A day with Mr. Day: Cross-examining POStPlan at the PRC
July 17, 2012
USPS Manager of Retail Operations, Jeffrey Day — the Postal Service’s one and only witness for POStPlan — testified before the Postal Regulatory Commission last week. He was there to be cross-examined about the details in the plan to reduce hours at 13,000 post offices.
There wasn’t much in the way of Perry Mason moments, and judging by the questions from the Commissioners and the PRC’s Public Representative, there doesn’t seem to be a lot of opposition to POStPlan. With the two postmasters associations both on board, it appears that only the APWU is interested in challenging the plan, and its concern seems to be who’s going to be staffing the POStPlan offices.
One of the more interesting things about the hearing was the appearance of a new participant. Attorney Elaine Mittleman, who has been helping to save post offices after her office in Pimmit, Virginia, was closed last year, was in the hearing room to ask questions of the Postal Service witness. Whatever flaws there may be in the Advisory Opinion process, the fact that an average citizen, officially representing just herself, could join the Commissioners in the questioning says a lot about the Commission’s commitment to transparency and public participation.
In the beginning there was POStPlan
We’ve known for some time that POStPlan got started as early as December 2011 or January 2012, when the Postal Service met with the postmasters organizations to discuss the plan. The foundations of POStPlan go back months before that, however. In March 2011, the Postal Service proposed changes in federal regulations that redefined “consolidation” and “postmaster” in ways that made it possible to staff a post office with someone other than a postmaster and to downgrade independent post offices into Remotely Managed Post Offices (RPMO) under the authority of an Administrative Post Office (APO).
The Postal Service itself, however, has not had much to say about when POStPlan was actually conceived. In his testimony last week, Mr. Day gave us a clue.
The APWU attorney was asking Mr. Day if the Postal Service had given any consideration to a different set of assumptions for calculating the savings under POStPlan. (That was apparently a reference to using union workers rather than Postmaster Reliefs.) In response, Mr. Day said that he had seen a presentation, made “months before” he came on board at postal headquarters, “that did show a couple of different options.”
A little later in the hearing, Mr. Day was asked explicitly by the APWU attorney — it was her final question — if he knew when POStPlan was conceived. Mr. Day replied that he didn’t know; he just knew that when he arrived it was at a “very early stage.”
As Mr. Day says in his testimony, he started in his job at postal headquarters in January 2012. “Months before” would push the origins of POStPlan back into the fall of 2011.
Why it matters
When POStPlan originated is of interest for a number of reasons. The Request for an Advisory Opinion on POStPlan was submitted in May 2012. It was presented as a response to all the objections to closing post offices voiced by the public over the preceding months. But if the plan was conceived in, say, October 2011, the public opposition was just getting started and probably didn’t have very much to do with the motivation for the plan.
The PRC’s Advisory Opinion on the Retail Access Optimization Initiative (RAOI), the plan to close 3,700 post offices, didn’t come out until December 23, 2011. By that time, POStPlan had reached the stage that the Postal Service was sharing it with the postmasters associations. The plan can’t be said to be a response to the Advisory Opinion either.
Attorneys for the PRC and the USPS worked on a couple of hundred appeals during the months between October 2011 and May 2012. Communities across the country worked hard on preparing those appeals, and they waited anxiously for the verdict. The appeals also cost a lot of money to process. In an OIG-PRC report that just came out yesterday, the cost of each appeal for attorney and staff time at the Postal Service and PRC was close to $4,000, so a couple of hundred appeals cost the government $800,000. That doesn’t include the legal fees and other expenses incurred by the appellants or the value of the thousands of hours unpaid citizens put in on petition drives, letter-writing campaigns, and other efforts to save their post office. It also doesn't include the costs to the Postal Service for community surveys and meetings, and all the other administrative steps in the discontinuance process. Most of the post offices that were appealed now appear on the POStPlan list, which makes the whole appeals business look like a waste of time and money.
During that same period, both houses of Congress were debating the issue of post office closures. In December, a group of Senators pressed the Postmaster General to declare a moratorium on closings. Did he tell them he was working on a plan that didn't involve mass closures? During the following months, the Senate worked on legislation that incorporated retail service standards to protect post offices. Over in the House, Congressmen Issa and Ross proposed legislation that would create a commission to close post offices. Might the current stalemate on postal reform have been avoided if the Postmaster General had revealed months ago that he didn't plan to close thousands of post offices?
In April, the PMG went to Montana on a publicity tour to “listen” to what people were saying about having their post office closed. When he returned, he said he had “heard” what they said, and a few weeks later, POStPlan was announced as if it were somehow a response to what the PMG had learned out west. But while the PMG was listening in Montana, his officers back in DC were putting the final touches on POStPlan.
The Postal Service is not likely to shed much light on how POStPlan was conceived, when, or why, but it would be interesting to see the presentation that Mr. Day referred to. When he was asked more about it, he seemed to regret having mentioned it. “I can’t even know if that presentation was ever given,” he explained. “I just saw a presentation that was prepared and it was internal. I didn’t see the entire presentation. I saw some slides. I didn’t sit and look at it. I didn’t go through it all. I saw some slides. Someone was looking for something. I was standing looking over his shoulder. It was from months before I got there.” [webcast at 56:30]
Circuit riders and reducing hours
At one point in last week’s hearing, PRC Chairman Ruth Goldway indicated that reducing hours was a PRC recommendation that came out of its work on the Advisory Opinion on the RAOI. POStPlan, she said in an exchange with Mr. Day, “appears to incorporate the RAOI in that the communities are being offered four different proposals, the three that were already in the RAOI and the fourth that we suggested in the context of the RAOI as another way to save money that would be less painful to customers.” [webcast at 3:22:50]
The four options that communities will be offered under POStPlan are: (1) close the post office and use rural delivery; (2) close the post office and use another post office; (3) close the post office and set up a Village Post Office (VPO); (4) realign the hours to match workload. At the community meetings for the RAOI, the Postal Service put the first three options on the table. Chairman Goldway indicated that the PRC had recommended adding the fourth, reducing hours.
While reducing hours is obviously preferable to closing post offices, the RAOI Advisory Opinion doesn’t have very much to say about that option. There are several passages in the Opinion that relate to the two main elements of POStPlan — reducing hours and replacing postmasters — but none looks like a clear recommendation to reduce hours as an alternative to closing post offices.
The most direct reference to reducing hours occurs in the context of the Advisory Opinion’s summary of the testimony of Anita Morrison. She recommended that when the Postal Service makes its business case for closing a post office, it should provide more information to the public, including “whether such savings could be achieved by reducing hours of operation” (p. 29). The Advisory Opinion quotes that statement but does not comment on it.
The Advisory Opinion references reduced hours in a second passage. The Commission says that it “agrees with Yezer’s conclusion that optimization of the retail network should consider operational changes within a given facility as opposed to focusing exclusively on whether or not to close it. It may make sense to adjust the operating hours of a facility or increase or decrease the number of retail windows available to the public to maximize net revenue or provide appropriate access to postal services” (p. 74).
That’s a reference to a study by Anthony Yezer that is part of an OIG report that was discussed by witness J. P. Kingenberg. But neither Yezer nor Kingenberg was referring to reducing hours at small rural post offices. The Yezer study is about reducing window hours at offices where there are multiple windows. Kingenberg was clear that Yezer’s work didn’t apply to small offices. If there’s only one employee, he noted in his testimony, “Postal Service management does not have the flexibility to use fewer employees to better match employee workhours to earned workload” (p. 8). He reiterated the same point when asked about it in an interrogatory (USPS/PR-T2-26).
The Advisory Opinion also briefly discusses something called the “circuit rider,” which is described as a postmaster who oversees several post offices so that “contract clerks” can conduct the daily operations of the post office (p. 114). That’s similar to the RMPO-APO arrangement in POStPlan, but it’s not about reducing hours.
In Morrison’s testimony, there’s another version of the circuit rider. She sees it as a postmaster or clerk who works a few hours a week in several different part-time post offices (APWU-T-1, p. 33-34). That might actually happen under POStPlan, with a PMR working the morning in one post office and the afternoon in another. But the PRC’s Advisory Opinion didn’t seem to be envisioning that when it recommended that the Postal Service explore the circuit rider idea.
Overall, it’s not likely that one would come away from reading the RAOI Advisory Opinion with a clear sense that the PRC was recommending reducing hours at thousands of post offices as an alternative to closing them. But if the PRC has made that recommendation to the Postal Service, there’s really not much the Commission can say to object to POStPlan at this point. And if the circuit rider idea was intended as a way to eliminate thousands of postmaster positions, the Commission probably won’t be objecting to that aspect of POStPlan either.
No lost revenue, seriously
There is one other reference to reducing hours at post offices in the RAOI Advisory Opinion, but it’s not about offering an alternative to closures. In a discussion of how the Postal Service had failed to provide “robust” data for determining which low revenue post offices to include in the RAOI, the Commission noted that the Postal Service couldn’t provide data about how reduced hours had affected revenues (p. 62). The issue was important because it seemed unfair to consider a post office for closure due to low revenues if that post office had had its hours cut.
Chairman Goldway questioned the Postal Service’s witness for the RAOI about that very topic. She wanted to know if the Postal Service had measured the impact of past reductions in hours of operation and declines in revenues. (Tr. 6/1916.) As the Advisory Opinion states, “The Postal Service, however, was not able to correlate any decline in revenues with corresponding declines in hours of operation” (p. 59).
The same topic came up again in the hearing on POStPlan last week. Mr. Day was asked by the APWU attorney if the Postal Service expects the plan to affect revenues.
Mr. Day replied as follows: “The Postal Service does not believe that POStPlan is going to affect our revenue per se as a whole. Could it impact the revenue at the post office itself that was impacted by POStPlan? I’d have to say the answer to that could be yes. Maybe somebody who was doing business at that local post office would choose the one next to work.” Questioned further, Mr. Day repeated his answer: “The Postal Service does not anticipate that we’re going to lose revenue based on POStPlan.” [webcast at 1:23:10]
Mr. Day was then asked if the Postal Service planned to do anything to measure changes in revenue. He replied, “Revenue is dropping on its on. How would you know whether the revenue drop is due to POStPlan or whether it’s due to the normal business of the Postal Service losing revenue? There’s no way you can pinpoint—“
“Sure there is,” interrupted Chairman Goldway. “You’ve got the ones you haven’t changed yet as you’re rolling it out. You could measure some against the others. You’ve got a control group.”
Mr. Day reiterated his claim that the Postal Service does not anticipate lost revenue from POStPlan.
It was helpful to have Mr. Day clarify the Postal Service’s position on that issue. In response to an interrogatory a few weeks ago about the potential for lost revenue, the Postal Service said it couldn’t make an estimate of how much revenue might be lost when POStPlan is implemented:
“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…. 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).
That response made it sound as if the Postal Service were acknowledging that there might be some lost revenue, but it couldn’t estimate how much. Mr. Day’s comments, however, make it clear that the Postal Service truly believes its plan won’t drive away any business.
The revenues for these 13,000 offices add up to about $560 million a year. The Postal Service maintains that it will not lose any of this revenue even though it will be cutting the total hours of operation at the 13,000 POStPlan post offices by about a third — 11 million hours.
Oops again: Time to revise the calculations on labor costs, again
The cross-examination of Mr. Day last week also covered the calculations of cost savings as presented in a USPS library reference. Mr. Day made an important observation about this spreadsheet.
A few days before his testimony, Save the Post Office ran a piece about how the Postal Service’s estimate had failed to include the cost savings it has already realized by using PMRs and OICs instead of career postmasters. There are over 3,000 postmaster vacancies right now in POStPlan offices, and it doesn’t make sense to consider the savings from using PMRs and other lower-paid workers in those positions as a savings from POStPlan. It amounted to an omission of about $130 million, which cut deeply into the total estimated savings of $500 million.
Mr. Day noted that “it was pointed out in an article about how we didn’t take into consideration PMRs and OICs that are currently working, and while that’s true, the other side of the coin — cause there’s two sides to every coin — is that we took the average salary range for the postmasters, which is a very conservative approach.… Approximately 60% of the postmasters that were covered in POStPlan are eligible for retirement. They’re not at the low end of the pay scale. They’re on the high end of the pay scale.” [webcast at 44:14]
Mr. Day was referring to how the Postal Service developed its estimate of the total cost of labor pre-POStPlan. On the USPS spreadsheet with the estimate for cost savings, there’s a column labeled “Actual Avg. Salary w/ benefits.” Mr. Day explained that the averages weren’t based on the actual salaries of actual employees. Rather, the Postal Service just averaged the maximum and minimum salaries for each EAS level. And since the actual salaries are probably higher than this mid-point, the spreadsheet ends up underestimating the total cost of labor pre-POStPlan and therefore underestimates the savings.
Asked if the Postal Service had made calculations using actual salaries, Mr. Day said they had not done that. Asked if could provide the actual salaries for all the postmasters, PMRs, and OICs in the 17,700 POStPlan post offices, Mr. Day said he could not. In response to a follow-up request from the PRC, the Postal Service replied as follows: “The Postal Service maintains salary and benefit data based on employee grade level, not based on employee assignment. The salary and benefit data is not linked to the Post Office or facility in which the employee is acting.” (Tr. V1/309)
It’s not clear why the Postal Service did not use actual salaries in calculating savings from POStPlan or why it is reluctant to provide the actual labor costs. It certainly has access to the numbers, and it needs to know the total so that it has a baseline with which to calculate the savings down the road.
It’s not as if the numbers are a big secret. Anyone can go on the salary finder and get the salary for every postal worker in a POStPlan office. Yet in a lengthy exchange with the APWU attorney, Mr. Day went round and round without giving a good explanation for why there’s no baseline of actual labor costs.
In the absence of actual salaries, one can only estimate the costs of labor. Now that we know that the “Actual Avg. Salary w/ benefits” on the USPS spreadsheet doesn’t refer to actual salaries, it looks as though we need to revise our previous estimates so that they reflect “both sides of the coin.”
In the following table, the average salaries for postmasters are taken from a presentation on the League of Postmaster’s website. The source for the numbers isn’t identified, and it’s not clear how these averages were calculated, but at each level the salaries are two to four thousand dollars higher than the numbers used in the Postal Service’s library reference, so it looks as though they reflect the point Mr. Day was making, namely that most POStPlan postmasters earn closer to the high end rather than the midpoint in the salary range.
The table also takes into consideration that for PMRs who continue on at a POStPlan office, wages will be higher than the starting salary under POStPlan. Mr. Day was asked about how their wages would be determined, but he didn’t know. In a Q & A on POStPlan released last week, however, we learn that no one will have their wages reduced under POStPlan. In our new estimate, the average costs for PMRs and part-time postmasters are thus slightly higher than in the Postal Service's spreadsheet.
As the table shows, the total savings for POStPlan come to about $430 million. That’s closer to the Postal Service's estimate of $517 million than our previous estimate, which addressed only the postmaster vacancy problem and showed savings of about $380 million. Mr. Day was right: Considering both sides of the coin makes the Postal Service’s original estimate of $517 million look more accurate.
These numbers, by the way, do not include several other costs. For example, they don’t include the one-time expense in fitting out thousands of post offices so that people can get access to their boxes when the post office is closed ($5 million has been budgeted for that). They don't include the costs for doing community surveys and holding public meetings (which Mr. Day said were very expensive). They don't include the 2% raise that 4,500 postmasters will get when their post office is upgraded to level 18 (about $6 million a year). They don't include the travel costs for PMRs who work at more than one post office and need to shuttle between them. And of course, they don’t include the $80 million paid out to 4,000 postmasters who took the $20,000 incentive to retire.
As Mr. Day explained, the Postal Service’s estimate was intended only as a ballpark figure to begin with, and besides, the goal of POStPlan isn’t saving a particular amount of money. Its main goal, as Mr. Day repeatedly told the Commissioners, is simply to align office hours and earned workload.
The only reason Mr. Day and his colleagues even bothered to prepare a spreadsheet showing cost savings was that “we knew we’d be asked.” Mr. Day thought his estimate was conservative and the actual savings will be greater, but he was not worried that the savings might be lower. “If there’s a $300 million savings and not a $500 million savings, I think as an organization we’re going to say, ‘Yippee, we saved $300 million.’ Three hundred million dollars is nothing to shake a stick at.” [webcast at 1:03:00]
It should be noted that however much the plan saves, most of the savings will not be due to aligning hours of operation with workload hours. At least two-thirds of the savings will be due to replacing 10,000 career postmaster positions with part-time workers who earn about a third as much.
The VPO stigma
The Postal Service has not given up on Village Post Offices, those contract units located inside of private retail businesses, and now they are Mr. Day’s responsibility.
A year ago, when the concept was introduced as part of the RAOI, the Postal Service was envisioning thousands of VPOs replacing actual USPS post offices. The first VPO was rolled out with great fanfare, and for months, Postal Service representatives invoked the VPO alternative at thousands of community meetings about post office closures.
As it turned out, though, the Postal Service had a hard time setting up VPOs. It took months to get to nine of them, and then, as Mr. Day testified, it was always nine, month after month. By November, it appeared that the Postmaster General had given up on the idea.
“When you get west of the Mississippi,” the Postmaster General told Reuters, “it's more prevalent that you don't have stores in these communities, you have nothing in these communities. It's pretty much just the post office." In other words, there’s no place to put a VPO.
Mr. Day offered another explanation for why it’s been so difficult setting up VPOs. They have a “negative stigma.” Potential host businesses for a VPO didn’t want to be blamed for facilitating the closure of the post office.
Mr. Day informed the Commission that at this point, there are 26 VPOs in operation, but the Postal Service is going to be “very aggressive” about establishing more of them in POStPlan towns. Setting up a VPO will be one of the four options that will be given to communities under POStPlan, but last week Mr. Day introduced a new twist. Perhaps a town will end up with both a VPO and a POStPlan post office operating at reduced hours. In that case, the VPO could be “an enhancement rather than a replacement” for the post office.
If the post office isn’t closing, that will remove the “negative stigma” and make it easier to find local businesses that want to become a VPO. Of course, that also means the VPO will be draining revenue from the post office and perhaps cause its hours to be downgraded from six to four or four to two.
America, Day by Day
In his testimony last week, Mr. Day expressed an interesting perspective on small rural post offices and small towns in general. At one point, Elaine Mittleman observed that for a busy person like herself, it would be difficult to get to a post office during its shortened hours or to be at home at a particular time to meet the carrier. Mr. Day replied, “That demand in a POStPlan office is nil. You’re talking, like I said, most of the businesses have already left those communities. You’re not talking about a hustle bustle Washington DC area where there’s a lot of stuff going on.” [webcast at 1:54:00]
Commissioner Tony Hammond, who comes from a small town himself, may have taken offense at that characterization of rural communities. He asked Mr. Day, “How many towns or villages or boroughs or whatever you want to call them are there across the U.S. where there’s no business besides the U.S. Postal Service?” Mr. Day responded, “I don’t have specific data on that. I know that I testified that many of the communities are like that, but I can’t quantify it.” [webcast at 2:53:00]
Ms. Mittleman also asked another excellent question that has to be on anyone’s mind who looks at the four options, three of which involve closing the post office: Under what circumstances would a community possibly choose to have its post office closed rather than having the hours reduced?
Qualifying his answer by saying it would be “totally speculative,” Mr. Day ventured the following explanation. “I don’t know why somebody would want to do that, but I’ll use myself as an example. I live in a small rural community, I do. I live in Chesapeake Beach, Maryland, a small community. I have a post office there. I have never walked through that post office’s door one day in my life. Never really plan to.”
If he needed to go to a post office, Mr. Day explained, he’d use the one near his office in postal headquarters (which, we learned, doesn't have a post office). Consequently, “if I got a questionnaire from the Postal Service that says, ‘You have four paths. Which one would you choose?’ my choice would be, I don’t need the post office. I never go to it, never been to it. I don’t need any replacement for it because if you put in a VPO or whatever else you put into it, I’m not going to it. It’s more inconvenient for me.”
“And in these rural communities,” he continued, “you do have people that are driving 60, 80 miles a day to get into work. Most of those people, they’re shopping, purchasing gas, they’re purchasing postal products in the community that they’re commuting to for their day-to-day business, not in their own community. That’s why other businesses have left those communities.” [webcast at 1:56:20]
There are indeed many towns in rural America where most of the retail businesses have left. But that's hardly a fair characterization of the vast majority of the 13,000 communities whose post offices will be downgraded under POStPlan. Most of these towns are vibrant places, with shops, jobs, and busy people. They're just small. Too small, apparently, for the Postal Service to provide them with a full-time post office and a career postmaster.
By the way, the Chesapeake Beach post office is not on the POStPlan list. Maybe Mr. Day will pay it a visit one day.