Trouble ahead: The PRC gives POStPlan a green light


August 27, 2012

Last Thursday, the Postal Regulatory Commission issued its advisory opinion on POStPlan, the Post Office Structure Plan, and the Postal Service isn't wasting any time implementing its plan to reduce hours at 13,000 post offices.  

On the same day the PRC published its findings, the USPS Postal Bulletin published changes to three operational manuals, laying out the details on POStPlan.   According to a letter from the President of the League of Postmasters, implementation of POStPlan could begin this week, and some post offices could see their hours cut by mid-November.  

POStPlan will obviously have a significant impact on postal services nationwide, and that’s why the PRC was required to weigh in with an opinion about the advisability of the plan and the issue of whether or not it conformed to Title 39.  The Commission has examined the plan and found it good — better, anyway, than closing thousands of post offices.

The postmasters associations signed off on POStPlan months ago, and it was largely unopposed during the advisory opinion process, so it came as no surprise that the Commission would approve the plan.  The only question on the table was to what extent and in what ways the Commission might find fault with the plan or offer recommendations for improving it.  The advisory opinion does express a few concerns — like the fact that the plan will reduce access to postal services for many customers — but for the most part the Commissioners had little to offer in the way of serious criticisms or major recommendations. 

The opinion begins by describing POStPlan as a “significant improvement” over the Retail Access Optimization Initiative (RAOI), last year’s plan to close thousands of post offices.  But that's not saying much.  There wasn't anything good about the RAOI, and POStPlan isn't much better.  Instead of closing 3,650 post offices, it reduces hours at 13,000 and gets rid of all of their postmasters.  The damage will be more widespread, and it will also come much sooner.

We’ll never know if the Postal Service could have overcome all the obstacles to closing thousands of post offices.  Perhaps new legislation would have prevented it.  As for POStPlan, it’s a done deal, as it has been for some time.  

We'll soon see how the implementation plays out and what citizens across the country have to say about it.  Will we see a reprise of the frustration, anger, and protest provoked by last year's effort to close post offices, or will people just be happy their post office isn't closing?

 

The chairman's concerns

Most of the significant concerns about POStPlan are articulated not in the advisory opinion per se but in Chairman Ruth Goldway’s Concurring Opinion at the end.  This is about the only section of the advisory opinion that expresses any real skepticism about the plan.  Among the Chairman’s concerns are the following:

  • The Postal Service will “encounter difficulties recruiting qualified employees for these positions in many communities,” so staffing should be a priority and not provide an occasion for emergency suspensions.
  • Post offices more than 25 miles from the nearest post office are designated Part-Time Post Offices (PTPO), but that distance seems arbitrary and it’s not substantiated by the record.
  • The role of the Village Post Office as a supplement rather than a replacement for post offices needs to be clarified.
  • Given news reports saying that post offices not on the POStPlan list are having their hours reduced, the Postal Service should be consistent in its screening policies and other procedures it’s using for reducing hours. 
  • Aside from reducing hours at 13,000 post offices, there’s the possibility that the Postal Service will either close or reduce the hours at hundreds of other post offices.

There’s not much else in the advisory opinion that casts doubt on the wisdom of the plan.  Overall, the Commission seems content that the Postal Service will be keeping post offices open and saving some money too, and there’s no reason to get overly critical. 

 

The commission's recommendations

As for recommendations, the advisory opinion makes several suggestions for improving the plan, but they don’t seem very significant.

The Commission, for example, suggests that the Postal Service should clarify the options available to communities.  The Postal Service has been identifying four paths: (1) reduce the hours at your post office, or close the post office and (2) use another post office, (3) switch to carrier delivery, or (4) get a Village Post Office. 

That’s basically just two choices — reduce the hours or close the post office — and the rest is just logistics about delivery possibilities.  (A cluster box isn’t mentioned, but that’s likely to be a common alternative as well.)

The Commission suggests that the survey should provide customers with a clear choice between (1) keeping their post office open with reduced hours or (2) closing their post office and providing replacement delivery service.  That’s a helpful but not very significant recommendation.  It just says that putting things in terms of two options would be clearer than four.

The Commission also recommends that building modifications enabling customers to access their post office boxes should be made before reducing the hours.  That’s common sense, and one would hope the Postal Service did not need to be told something like that.

The Commission has plenty to say about other relatively minor matters, like providing adequate notice to people about the pending change in hours, using the Internet to explain what’s going on, and so on.  The Postal Service will probably be happy to incorporate most of them.

There is one important recommendation in the advisory opinion, and that relates to the role of the Village Post Office.  While the Postal Service has been presenting the VPO as one of the four options available to communities, Jeffrey Day, the man in charge of POStPlan, told the PRC that the VPO should be seen as an “enhancement” rather than a “replacement” for a post office.  Instead of replacing a post office, the VPO would supplement services in communities where the post office had its hours reduced.  That’s clearly two different views of the VPO, and the Commission recommends that the Postal Service get its policy straight and not present the VPO as a replacement for a post office.

One other point of interest in the advisory opinion.  The PRC ran some numbers and produced a list of ten post offices it considered misclassified as Level 2 and 4 because the Postal Service had not correctly calculated the distance to the nearest post office.  The Commission suggested that these post offices be reclassified as Part Time Post Offices (PTPO), open six hours a day.  The list is here.

The advisory opinion runs to over sixty pages (the RAOI opinion was almost twice that long).  It provides a summary of how POStPlan will work, most of which repeats what the Postal Service presented in its Request for an Opinion and Mr. Day’s testimony, and it goes over some of the issues that came up through the discovery process and the cross-examination of Mr. Day.  Because there was not much opposition to the plan, the Commission did not have to work through numerous detailed legal briefs and complex technical issues, as it’s doing with the Network Rationalization plan.

Overall, the advisory opinion does not shed much light on POStPlan, and in many respects, it’s more interesting for what it doesn’t say than for what it does say. 

 

Work fast or become irrelevant

The POStPlan advisory opinion comes three months after the Postal Service submitted the Request on May 25, 2012, making it the fastest process for an advisory opinion since 2006, when the role of the PRC was redefined by the Postal Accountability and Enhancement Act (PAEA). 

Since 2006, the average length of time for an opinion is over seven months.  The 2006 opinion on Evolutionary Network Development took nine months.  The 2010 opinion on the Stations and Branches Optimization & Consolidation initiative took eight.  The 2011 opinion on eliminating Saturday delivery took a year.  The 2011 opinion on the RAOI took five months.  The 2012 opinion the Network Rationalization will have taken nine months.  (A spreadsheet showing how these and previous opinions went down is here.)

There are several reasons why the process for POStPlan was so brief.  When the procedural schedule was first published, I asked the PRC about it and was told that the POStPlan opinion builds upon the two earlier opinions about closing post offices, the 2009 Stations and Branches initiative and the 2011 RAOI.  Presumably, that meant the Commission had already done a lot of work on the subject, which would save time and make things easier the third time around.

A second reason for the short time frame is that the cast of participants was so small and the amount of material easier to manage.  The Postal Service produced only one witness (there were a dozen for the plant consolidation plan), and only three interveners submitted briefs — the APWU and two private citizens, attorney Elaine Mittleman and postal watchdog David Popkin.  There weren’t many interrogatories, and there was no rebuttal or surrebuttal testimony. 

Most of the opposition to the RAOI came from the postmasters associations — NAPUS and the League of Postmasters — but they sat this one out.  In fact, the organizations had to promise the Postal Service not to challenge POStPlan before the PRC, or anywhere else for that matter.  In exchange, the Postal Service allowed the organizations to participate in the development of POStPlan.  With them out of the picture, it was almost inevitable that the advisory opinion process would be short and the opinion itself, well, agreeable. 

A third possible reason the advisory opinion process was brief has to do with the pressure the Commission has been under to speed up the process.  Senator Carper complained about how long the Saturday delivery case took, and he has written the PRC a letter encouraging the Commission to move more quickly or risk having its decisions become irrelevant.  The Commission is in the process of revising its own rules in ways that may speed things up for all future opinions (docket RM2012-4).

 

No waiting for an opinion 

There’s a another possible reason why the advisory opinion process was relatively short.  The Commission may have recognized that the Postal Service didn’t care very much what the advisory opinion said, and postal management wasn’t waiting around very long before it began to implement the plan.  The Postal Service changed the service standards on First Class mail before the advisory opinion on Network Rationalization came out, and it was probably prepared to do the same for POStPlan.

In fact, while the Postal Service claims that “implementation” won’t officially begin until the first post office has its hours reduced later this fall, the implementation process actually began long ago.

The advisory opinion observes that “preparations for implementing the POStPlan are underway.  In June 2012, the Postal Service began upgrading eligible offices to EAS Level 18; as of the end of June, 951 post offices had been so upgraded.”

Besides doing the upgrades, the Postal Service encouraged postmasters to retire with a $20,000 incentive, and nearly four thousand left the service on July 31; a few hundred more will soon follow.  These retirements are clearly part of POStPlan, and about two thousand POStPlan post offices have already lost their postmaster, months before the hours will be cut.

The Postal Service says that it won’t officially begin classifying post offices as Remotely Managed Post Offices (RMPOs) until after the community meetings, which will take place starting in September, but the classifications are pro forma.  The decision to downgrade each office to a level 2, 4, or 6 was made even before the plan was announced in May.

More evidence that the Postal Service did not really care what the advisory opinion said came last Thursday, on the day the opinion was released.  On the same day, the Postal Service published an issue of Postal Bulletin that contains several pages describing changes in three USPS manuals related to the implementation of POStPlan.  Apparently the Postal Service didn’t need to see the opinion before announcing these revisions in its operational procedures.

Aside from these recent steps in the implementation process, several others took place long ago and show that the Postal Service had embarked on POStPlan well before submitting and receiving a request for the Commission’s opinion about the advisability and legality of the plan.  The foundation for POStPlan was laid in March 2011, when the Postal Service first proposed changes in the official definition of “consolidation” and “postmaster” — changes that made it possible to downgrade a post office into a RMPO and to have a post office operated by someone other than a postmaster. 

There’s some evidence that the Postal Service was envisioning something like POStPlan as far back as summer 2010, when it made a slight but significant revision of the Postal Operations Manual.  Section 126.4 of the POM on “Retail Hours” used to begin as follows: “Postmasters provide all retail services for 8 1/2 or more hours on nonholiday weekdays, unless otherwise authorized by the district manager, Customer Service and Sales.” 

In the July 15, 2010, issue of Postal Bulletin, the Postal Service announced a revision of that passage.  From that point forward, Section 126.4 begins, ““The availability of retail services and lobby hours should reflect time periods that most appropriately meet the needs of the majority of customers in the local area.”

This revision of the POM thus removed the reference to 8 ½ hours, which suggests that the Postal Service was thinking about reducing hours at post offices over two years ago. 

 

Adequate and sufficient retail access

In the press release accompanying the advisory opinion on POStPlan, Chairman Goldway is quoted saying the following: “With the Postal Service’s assurances, as documented in this advisory opinion, the commission believes that adequate retail access will be preserved throughout the nation.”

The key word there is “adequate.”  The Commission determined that under POStPlan, citizens living in 13,000 small towns across rural America will be provided with adequate access to postal products and services.  The advisory opinion does not explain, however, why “adequate” access is good enough for millions of Americans.

The advisory opinion does acknowledge that “implementation of the POStPlan will impact customer access to postal products, services, and facilities,” but for the most part, the Commission did not seem overly concerned.  The opinion simply observes, “Reducing retail hours of operation at some individual offices under the POStPlan could affect retail access, customer wait time, customer convenience, and the ability to pick up accountable or oversize mail from the retail window.”

The wording of that sentence is interesting.  The Commission says that reducing hours could affect access at some offices.  Why qualify the observation in that way?  Is there any doubt whatsoever that cutting the hours is going to affect services at all these offices?

The opinion then proceeds to state, “Because no post offices are closing, there will be no change in the location or travel distance to a post office.  Further, despite a reduction in customer convenience, post office hours remain sufficient to allow customers to complete their postal transactions.  This allows the Postal Service to continue to provide adequate service.”

If your post office is open two or four hours a day, you may find yourself driving to another post office quite frequently, so the travel distance is most definitely an issue.  Yet the Commission made no inquiry into the range of distances to another post office, the extent to which nearby post offices will also be closed half the day, and so on — the type of analysis that it commissioned for the RAOI.

“Sufficient” and “adequate” are the refrain.  But why is that good enough?  Why is it okay for people living in cities and suburbs to have a post office open 8 ½ hours a day, while those living in small towns must accept 2, 4, or 6 hours a day?  Doesn’t that double standard discriminate against rural Americans?  The advisory opinion doesn't discuss these questions.

 

Whatever happened to a maximum degree?

One of the main purposes of an advisory opinion is to render a view about whether or not the change in service proposed by the Postal Service conforms to existing statutes, particularly title 39 — the Postal Reorganization Act, which created the Postal Service, the PRC, and advisory opinions.

Title 39 states, “The Postal Service shall provide a maximum degree of effective and regular postal services to rural areas, communities, and small towns where post offices are not self-sustaining.  No small post office shall be closed solely for operating at a deficit, it being the specific intent of the Congress that effective postal services be insured to residents of both urban and rural communities.” [39 U.S.C. § 101(b)]

That passage is in Title 39 because Congress wanted to make sure that rural communities were protected and that small-town post offices didn’t get closed because they were losing money.

The Advisory Opinion quotes this passage, but there is no discussion of its significance as it applies to POStPlan.  The advisory opinion simply notes that “the Commission remains aware of the importance of access to postal services.  Rural access, in particular, has been a long-standing concern for the Commission.” 

The advisory opinion lets it go at that.  There’s no discussion about how providing a part-time post office fulfills the law’s requirement that the Postal Service provide “a maximum degree of effective and regular postal services,” no exploration of how POStPlan might discriminate against rural communities, no consideration of how closing a post office for half the day because it’s running at a deficit may simply be a way of getting around section 101(b).

If the Commission thought that “adequate” access was the equivalent to a “maximum” degree of access, the advisory opinion might have explained why.  But there’s no examination of the issue at all.

 

The screening process

Title 39 says that a post office cannot be closed solely for operating at a deficit, but apparently it’s fine to close one for the better part of the day.  You just need to make sure that the deficit issue is hidden.

The post offices selected for downgrade under POStPlan were chosen through a complex screening process that involves a calculation of “earned workload” that even postmasters have a hard time understanding.  As intervener Elaine Mittleman pointed out when she was cross-examining Mr. Day, it will be impossible for average citizens to understand the calculations, to say nothing of acquiring the expertise to challenge them.

The screening method is supposed to ensure that post offices are not singled out just because of low revenue, so the calculations take into consideration other work the postmaster does besides retail sales.  But this just obfuscates an obvious fact.  The post offices selected for downgrade are on the list because they are running at a deficit.

According to materials provided by the Postal Service, the total revenue for the 13,000 offices is about $560 million, and the total cost for operating them is probably about $900 million a year.  That’s nearly all for salaries and benefits.  The total lease costs are only about $90 million, and there aren’t many other significant expenses. 

The only reason the Postal Service is doing POStPlan is to eliminate the $340 million deficit being caused by these small post offices (about $25,000 a year per office).  But in order to blur the issue so it doesn’t seem as though post offices are being selected "solely" because they’re running at a deficit, the Postal Service came up with a complex method for calculating earned workload hours. 

The screening method, it should be noted, improves upon the method used for the RAOI, which focused almost exclusively on earned revenue.  In its RAOI advisory opinion, the Commission devoted several pages to a discussion of claims by the postmasters associations and unions that the screening criteria discriminated against low-revenue and rural post offices.  The Commission concluded that there was “insufficient evidence” to prove that claim, but it expressed concern that the RAOI screening criteria might “inadvertently have a disparate impact on vulnerable populations.”  The Commission recommended that the Postal Service take into consideration socio-demographic data and be more sensitive to the issue of potential disparate impact.

Unlike the RAOI, which included a few hundred large stations and branches in addition to three thousand small offices, POStPlan is exclusively focused on small rural post offices.  It will affect an even larger number of vulnerable populations, and its screening criteria have obviously produced a list that consists entirely of small rural post offices that typically run at a deficit.

Yet the Commission had nothing to say about this subject in its advisory opinion.  There's no mention of the fact that the Postal Service did not gather socio-demographic data or worry about disparate impacts on vulnerable populations in rural communities.  Apparently because post offices aren’t being closed, the Commission felt that Title 39’s provisions protecting rural post offices just didn’t apply.

 

The end of an era

There’s also nothing in the advisory opinion about how POStPlan spells the end of the institution of the small-town postmaster.  Of the 17,000 small post offices reviewed for POStPlan, 3,000 currently have postmaster vacancies; over the next two years, some 10,000 more postmaster positions will be eliminated. This means that thousands of small towns across America will no longer enjoy the benefits associated with having a full-time, career postmaster. 

While there are obviously many excellent postmaster reliefs serving their communities, it’s inevitable that the quality of service will decline when all those experienced career postmasters are replaced by part-time workers earning about $11 or $12 an hour, with no benefits and virtually no opportunity for advancement.  These workers will be supervised by a postmaster in another town, the turnover rate will be high, and it’s hard to imagine that the part-timers will be devoted to their communities the way small-town postmasters are.    

The loss of the postmaster may even be more significant than the reduction in hours.  The bond between a community and its postmaster may not be very important to the executives in postal headquarters, but to people in a small town, it's a big deal, and losing the postmaster is more than an inconvenience.

If the Postal Service were closing post offices instead of simply elminating postmaster positions, it would need to consider the "effect on employees," as required by Title 39.  There are 8,000 postmasters right now looking at trying to find a new position or being out of a job in less than two years.  Finding a new position won't be easy — there just aren't enough postmaster jobs opening up due to the retirements — and a new job might require an extremely long commute or even uprooting the family. 

POStPlan will obviously have very serious effects on thousands of employees, and it will sever the bond between postmaster and community in towns all across rural America.  The advisory opinion doesn’t even acknowledge these issues.   

 

We knew we’d be asked

As it always does when it reviews a Postal Service plan, the Commission examined the cost-savings analysis in some detail.  Cuts in service always involve a cost-benefit analysis, and understanding the benefits necessarily involves looking at how much the plan will save.

When the Postal Service initially presented POStPlan to the PRC, it provided no cost savings analysis at all.  The press release, however, mentioned $500 million, and in a reply to an interrogatory, the Postal Service presented a spreadsheet showing how it came up with that number. 

The spreadsheet shows a cost savings of $516 million.  To come up with that number, the Postal Service took the average postmaster salary & benefit total for each EAS level, multiplied it by the number of post offices in each level, and added the numbers together.  That sum represented the total cost of labor under the current system.  The Postal Service then estimated the new salaries for the part-time workers who will replace the postmasters.  The difference was the savings.  (You can see the original cost-saving calculations here.)

When he was being cross-examined, Mr. Day acknowledged that this method of calculating cost savings was intended just to provide a rough estimate.  As he reiterated several times during his testimony, the main goal of POStPlan wasn’t to save a particular amount of money.  Its purpose was simply to more efficiently align window 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.” 

The Postal Service was remarkably relaxed about how much POStPlan may save, especially when you consider how much effort was put into arguments and analysis about the cost savings for the Network Rationalization plan.  For that plan, the Postal Service provided hundreds of pages of testimony, with every dollar of savings accounted for.  The interveners in the case challenged the numbers in great detail, the PRC brought in its own experts for even more cost-savings analysis, and the Postal Service submitted additional testimony with even more details about the numbers.

Given the disparity between how the calculations for the two plans were done, you’d think that a lot more money is at stake with the plant consolidations.  But there’s not really a big difference.  The bottom line on the most recent version of Network Rationalization is $1.6 billion, just three times the proposed savings for POStPlan.  Yet for some reason, the numbers for Network Rationalization were given an amazing amount of attention.  For POStPlan they were merely an afterthought.

 

Imprecisions in the cost-savings analysis

Because the Postal Service put so little effort into the cost savings analysis for POStPlan, it’s not surprising that several problems came to light when people started looking at them.  The calculations contain several sources of what the PRC called “imprecision”:

1. The Postal Service’s calculations used a postmaster salary for each of the 13,000 POStPlan post offices, but over 3,000 positions are filled by postmaster reliefs, who earn far less.  Those savings have already been realized, and they are not part of POStPlan.  Consequently, the calculations overstated the pre-POStPlan cost of labor, and thus overestimated the savings.  (That problem was discussed in an earlier post on this website, here.)

2. The calculations used what the Postal Service spreadsheet identified as “average” postmaster salaries for each EAS level, but it turns out that the averages didn’t represent the mean of actual salaries for actual postmasters.  The Postal Service just averaged the minimum and maximum salary for each level.  Since most postmasters make more than this “average,” this method understated the total cost of labor under the current system, and thus underestimated the savings.  When asked if the Postal Service could provide a table showing the actual salaries for the employees in the 13,000 post offices, Mr. Day said that wouldn’t be easy, and in fact, the Postal Service never provided the PRC with this information.  (This issue is discussed in a previous post on this website, here.)

3. The Postal Service’s calculations assumed that the 4,000 postmasters upgraded to EAS Level 18 post offices would receive the average postmaster salary for that level, but most of the promoted postmasters will simply get a two-percent raise and will earn much less than the “average” used in the calculations for labor costs under POStPlan.   This approach therefore overstated the cost of labor after POStPlan, and thus underestimated the savings.

4. The Postal Service’s calculations did not include miscellaneous annual costs, such as possible additional staffing at Administrative Post Offices (APOs) and the two-percent raise for 4,000 postmasters upgraded to level 18.

5. The calculations also did not include any one-time costs, such as paying out $20,000 in retirement incentives to 4,000 postmasters, renovating post offices so that customers can access their boxes when the window is closed, and holding 13,000 community meetings and surveying tens of thousands of customers.

 

Alternate scenarios

While the PRC did not attempt to do a more thorough analysis than the one provided by the Postal Service, it did run a couple of alternative scenarios using the same basic principles but employing some different assumptions to correct the imprecisions noted above.  The scenario spreadsheets are here.

The “Base Case” is the scenario presented by the Postal Service, which shows a savings of $516 million.

The PRC ran a Low Case scenario that takes into consideration factor #1 above and corrects for the fact that there are 3,000 postmaster vacancies.  It shows a savings of $386 million ($127 million less than the Base Case). 

The PRC did a High Case scenario that takes into consideration factors #2 and #3 above, both of which tended to underestimate the net savings.  This scenario assumes that the average salary for postmasters is 85 percent of the maximum salary for each EAS level (rather than the midpoint), and it uses a Level 18 salary that is $12,000 a year less than the estimate used by the Postal Service.  This scenario yielded a savings of $704 million ($191 million more than the Base Case).

The Postal Service’s estimate (Base Case) was thus roughly in the middle of these two scenarios, and the Commission concluded that it was “reasonable.”

For some reason, the Commission did not run a scenario that took into consideration all of the above factors.  It would not have been difficult, and it would have produced a scenario that is much more useful than the other three scenarios, all of which omit key considerations. 

Here’s a table that uses the PRC’s numbers and that takes into consideration the first three factors noted above.  As the table shows, the total savings comes to about $440 million a year. 

The one-time costs for implementing POStPlan could be significant.  The cost of the retirement incentives comes to about $80 million.  Retrofitting 60 percent of the 13,000 post offices to make PO boxes accessible when the window is closed could cost another $15 million. (Mr. Day testified that the Postal Service had set aside $5 million for this purpose, but the Public Representative noted that this would provide only $640 per post office.)  

We don’t know how much the community meetings and surveys will cost, but Mr. Day said they were so expensive that the Postal Service planned to do them only once for each community, even though there will be an annual reevaluation of the EAS level. 

Figure that these and other miscellaneous one-time costs will total $100 million.  Spread over ten years, that’s $10 million a year. 

As for recurring annual costs, the two-percent raises for postmasters promoted to Level 18 will cost about $5 million per year.  There are probably many other miscellaneous costs, such as additional staffing at APOs, training thousands of new employees, and so on.  Figure another $10 million a year.

The estimated savings of $440 million should probably be adjusted down to around $420 million a year — about $100 million less than the estimate initially provided by the Postal Service. 

 

What lost revenues?

Another aspect of the cost savings analysis that the Postal Service did not include in its estimates is the potential for lost revenue, an issue the Commission examined at some length in the advisory opinion.

Asked about revenue losses when he was being cross-examined, Mr. Day said that the Postal Service did not anticipate losing any revenue under POStPlan.  Yes, Mr. Day acknowledged, an office with reduced hours might experience a loss of revenue, but that revenue would migrate to another USPS entry point — another post office, an online purchase, or an approved USPS provider, like CVS.

Mr. Day also explained that it would be difficult to determine exactly how reduced hours affected a particular post office because there are “too many moving parts” to come up with anything reliable.  The Postal Service acknowledged that it tried to determine if there were a correlation between reducing hours and losing revenues in previous instances, but it was unable to prove a statistically significant relationship.

Because the Postal Service could not find a way to estimate revenue losses, it essentially determined that there would be none.  Nonetheless, in in its advisory opinion, the Commission expresses concern “that reduced retail hours may lead to reduced revenues.” 

Why the Commission needed to qualify that observation with the word “may” is hard to understand.  How can the Postal Service reduce window hours by over 10 million hours — a third of the total hours of operation for 13,000 post offices — and not lose any revenue in the process? 

In order to help determine how revenues may be affected, the Commission recommended that the Postal Service conduct a post-implementation review to measure changes in revenue at POStPlan offices.  “If reducing retail hours significantly reduces revenues," said the Commission, "the Postal Service should reevaluate whether to continue the POStPlan in future years.”

While advising the Postal Service to do a post-implementation review is certainly a good idea, it’s hard to understand how the Postal Service could embark on such a plan without doing more to determine how much revenue might be lost.  It has obviously reduced hours at post offices before — there are 1,500 on the POStPlan list alone — and it would not be hard to examine what happened when hours were reduced.  How much did revenues fall compared to revenues at similar types of post offices, and how much did revenues increase at the neighboring post offices?

Another approach would be to do as the Postal Service did for its plans to eliminate Saturday delivery and to change service standards for Network Rationalization.  For those cases, the Postal Service commissioned a market research firm to survey customers about how the changes might affect their mailing habits.  Nothing similar was done for POStPlan.

In any case, while it may be difficult to predict or measure lost revenue, it’s not credible to claim that reducing hours in such a significant way will have no impact.  The total annual revenue for the 13,000 POStPlan post offices is about $560 million.  If POStPlan were to cause even a 10 percent revenue loss, it would mean a loss of over $50 million.  That would reduce the net savings of $420 million to about $370 million — about $150 million less than the Postal Service’s original estimate.

 

The cost savings is “reasonable”

Having performed a cursory review of the Postal Service’s cost-savings calculations, the Commission said that it “has evaluated the Postal Service’s projected cost savings, and finds the projected cost savings reasonable.”  That is to say, the PRC found that the Postal Service came up with a reasonable estimate.

The Commissioners ventured no opinion, however, about the more important question: Is it worth $500 million — or perhaps just $370 million — to degrade access to postal services for millions of Americans?

Mr. Day testified that his estimate of $516 million was “conservative” and the actual savings will be greater, but he was not worried that the savings might be less.  “If there’s a $300 million savings and not a $500 million savings,” he told the Commissioners, “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.” 

Obviously, it’s important for the Postal Service to run as efficiently as possible, but cost-saving plans need to be put in perspective.  A savings of $400 million represents 0.6 percent of the Postal Service’s annual budget.  It’s barely a drop in the bucket, and it’s certainly not going to do very much to address an annual deficit on the order of $7 or $8 billion, which is about how much the Postal Service has been losing for each of the past three years if you include the $5.6 billion payments to the retiree health care fund.

Rather than depriving 13,000 communities of a full-time post office and a full-time postmaster in order to save $400 million, wouldn’t it make more sense to fix the health care prepayment problem?  Those unnecessary and onerous payments cost the Postal Service ten times what it says it will save with POStPlan.

Or how about a rate increase?  The Postal Service has abandoned its plan to seek an exigent rate increase, which would have brought in two or three billion a year. Or how about just raising the rates for those classes of mail that are currently out of compliance, like catalogs, which would bring in way more than $400 million a year?  Why is it more important to keep a few big mailers happy by not increasing their rates than it is to provide full services to millions of average Americans?  

While $300 million is nothing to shake a stick at, downgrading 13,000 post offices is nothing to brag about, and it will do serious harm to the Postal Service brand.  Over the next two years, the Postal Service will hold 13,000 community meetings and a spokesperson will rationalize the cut in hours by emphasizing how close to the precipice the Postal Service is.  There will be tens of thousands of news items about those meetings, each of which will quote someone from the Postal Service saying how dire the financial situation is.  That sort of talk is just not good for the brand or for business.

Those are the kinds of considerations that a real cost-benefit analysis would have considered.  Instead, we get Mr. Day saying “yippee” to whatever POStPlan can save, and we get the PRC saying his estimate was “reasonable.”

 

The VPO — an idea that’s come and gone but won’t go away

The Postal Service introduced the concept of the Village Post Office last summer when it proposed the RAOI.  There were going to be thousands of them all across rural America, taking the place of traditional post offices.  There are now about 26 VPOs.  The idea just hasn’t panned out. 

As Mr. Day explained, there’s a “stigma” associated with the VPO because no small business wants to be blamed for contributing to the closing of the town’s post office.  There are also numerous problems with contracting out postal services, like finding an appropriate business to house a VPO, and the total number of contract postal units has actually been declining over the past few years.

In the POStPlan materials submitted to the PRC, the VPO is identified as one of the four options available to the community.  The way the option is presented, it’s an alternative to having the post office’s hours reduced, and it’s clear that the post office would be closed and replaced by the VPO.  That’s how things are described in the draft survey for customers and the accompanying instructional memo to area VPs and district managers.

In his testimony to the PRC, however, Mr. Day described the VPO as an “enhancement rather than replacement” for a traditional post office.  He suggested that many communities might elect to keep their post office open with reduced hours, but the Postal Service would also set up a VPO to help make up for the reduced hours.

The Commission notes this “ambiguity” and “inconsistency” several times in the advisory opinion, and one of its main recommendations is that the matter be cleared up.  Having questioned the validity of a VPO as a substitute for a post office in its RAOI advisory opinion, the Commission obviously prefers the view expressed by Mr. Day in his testimony.  It therefore recommends that the survey and instructional memo “should reflect POStPlan policies,” i.e., that a VPO is an enhancement not a replacement for a post office.

It will be interesting to see if the Postal Service follows this recommendation.  It has been talking about using the VPO as a replacement for post offices for over a year now, and Mr. Day indicated that the he was going to exert a “maximum” effort to establish many VPOs.  Will these VPOs all be used to enhance rather than replace post offices, and will the Postal Service actually revise its survey to show that there are really just two options — reduced hours or discontinuance — and not the four options it’s been advertising?  We’ll soon see.

 

Emergency suspensions not going away either

One of the main criticisms of the POStPlan, as articulated by the Public Representative in his briefs, was that the plan, despite its ostensible purpose of keeping post offices open, would not prevent the closure and suspension of post offices.  The plan will create numerous opportunities to declare an emergency suspension because there will be endless difficulties finding people to staff so many post offices on a part-time basis. 

And while there’s nothing in POStPlan that relates directly to lease issues, that too was on the mind of commissioners as they examined the plan.  In fact, there have already been at least three POStPlan post offices closed by emergency suspension over lease problems associated with staffing issues, even before a single post office has had its hours reduced. 

In Helen, Maryland, where the office was set to be downgraded to two hours a day, the postmaster took the incentive offer and retired on July 31.  The Postal Service informed that the landlord that it wouldn’t be renewing the lease, and the post office closed on August 17th.  In Brownsville, Maryland, the postmaster also retired on July 31st and chose to not to continue leasing space in her home for the post office, so that POStPlan office closed on her last day, also by emergency suspension over the lease issue. 

The POStPlan post office in Revere, Minnesota, was closed on August 10 (with just two weeks’ notice to patrons) because the building needed repairs that the owners didn’t want to pay for.  The news report doesn’t say how much the renovations would have cost, and there’s no explanation why the Postal Service wasn’t willing to cover them itself.  The Postal Service just suspended the office, and patrons were never given the choice to have the hours reduced.

Given that the problems are beginning even before POStPlan gets started, it’s helpful that the advisory opinion focuses on these issues.  The Commission observes that finding qualified staff for thousands of new part-time positions could be a “significant burden” and a “major undertaking."  For the most part, however, the Commission takes the Postal Service at its word that it’s up to the task.

The Commission also seemed satisfied with the Postal Service’s reassurances that while it’s possible a POStPlan post office may be suspended for a lease issue, it “has no plan for using the lease negotiation process as a pretext to close Post Offices.”

 

Did the PRC recommend POStPlan?

In a section entitled “Consistency with prior commission advice," the advisory opinion commends the Postal Service for the way it has incorporated many of the recommendations in the RAOI advisory opinion.

For example, the Commission had recommended that the Postal Service use driving distance, not geometric distance, when calculating distances between post offices.  The Postal Service used both for POStPlan, when it determined which post offices were more than 25 miles from another office and should therefore be designated Part-Time Post Offices (open six hours a day, regardless of workload). 

The RAOI advisory opinion had criticized the Postal Service for failing to include non-revenue transactions in the screening process, and POStPlan corrects that.  Also, in the future, when providing a cost-savings analysis for a discontinuance process, the Postal Service will use the actual salaries of employees, not a typical postmaster salary — a sore spot that emerged in countless appeals cases where a postmaster relief was working the office.

The Commission cites one other recommendation that the Postal Service was apparently listening to — a recommendation that is the basis for POStPlan.  The POStPlan advisory opinion says not once but twice that the RAOI advisory opinion recommended reducing hours as a better alternative to closing post offices.  (Chairman Goldway said pretty much the same thing during the cross-examination Mr. Day.  A discussion of the Chairman’s comment and the RAOI Advisory Opinion is here.)

To support this claim, the POStPlan advisory opinion quotes a passage from the RAOI advisory opinion as follows:

“In its advisory opinion on the RAOI, the Commission expressed concern that the RAOI initiative, if fully implemented, could unacceptably diminish affected customers’ access to postal services….  The Commission advised the Postal Service to explore options other than closing postal facilities.  It stated, ‘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 ... to maximize net revenue or provide appropriate access to postal services.’”

The quoted passage does sound as if the RAOI Advisory Opinion had recommended adjusting hours as an alternative to closing post offices, but the quotation is taken out of context and the ellipsis omits a key phrase.

The quoted passage occurs in the RAOI opinion during a discussion of a study by Anthony Yezer that was referenced by witness J. P. Kingenberg.  Yezer had mentioned adjusting the window hours at larger post offices where there are several windows, not one-person post offices like nearly all of the POStPlan offices.  In fact, Kingenberg specifically noted that that Yezer’s work did not apply to small offices.  If there’s only one employee, he said, “Postal Service management does not have the flexibility to use fewer employees to better match employee workhours to earned workload” (testimony, p. 8).  He reiterated the same point when asked about it in an interrogatory (USPS/PR-T2-26). 

The fact that Yezer’s study refers to post offices with several employees would have been clearer if the advisory opinion had not omitted a key phrase in the quotation.  The words left out by the ellipsis refer to increasing or decreasing the number of retail windows, which obviously applies only to offices with several windows.

There’s not much else in the RAOI opinion about reducing the hours of operation at post offices, and a close reading of that opinion is not likely to leave one with the impression that the Commission had recommended reducing hours as a better alternative to closing post offices.

Besides, POStPlan was already a done deal by December, when the RAOI advisory opinion was published.  Mr. Day testified that when he came on board at postal headquarters in January, he saw a slide presentation about POStPlan that had been developed months before.  The Postal Service was working on POStPlan long before the RAOI advisory opinion came out, and it’s not likely that the reference to Yezer's study had anything to do with POStPlan.

It’s anyone’s guess why the Commission would want to take credit for recommending a plan to reduce hours at thousands of post offices.  Time will tell, but POStPlan looks the kind of thing you’d would want to run from, not embrace as your own idea.

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

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