Postal Service Pushing the Envelope with Congress; Bailout Demands, Higher Prices and a March 1 Deadline
December 13, 2017
The U.S. Postal
Service is gearing up to send taxpayers and postal customers a multi-billion
dollar “payment due” notice. Congress should halt delivery.
Service’s push gained considerable steam on December 1. On that day, the Postal
Regulatory Commission (PRC), which oversees the Postal Service, issued a report
on the ratemaking system established by the 2006 Postal Accountability and
Enhancement Act (PAEA), the primary law governing the Postal Service.
The PRC concluded
the rate system has not achieved the necessary objectives under PAEA and
proposed higher prices.
Under PAEA, the
Postal Service has been able to raise prices for monopoly mail products, but
only within the maximum amount of the annual Consumer Price Index. The PRC’s
key recommendation is that the Postal Service be allowed to increase prices 2-3
percent above the CPI maximum for the next five years.
The Postal Service
wanted price caps eliminated entirely. “We continue to believe that any price
cap is unnecessary in the rapidly evolving postal marketplace, for which all of
our customers have alternatives to using the mail,”
said Postmaster General Brennan regarding
the PRC decision
Broader Financial Picture
The Postal Service,
though, is seeking a great deal more than higher mail prices.
On November 14, the
Postal Service announced a net loss of $2.7 billion for Fiscal Year 2017. While
down from a $5.6 billion net loss in Fiscal Year 2016, this marked the 11th
consecutive year the Postal Service lost money. Losses from 2007-17 come to
In Fiscal Year 2017,
the Postal Service did not make any payments of the $6.9 billion due to the
federal government for pension and health benefits for retirees. It has also
defaulted on retiree health benefit payments of approximately $5.6 billion
annually since Fiscal Year 2012.
In announcing its
Fiscal Year 2017 financial performance, the Postal Service once again called
federal assistance for its retiree healthcare obligations “urgent” while also
calling for “legislative and regulatory reform.”
Need for a Turnaround Plan
agrees to any subsidy to the Postal Service, to changes in PAEA, or even to
accept the higher mail prices, it should demand a clear business turnaround
plan from the Postal Service. Some initial near-term questions to be addressed include
With a well-established customer based and nearly 70
percent of its revenues from monopoly products, why is such a large price
What is the likelihood that higher prices will drive
bulk mailers away from the Postal Service, given that the marginal price
increase is very significant for them?
Has the Postal Service studied this issue, as well as
the broader impact of the elasticity of its costs on attracting, or driving
away business? If not, why not?
What is the Postal Service’s plan to “right-size” its
business from a cost standpoint?
In its Fiscal Year 2018 Integrated Financial Plan, the
Postal Service says that it plans to increase compensation and benefits
payments by $200 million annually. How can this be justified when mail volume
is projected to drop by more than 4.5 billion pieces?
Why have so many cost cutting efforts of recent years
not been successful?
December 1 order on PAEA
the PRC is critical of the Postal Service numerous times for its efficiency and
cost cutting efforts, which have slowed in recent years. In the PRC’s words:
Commission has repeatedly advised the Postal Service that it must ‘do a
job of quantifying the savings from its cost reduction initiatives.’ In the
joint Periodicals Mail Study, the Commission noted the Postal Service’s
‘inability to capture efficiencies in flat mail processing’ and stated that
‘[s]ubstanial opportunities for increasing the efficiency of flat processing
and transportation exist.’ The Commission further stated that “[o]ver the past
decades the Postal Service has introduced many programs designed to capture
some of these efficiencies,’ but that it was ‘unclear how successful these
programs have been.’”
Regarding a Postal
Service program to better align retail customer service, the PRC said, “The
Commission found that the initiative was not likely to optimize the retail
network and there was no effective mechanism to accurately identify cost
efficiency initiative to level the volume of mail throughout the week the PRC
was again critical. It said, “The Commission found that the plan needed further
development and recommended, among other things, that the Postal Service
perform a cost-benefit analysis at the national level and develop a plan for
measuring cost reductions.”
There are also important questions as to whether the
Postal Service is properly accounting for institutional costs on its product
lines. The allocation for competitive products’ contribution to institutional
costs is currently set by the PRC at 5.5 percent, and has not changed since
2007. Yet, competitive products have consistently grown and now account for
nearly 30 percent of the Postal Service’s business.
By law, the product lines cannot cross
subsidize one another. Thus, before Congress and the public agree to high
first-class mail price increases, the PRC should conclude a docket currently in
progress examining whether the 5.5% institutional cost allocation for
competitive products is appropriate. It should be transparent, making public
the financial information that forms the basis of this key regulatory decision,
which has ramifications for the price of first-class mail and consumer postal
As Congress and the
public assess the future of the Postal Service, including potential revisions
to PAEA, a bailout, and the stamp price hikes, it is important to demand
clarity about the Postal Service’s operations. The Postal Service should
provide an in-depth turnaround plan, with transparent financial information, as
soon as possible.
Near term, those
wishing to comment on the PRC’s 10-year review of PAEA and the related proposed
stamp price increases can do by visiting:
Comments are due by March 1, 2018.
Paul Steidler is a Senior Fellow with the
Consumer Postal Council which champions world-class postal services by
promoting programs and policies that increase productivity, transparency and
eliminate distortions and efficiencies caused by monopolies. He can be reached
Postal Regulatory Commission Order, December
U.S. Postal Service Reports Fiscal Year 2017
Results, News Release, November 14, 2017