a favor.
Apparently the Postal Service is hoping many postmasters stay on in one capacity or another. That would be a helpful way of addressing the problem of how to staff 13,000 post offices with part-time workers.
In addition to encouraging retirees to apply for a job as a PMR, the Postal Service is anticipating that most of the 844 Level 55 postmasters, who currently work six hours a day, will stay on as Level 6 postmasters. (We learn this in footnote on the spreadsheet about POStPlan cost savings.) As best as we’ve been able to figure it, the hourly wage for these postmasters would remain the same, about $23 an hour.
Postmasters who do not retire will receive reduction in force (RIF) notifications with an effective date of June 20, 2014. Apparently these postmasters can also apply for a position as a part-time postmaster, at a pay rate of $18.18 per hour.
Times are tough, and maybe thousands of postmasters will end up staying on in their part-time post offices, earning wages far less than they’re making now. It’s a lousy way to treat career postal workers, but it’s just the beginning. There’s no way the Postal Service is going to cut 150,000 workers without things getting ugly.