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.  


On Privatization

Good Reading on Postal Privatization

Also: Sarah Ryan's "Understanding Postal Privatization: Corporations, Unions, and the "Public Interest"

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