Return to sender, address unknown: USPS v. SCE and the high cost of undeliverable mail

October 11, 2015

I gave a letter to the postman,
He put it his sack.
Bright and early next morning,
He brought my letter back.
She wrote upon it:
Return to sender, address unknown.
No such number, no such zone.
“Return to Sender”
Lyrics by Otis Blackwell, Winfield Scott

A couple of weeks ago, James E. Boasberg, U.S. District Judge for the District of Columbia, issued a decision on a dispute between the Postal Service and one of its customers, Southern California Edison (SCE), the utility company.  The case goes back to 2008 and involves a fine the Postal Service wanted to charge SCE for the cost of mail that was undeliverable-as-addressed (UAA).

Judge Boasberg seemed somewhat disturbed by the irrationality of some USPS policies, and he wasn't above a little ridicule (as noted by Dead Tree Edition).  At one point his ruling says that following certain USPS regulations would create an “absurd consequence” that would put customers into a “Kafkaesque situation.”  The judge also couldn't pass up the opportunity to quote the lyrics from "Return to Sender."  

Even more irrational than the policies, however, was the huge bill the Postal Service sent SCE for UAA mail — $7.6 million.  SCE wouldn't pay, and the company had to take the Postal Service to court for relief.  Here's what happened.


The revenue-deficiency assessment

During an eighteenth-month period in 2007 and 2008, SCE sent out 82 million pieces of First Class mail, mostly invoices.  Because SCE had the mail presorted, it was given a substantial workshare discount. 

In May 2008, the Postal Service conducted a nationwide review of mail that was being returned as UAA.  It showed that a significant — but unspecified — number of mail pieces sent by SCE were UAA.

The UAA mail was costing the Postal Service a lot of money because of the additional expenses for forwarded or returned mail, and the Postal Service wanted to charge SCE a “revenue-deficiency assessment.”

The Postal Service argued that SCE had not followed USPS procedures for verifying customer addresses, a requirement for discounted postal rates.  In particular, SCE was not following the Move Update standards, which require “periodic matching of a mailer’s address records with customer-filed change-of-address orders received and maintained by USPS.”  

As explained in the court’s ruling, SCE would manually override Postal Service change-of-address information when “SCE had good reason to believe that the override would make the customer more likely to receive the mail.”

That may have seemed like a reasonable thing to do, but it violated USPS policies, and this, said Judge Boasberg, put customers in a Kafkaesque situation.  

Because SCE fell short of the Move Update standards, the Postal Service wanted to hold SCE liable.  The Postal Service and SCE argued about the issue for years, and in 2014 the dispute went to court.  At issue in the legal case was whether SCE owed an assessment, and if so, how much it should be.


Not reasoned decision-making

The controversial aspect of the case was that the Postal Service didn’t simply want remuneration for the extra expenses it had incurred dealing with SCE’s UAA mail.  Instead, the Postal Service wanted SCE to be liable for the difference between the discounted workshare rates and the regular non-discounted rates for all of the mailpieces sent at the reduced price — not just the portion that was UAA. 

In other words, the Postal Service wanted to retroactively cancel the workshare discount  and charge SCE the full price for all of the mail it had sent at the workshare rate.

According to the Postal Service, the difference between the workshare rate and the regular rate came to $7.6 million, and that’s how much the Postal Service wanted SCE to pay.

The court’s ruling doesn’t get into it, but the discounted rate was probably something like 33 cents per piece, 9 cents off the regular rate for single-piece First Class Mail at the time, bringing the total cost of the mailings to about $27 million.

Judge Boasberg’s ruling last week found that SCE should pay something for getting a discount while not fulfilling the Postal Service’s requirements for the discount, but he thought that the $7.6 million sought by the Postal Service was excessive. 

The court therefore remanded the case back to the Postal Service “to "correctly determine a reasoned and reduced sum for the proper revenue-violation deficiency assessment."

The court observed that the Postal Service never identified the precise number of mail pieces that were in noncompliance, which didn’t help with its case.  But the court went ahead and did some figuring on its own to show just how off-base the $7.6 million fee was.

During an eighteen-month period in 2007 and 2008, SCE sent 82.4 million pieces of workshare-discounted First Class mail.  In the revenue-deficiency letter sent to SCE, the Postal Service cited “large volumes” of problem mail — “approximately 80 pieces per day of forwarding order expired mail” and “over 2,000 pieces per day of Undeliverable As Addressed (UAA) mail.”

Based on those numbers, the court estimated that the problems encompassed “at most roughly 1,179,000 mailpieces out of SCE’s total of 82,452,608 mailpieces sent at workshare rates during this period, or about 1.4%.”

Given that that such a small portion of the mail was UAA, Judge Boasberg had this to say:

"USPS's position appears to be that even if a mailer complies with 99 percent of the requirements and incurs substantial workshare expenses to bring its mail pieces into compliance, a single form of noncompliance — even accidental, even inconsequential — is sufficient to render a revenue-deficiency assessment for 100 percent of a mailer's discounted rates."

The judge went on to say that to "issue a revenue deficiency for the entirety of plaintiff's discounted-workshare rate for 18 months is so disproportionate that it can hardly qualify as reasoned decision-making." 

How prefunding retiree health benefits impacts the Postal Service's bottom line — and how Brookings got it wrong

October 8, 2015

A couple of weeks ago, the Washington Post ran a column by Lisa Rein entitled “Should the Postal Service be sold to save it?”

The article was about a recent paper by Elaine Kamarck published on the Brookings Institute’s website.  Kamarck is the Founding Director of the Center for Effective Public Management at Brookings, as well as being a Senior Fellow in Brooking's Governance Studies.  Her paper is entitled “Delaying the inevitable: Political stalemate and the U.S. Postal Service.” 

Kamarck’s thesis is that the Postal Service is going through a “crisis of obsolescence,” its financial losses are unsustainable, and “the political system is stuck and unable to do anything about it.”  The thing to do now, concludes Kamarck, is split the Postal Service in two.  One organization would fulfill the universal service obligation by delivering market-dominant mail.  The other part would be privatized and take over competitive products (Priority Mail and package shipping); it would also be given the freedom to expand into new areas of business now prohibited for the Postal Service.

The article prompted several critical responses, including pieces by Dave Johnson in Crooks & Liars and Zaid Jilani in AlterNet.  Rein also did a follow-up article in the WaPo — "Why sell off the Postal Service if it's making money?" — in which she goes more deeply into the conflicting explanations for the Postal Service’s financial problems.

One of the main issues in the debate has been the Retiree Health Benefit Fund (RHBF).  The critics of Kamarck’s paper (and Rein’s column about it) argue that were it not for the RHBF prefunding established in 2006 by the Postal Accountability and Enhancement Act (PAEA), the Postal Service would not have been posting huge losses.  The core of the financial problem facing the Postal Service is that it is required to fully fund decades of future retiree health costs with ten annual payments of about $5.6 billion, an obligation imposed on no other business or government agency.  

Kamarck anticipates this claim about the RHBF, and her paper tries to set it aside.  In so doing, however, she makes an error that’s worth looking at in some detail.


The fly in the ointment

Kamarck’s paper addresses the argument about the prefunding as follows:

Many believe that the prefunding requirement for retiree health benefits accounts for all of the Postal Service’s financial problems.  Although the prefunding requirement does account for a large share of net losses, retiree health benefits caused $22,417 million in expenses out of a total net loss of $5.5 billion in fiscal year 2014.

Kamarck is trying to make the case that prefunding the RHBF does not explain the Postal Service’s huge losses, which she thinks can only be explained by the declining mail volumes caused by the Internet.  To make this point, she says that prefunding accounted for $22,417 million (or $22.4 billion) of the $5.5 billion loss in FY 2014. 

This doesn’t make sense. She’s trying to show that the RHBF expense doesn’t account for such a large portion of the net loss, but according to her numbers, the expense was four times greater than the loss

That's not just illogical, it's wrong.  The RHBF expense in FY 2014 was not $22.4 billion.  It was $5.7 billion, as stated in the USPS 10-K report.  And the expense did not account for just a portion of the $5.5 billion net loss.  It accounted for all of it.  If it weren’t for prefunding, the Postal Service would have posted a profit in 2014.

I notified the Brookings Institute about the error in Kamarck’s paper on September 22, the day after the paper was posted on the Brookings website, but so far I’ve received no response, and the error still appears in the paper on their website.

Anyway, it seems like a pretty minor mistake, hardly worth noting, but it goes to the heart of Kamarck's argument.  She’s trying to refute the claim that prefunding explains the Postal Service’s financial problems, but the number she presents is wrong, and that’s all she has to say about the claim.  If prefunding really is the cause for the Postal Service's financial problems, the solution is obviously to fix the prefunding — not sell off and privatize the competitive products business, the one area that's actually growing. 

The Postal Pulse results are out (sort of)

October 7, 2015

The results of the Postal Pulse survey are out, but only USPS employees can see them.  The Postal Service has produced a new video about the survey results as well, but only postal employees can view it.  For the rest of us, here’s a little background.

Postal Pulse is the new employee engagement survey being used by the Postal Service, after decommissioning the Voice of the Employee (VOE) survey that had been used for many years.  The Pulse was administered to postal workers in March and April of this year, and now the results are being shared with USPS employees.

The Pulse isn’t exactly new, though.  It’s actually the Gallup Q12 Employee Engagement Survey.  The name refers to the fact that there are twelve questions on the survey.  The Postal Service’s Postal Pulse is the same as the Q12, but with a different name and one additional question.

You can see thePostal Pulse survey here; the Q12 survey is here.  As you'll see in comparing them, the questions are the same, almost word for word.  The only difference is that the Pulse adds an introductory question about how satisfied workers are at the Postal Service.  It's labeled question number 0 so as not to throw off the numbering of the other twelve questions, which correspond, one by one, to the twelve questions on the Gallup Q12.

Since it was developed in the late 1990s, Gallup's Q12 has been administered to more than 25 million employees in 189 different countries and 69 languages for use by several hundred organizations.  It’s considered the “gold standard” for employee engagement surveys.

The Postal Service paid good money to Gallup for using the survey and analyzing the results. 

Earlier this year I filed a FOIA request (Freedom of Information Act) with the Postal Service asking for a copy of the solicitation notice and contract with Gallup.  The contract shows that the total amount for the award paid by USPS to Gallup was $1,790,724. 

That covers a two-year period, from August 18, 2014 to August 19, 2016.  Most of the contract is redacted, but you can see it here.  The solicitation notice is here.  Both documents also include a detailed Statement of Work describing what the survey should encompass.

Spending $1.8 million just to find out how postal workers are feeling about things may seem excessive, but improving employee engagement can pay off.  Studies show that a more engaged workforce is also more productive.  The Hay Group, which provides its own surveys like the Q12, says high levels of engagement can boost revenue growth by up to two and a half times.

Still, given the cost of the Pulse, it’s interesting to hear what USPS Senior Public Relations Representative Sue Brennan says about the survey in the new video, as reported on USPS News Link,

“I don’t see how these 12 questions can affect the changes that I personally see need to happen,” says Brennan.

What happened in Petworth? A DC Suspension Story

October 4, 2015

[Note: Please see the correction/update at the end of this story.]

The post office in Petworth, a community in Washington, DC, closed at the end of July.  The closing didn’t get much attention, but the story of what happened in Petworth is a useful case study of how the Postal Service has been conducting suspensions, closures, and relocations.

The Postal Service notified the community a month in advance that the Petworth Station at 4211 9th Street, NW, would be closing.  On June 26th, a notice was posted on the door of the post office saying, “The Postal Service will suspend service at this location effectively on July 28, 2015 due to the termination of our lease.”

The Postal Service often helps create a lease renewal problem and then uses it as an opportunity to close a post office, but in this case the landlord may have actually wanted the Postal Service to move out.  (A USPS Leased Facility report from 2012 says the landlord was the Praise Temple Church.)

As reported in a post on POPville, DC’s neighborhood blog, a clerk in the post office told a customer that “the District has signed a long lease to build a Community Outreach Center. They’re going to occupy the entire building and will open at the end of the year. The Post Office has to move sometime in the coming months but he doesn’t know where they’re going to go.”

That blog post was dated January 22, 2015.  It was also cross-posted to the Petworth News Facebook page on January 23, 2015.

The Postal Service thus knew in January —if not before — that the post office would have to move out “sometime in the coming months.”  

In fact, the Postal Service probably knew exactly when.  As the Leased Facility report shows, the lease on the Petworth Station was due to end on July 31, 2015.  The Postal Service had good reason to believe that it would have to vacate the space by the end of July.

Now, it’s possible that something happened between January and June that led the Postal Service to believe it might be able to remain in the space.  Perhaps the District did not end up signing a lease to build a Community Outreach Center, or perhaps the center didn't want the entire space.  A photo of the building in a June 30 article about the suspension shows a “For Lease” sign on the building.  Maybe there wasn't a new tenant for the whole space and the post office could have remained.  But the photo is from Google Maps, so it's not clear when it was taken.  The for-lease sign could date back to before the District signed the lease on the whole building.

In any case, the Postal Service probably had plenty of notice it would need to leave the location, and the situation did not really call for an emergency suspension.  It wasn't much of an "emergency."

When the Postal Service knows well in advance that it will be losing the lease, it is supposed to do one of two things — initiate a discontinuance procedure to close the post office permanently, or find a new location.  There is a set of regulations for both procedures, and it doesn’t look like the Postal Service followed either of them.  

It may be understandable when postal officials out in the Hinterlands don't always follow the regulations, but the Petworth post office was located less than four miles from USPS headquarters in L'Enfant Plaza.  Some of the people who work in HQ probably live in Petworth.  

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