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.  

No discontinuances, but more post office suspensions and relocations

October 2, 2015

As a result of all the public protest, the Postal Service has stayed away from post office closings over the past two years, and if legislation recently proposed by Senator Tom Carper were to be approved as is, there would be a moratorium on all post office closings for the next five years.  

But opposition to discontinuing post offices is not stopping the Postal Service from closures by other means, often involving the termination of a lease.  Recent news reports indicate that a couple more emergency suspensions are taking place, both of them over lease issues, and a couple of other offices are being relocated, possibly for lease-related issues.

On Thursday of this week, services were suspended at the post office in Pyrites, NY.  The Postal Service is putting up a cluster box outside the post office for the 25 PO box holders, and residents will need to travel about eight miles to Canton to do their postal business. “No timetable for a return of postal services to the community has been established,” says the news article.  Pyrites is a PostPlan post office, open two hours a day. 

On October 24, the Postal Service will suspend operations at the post office in Dalmatia, PA.   A USPS spokesperson says that the lessor exercised the option not to renew the lease that expires on October 31, 2015.  Customers, including 58 with PO boxes, will need to drive ten miles to the post office in Millersburg.  The Dalmatia post office is a Level 6 POStPlan office.

In September, the Postal Service approved the relocation of the Mission Hills Branch in Los Angeles to the carrier annex.   The annex is just a mile away, but it’s on the other side of a large freeway.  The press release says, “This relocation is due to the expiration of the lease at the current location and pending redevelopment of the site.”

Later this month, the Postal Service will hold a meeting later on the proposed relocation of the post office in Wyandotte, MI.  Back in 2014, the letter carriers were transferred to another post office, sparking another round of rumors that the Wyandotte post office might close, possibly in April 2015, when the lease expired.  The Postal Service says it needs to relocate and will look for a yet-to-be-determined location within the city limits.

Emergency suspensions and relocations are a regular occurrence, but they may be happening with more frequency as an alternative to discontinuances. 

According to the annual compliance report prepared by the Postal Regulatory Commission, as of the end of FY 2014 (Sept. 30, 2014), there were 489 post offices under suspension.  About 240, or 48 percent, were the result of lease-related issues.  Some of the suspensions occurred years ago, and the post office has remained closed all that time with no sign of a new location being sought.

During FY 2014, the Postal Service suspended 102 post offices, 33 of which reopened by the end of the year.  About 40 of the suspensions were for lease-related reasons, as shown on this list provided to the PRC by the Postal Service as part of the compliance review.  During the first four months of FY 2015, another 22 suspensions occurred, 12 of them over lease issues.

The Postal Service doesn’t publish lists of relocations, and the PRC has not asked for this information as part of its compliance review, but in December 2013, we used news reports and press releases to compile an unofficial list of relocations.  It showed 89 relocations, about 24 of which had been completed recently, with the other 65 at some stage in the planning process.  Since that time, many more relocations have been announced, as seen in these previous posts.

The suspensions and relocations have been subject to investigations by both the PRC and the USPS Office of Inspector General.  Lessors often report that the Postal Service was not very responsive during the lease negotiations and acted as if it had no interest in renewing, but the Postal Service does not take responsibility.  It simply identifies the cause for the suspension as "lease expiration" or "lessor cancelled lease."

(Photo credits: Post offices in Dalmatia, PA, by Rebecca Zemencik, and Wyandotte, MI, by Jim Kasuba)

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