U.S. Dept. of Treasury Task Force issues report to help remedy financial outlook for USPS

While the United States Postal Service (USPS) has seen severe quarterly losses over the last several years, much has been made in Washington and parcel circles over what many believe is a flawed business model that has hindered the organization on a historical basis.

The ostensibly unstable state of the USPS was again made clear in its recently released fiscal year 2018 results in which it incurred a $3.9 billion net loss, which was steeper than the FY 2017 $2.7 billion net loss, while not as severe as the $5.5 billion net loss in FY 2016.  And between fiscal years 2017 and 2019, total USPS net losses came in at $69 billion and is expected to lose tens of billions over the next decade

Commonly cited reasons for the USPS’s difficulties largely center around its ongoing revenue declines in First Class and Marketing Mail, which USPS said each continue to see declining volumes. FY 2018 First-Class Mail volumes dropped by around 2.1 billion pieces, or 3.6%, with these volumes expected to fall further in the future, due to what the USPS called the “migration to electronic communication and transactional alternatives resulting from technological changes.” In other words, things like e-mail, texting, and other electronic communications channels continue to hinder First-Class Mail. A bright spot for the USPS, though, has been its Shipping and Packages Group, whose FY 2018 revenue rose $2 billion, or 10.1%, to $21.5 billion.

This ongoing situation prompted the U.S. Department of Treasury this week to issue a Task Force report on the USPS, entitled “United States Postal System: A Sustainable Path Forward,” which it said provides a series of recommendations to overhaul the USPS business model in order to return it to sustainability and not shift additional costs to taxpayers.

The release of this report follows President Trump issuing an Executive Order on the Task Force on the United States Postal System, which was issued in April. This task force is chaired by the Secretary of the Treasury and includes the Director of the Office of Management and Budget and the Director of the Office of Personnel Management. The Treasury Department said that the Task Force was directed to evaluate the operations and finances of the USPS and to develop recommendations for administrative and legislative reforms that will enable the USPS to create a sustainable business model.

“The USPS is on an unsustainable financial path which poses significant financial risk to American taxpayers,” said Treasury Secretary Steven T. Mnuchin in a statement. “President Trump tasked us with conducting a thorough evaluation of the USPS, and today’s report contains achievable recommendations that fulfill the President’s goal of placing the USPS on a path to sustainability, while protecting taxpayers from undue financial burdens and providing them with necessary mail services.”

Topics studied by the Task Force, according to the report, included: the expansion and pricing of the package delivery market and the USPS’s role in competitive markets; the decline in mail volume and its implications for USPS self-financing and the USPS monopoly over letter delivery and mailboxes; the definition of the “universal service obligation” in light of changes in technology e-commerce marketing practices, and customer needs; the USPS’s role in the U.S. economy and in rural areas, communities, and small towns; and the state of the USPS business model, workforce, operations, costs, and pricing.

As for the next steps needed to return the USPS to a position of strength, as well as solvency, the Task Force provided several recommendations, including:

• having its board of governors create a new policy mandate resetting the USPS’s organizational direction and develops financial targets, adding that if the USPS is unable to achieve a sustainable business model and satisfy its financial commitments, the Postal Regulatory Commission should be given stronger regulatory authority to take necessary revenue and expense measures;
• have the authority to change market-based prices for mail and package items that are not defined “essential services” and enable the USPS to optimize its income in order to fund operations, capital expenditure, and long-term liabilities;
• modernize its cost standards and allocation methodology to provide the USPS with information it needs to inform critical management decisions, government policies, and regulatory reporting;
• address its rising labor and operating costs, including capital expenditures, by evaluating modifications to delivery process standards and the expanded use of private sector partners for things like processing and sortation;
• more closely align wages for career and non-career workers with those of other federal employers, as labor costs represented 76% of USPS operating costs in FY 2018;
• a restructuring of the Postal Service Retiree Health Benefits Fund, with payments re-amoritized with a new actuarial calculation based on the population of employees at or near retirement age; and
• explore new business opportunities that will allow it to extract value from its existing assets and business lines

Gordon Glazer, senior consultant for San Diego-based parcel consultancy Shipware LLC, noted that there appears to be a disconnect relating to the Task Force report indicating that the USPS must pursue new cost-cutting strategies that will enable it to meet the changing realities of its business model.

“Congress stopped the facility realignment process and any further changes to delivery standards the USPS implemented to help control costs while operating under the failed prefunding [retiree healthcare] mandate,” he said.  “Congress also killed the opportunity to save significant dollars by eliminating Saturday Mail Delivery (keeping Package delivery), Surveys showed Americans were in favor of this change.”

And as for the USPS retiree health benefits, which the Task Force said, as a general policy, should not change or that the liability for these benefits should be shifted to taxpayers, Glazer described this as a perfect example of the disconnect in Washington.

“What an unfair mandate,” he said. “No other company or Government organization is required to do this.  This has and will continue to be a dirty money grab by Washington politicians to Tax and Spend, but in this case the tax is hidden in the form of increased postage.  If you follow the money…when the PAEA (Postal Accountability and Enhancement Act) was passed in 2006, the USPS was allowed to forgo future overpayments into the Federal Retirement System for employees where the USPS was their 2nd Government career.  At the time the OIG reported the USPS had overpaid $75B and was continuing to overpay.  In return for stopping these overpayments, Congress required the prefunding of their future retiree healthcare requirements to keep the cash flowing.  For a while it was sustainable, until the 2007 recession that crippled the 3 larges mailing sectors: Finance, Real Estate and Insurance. This position clearly shows the bias in the report, where the goal is to protect the national budget and not to do what is right for the USPS and the American public.”

The Package Coalition, a concern comprised of shippers, including Amazon, lobbyists like the National Retail Federation, direct mailers, and consumers, said in a statement it is concerned that, by raising prices and depriving Americans of affordable delivery services, the Postal Task Force’s package delivery recommendations would harm consumers, large and small businesses, and especially rural communities.

“We are particularly concerned with the proposals to limit access or increase prices on package delivery services—directly or indirectly by changing costing rules or forcing USPS to create a separate package business—which would needlessly reduce efficiency and force the Postal Service to raise prices,” it said.