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CD153: Save the Post Office!

Jun 25, 2017

The post office is in trouble. Faced with an enormous debt and a legal obligation to serve every single American, the United States Postal Service needs Congress to make some changes in order to prevent service cuts and financial ruin. In this episode we analyze the plan currently moving through Congress.

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Bill Outline

H.R. 756: Postal Service Reform Act of 2017

Title I: Postal Service Benefits Reform
Title II: Postal Service Operations Reform
Title III: Postal Service Personnel
  • Creates a Chief Innovation Officer position
Title IV: Postal Contracting Reform
  • Allows the post office to issue non-competitive contracts, with notification requirements if they are over $250,000

Additional Reading

References

Video Clips

Sound Clip Sources

Hearing: Accomplishing Postal Reform in the 115th Congress - H.R. 756, The Postal Service Reform Act of 2017, House Oversight and Government Reform Committee, February 7, 2017.

Watch on CSPAN Witnesses

  • Megan J Brennan: Postmaster General
  • Robert Taub: Chairman of the Postal Regulatory Commission
  • Lori Rectanus: Direction or Physical Infrastructure issues at the US Gov’t Accountability Office
  • Arthur Sackler: Manager at the Coalition for a 21st Century Postal Service
  • Fredric Rolando: President of the National Association of Letter Carriers
  • 5:19 Rep. Jason Chaffetz: Last July I was proud to see our committee favorably report the bill by a voice vote. Unfortunately, it didn’t make it across the finish line before the end of the Congress, but we did make a lot of progress, particularly with getting the CBO—the Congressional Budget Office—to come in and score the bill.
  • 6:10 Rep. Jason Chaffetz: In an era of partisan politics, this legislation represents a significant bipartisan compromise. The bill gives the Postal Service the freedom it needs to successfully meet the business realities the agency faces. To do this, the bill allows the Postal Service to fully integrate its healthcare plans with Medicare. With such integration, the Postal Service can virtually wipe out its 52-billion-dollar retiree healthcare unfunded liability. Further, the bill achieves real savings by moving to more-efficient mail delivery, saving the Postal Service more than $200 a year for each address that can be converted from the door-to-door delivery to centralized delivery. The bill also helps the agency more accurately evaluate its cost structure and reforms key governance matters.
  • 8:10 Rep. Elijah Cummings: The other thing I thank you for, Mr. Chairman, is so often what happens is that when a lot of work has been done in one term, it’s just tossed away, and then you have to start all over again. But I thank you for picking up where we left off.
  • 10:40 Rep. Elijah Cummings: The total volume of mail handled by the Postal Service has fallen by more than 25% since 2006, and continued declines are expected. The cost of the Postal Service’s operations have also risen, in part because the Postal Service is required to provide universal delivery service to every address in the United States. Every year, about 900,000 new addresses are created in this country; and a network of postal facilities, letter carriers, and workers must expand to deliver to every new address—900,000; that’s a lot. The Postal Service is burdened by a 2006 statutory requirement imposed by Congress to fully pre-fund its liabilities for retiree healthcare costs, a requirement that no other federal agency or private-sector company faces. These liabilities, combined with the Postal Service’s unfunded pension liabilities, currently total about $125 billion, which is almost double its annual revenues. Even as it fixed costs continued to grow, the exigent rate increase that had been approved to enable the Postal Service to recoup some of the losses incurred because of a 2008 recession’s permanent impact on mail volume expired. Since 2006 the Postal Service has implemented significant cost-saving measures, including reducing positions and work hours, and consolidating facilities and delivery routes.
  • 14:08 Rep. Elijah Cummings: Taking all these requirements and trends together, the Postal Service reported a net loss of $5.3 billion for fiscal year 2016, which represents a 10th consecutive year of net losses. We have repeatedly discussed the deteriorating financial condition at the Postal Service in this committee, but the situation is now worsened by unprecedented lack of any Senate-confirmed members on the Postal Service’s Board of Governors. Because many key management decisions are reserved by statute to the Senate-confirmed board members, there are many actions, such as establishing rates, class, and fees for products, that the Postal Service simply cannot take now. The need for postal reform is as urgent as it ever was. Fortunately, we also may be closer than ever to enacting reform. We must press ahead—all of us.
  • 18:50 Rep. Gerald Connolly: I want to commend Chairman Chaffetz and Ranking Member Cummings for their leadership in holding together this coalition—not easy—and it’s a bipartisan coalition that helped write this bill. And especially Chairman Chaffetz could have yielded to the temptation, in light of the circumstances of 2017, to start all over again, and he didn’t do that. We worked together, we held it together, and I want to thank all the stakeholders represented in this room and those not in this room for understanding we can’t let perfect be the enemy of the good.
  • 24:25 Megan Brennan: The Postal Service is self-funded. We pay for our operations through the sale of postal products and services and do not receive tax revenues to support our business. Over the past decade, total mail volume declined by 28%. First-class mail, which makes the greatest contribution to covering the cost of our networks, declined by 36%. In response, we have streamlined our operations, restructured our networks, reduced the size of our workforce, and improved productivity. As a result of these efforts, we’ve achieved annual cost savings of approximately $14 billion. We also successfully stabilized marketing-mail revenues and grew our package business, which together drive e-commerce growth. However, given the constraints imposed by law, all of those actions cannot offset the negative impacts caused by the consistent decline in the use of first-class mail. The Postal Service is required to maintain an extensive network necessary to fulfill our universal service obligation to deliver the mail to every address six days a week, regardless of volume. The cost of the network continues to grow as approximately one million new delivery points are added each year. However, less volume, limited pricing flexibility, and increasing costs means that there is less revenue to pay for our growing delivery network and to fund other legally mandated costs. Since 2012 the Postal Service has been forced to default on $33.9 billion in mandated payments for retiree health benefits. Without these defaults, the deferral of critical capital investments, and aggressive management actions, we would not have been able to pay our employees and suppliers, or deliver the mail. Despite our achievements in growing revenue and improving operational efficiency, we cannot overcome systemic financial imbalances caused by business-model constraints.
  • 26:40 Megan Brennan: We believe there is broad support for the core provisions of the bill you have introduced. By enacting this urgently needed legislation, which includes those provisions, the Postal Service can achieve an estimated $26 billion in combined cost reductions and new revenue over five years. Enactment of these provisions, favorable resolution of the Postal Regulatory Commission’s pricing-review system, and continued aggressive management actions will return the Postal Service to financial stability. Medicare integration is the cornerstone of your bill. The civilian federal government is not required to pre-fund retiree health benefits, but that obligation is imposed on the Postal Service. We are merely asking to be treated like any business that offers health benefits to its retirees and has to fund them. Full integration with Medicare is a universally accepted best practice in private sector. Requiring full Medicare integration for Postal Service retirees would essentially eliminate our unfunded liability for retiree health benefits. It is simply a matter of fairness to enable the Postal Service and our employees to fully utilize the benefits for which we have paid. We also strongly endorse the provision of the bill that would restore half of the exigent rate increase as a permanent part of our rate base. That provision will help us pay for the infrastructure necessary to fulfill our universal service obligation.
  • 28:20 Megan Brennan: H.R. 756 is fiscally responsible and enables the Postal Service to invest in the future and to continue to provide affordable, reliable, and secure delivery service to every business and home in America.
  • 30:30 Robert Taub: H.R. 756 is specifically designed to put the Postal Service on sound financial footing.
  • 33:43 Lori Rectanus: The continued deterioration of the Postal Service’s financial condition is simply a truth that revenues are not keeping up with expenses, a trend since 2007. This means that over the last decade the Postal Service has had a net loss of over $60 billion. While much of this loss was in fact due to the nonpayment of retiree health pre-funding payments, the Postal Service still lost over $10 billion outside of this requirement and other requirements. The revenue-expense gap occurs because first-class mail, the most profitable mail, continues to decline and is now down to 1981 levels. The Postal Service has made significant efforts to grow revenue in other ways, such as with package services. In the meantime, however, expenses continue to grow, largely because of compensation and benefit payments for employees. This is due to salary increases, as well as a larger workforce, in the past several years to support the more labor-intensive package business. In fact, over the past three years, the workforce has actually increased by over 20,000 people, contrasting sharply with prior years when its size decreased greatly.
  • 38:15 Arthur Sackler: We support this bill and urge its approval as promptly as possible.
  • 41:26 Arthur Sackler: H.R. 756 provides an elegant solution to this profound financial problem, integrating postal annuitants into Medicare will save the Postal Service billions each year and follow the best practices of the private sector. Companies that offer health insurance to employees and retirees generally require them to join Medicare at age 65.
  • 42:06 Arthur Sackler: The implications of this bleak financial situation are near existential for Postal Service in its current form, so we support H.R. 756 notwithstanding its one-time market-dominant postal rate increase of 2.15%. We accept this increase in this unique set of circumstances only as necessary to achieve this bill and stabilize the Postal Service. Congress has wisely delegated rate setting to the postal agencies, but with respect, the industry will be compelled to oppose any effort to regard this bill as a precedent for other legislated rate increases. The industry has long supported the self-sustaining postal system, funded entirely by postage. That remains the best course from our perspective. And that is the beauty of your bill. It vastly improves the Postal Service’s financial stability, keeps the Postal Service self-sustaining, and wards off any prospect of a taxpayer bailout, as you noted, Mr. Chairman.
  • 44:25 Fredric Rolando: The bill has broad support across the mailing industry, including business and labor, and is based on best practices in the private sector.
  • 45:30 Fredric Rolando: Over the past decade, postal employees have worked diligently to restructure operations, cut costs, and sharply increase productivity, in response to technological change and the Great Recession. Despite the loss of more than 200,000 jobs, we’ve managed to preserve our networks and to maintain our capacity to serve the nation. But only Congress can address our biggest financial challenge: the unique and unsustainable burden to pre-fund future retiree health benefits decades in advance. No other enterprise in the country faces such a burden, which was imposed by legislation in 2006. The expense of this mandate has accounted for nearly 90% of the Postal Service’s reported losses since 2007. Without a change in the law, the mandate will cost $6 billion this year alone. H.R. 756 would maximize the integration of Medicare and our federal health program for Medicare-eligible postal annuitants, most of whom have already voluntarily enrolled in Medicare Parts A and B. The proposal would also give us access to low-cost prescription drugs and other benefits provided to private-employer plans by the Medicare Modernization Act. The savings would help to reduce all of our premium costs and, therefore, pre-funding costs. This approach adopts a standard practice of large private companies that provide retiree health insurance. It would effectively resolve the pre-funding burden that undermines the health of the Postal Service while only raising Medicare spending by one-tenth of one percent over 10 years. H.R. 756 also addresses a revenue shortfall caused by the expiration of the 2013 exigent rate increase, authorized by the Postal Regulatory Commission, to help the Postal Service recover from the permanent decline in mail volume caused by the Great Recession. The compromise adopted by your leadership bill, effectively restoring half of the exigent increase, is a reasonable one.
  • 48:00 Fredric Rolando: All four postal unions urge the committee to adopt this legislation.
  • 52:06 Rep. Jason Chaffetz: What is your current cash on hand; and then once you give me that number, then why isn’t that used to pay some of the payments that were due? You’ve defaulted, I believe, on five payments. Megan Brennan: Yes, Mr. Chairman, we’ve defaulted for the past five years to the tune of $33.9 billion. Our current cash on hand is $8.2 billion. And a determination was made by the Temporary Emergency Committee, which consisted at the time of our lone independent governor, myself, and the deputy postmaster general, to default on that payment to ensure that we can serve sufficient cash, which for an organization of our size is arguable at best, but to reserve sufficient cash to ensure if there was any contingency that would occur in the near term, we could at least have some cushion. Chaffetz: I mean, you have more cash than some of the others who are in the mail industry, but where is that proper balance? Where’s… ? Brennan: When I think—that’s a concern, Mr. Chairman, because for an organization that has expenditures of more than $70 billion a year, we would submit that $8.2 billion is insufficient. That’s the concern for us. And, also, as noted by the Chairman, and we’ve discussed this, the fact that we have deferred on critical capital investments in the past five years to the tune of over $8.9 billion, that impacts our ability to compete and to generate additional revenues. Chaffetz: Tell us, if you can give me a perspective on your fleet management. There was a hearing I think Chairman Meadows chaired earlier about the fleet. We were concerned the Postal Service was going to come up with a very sizeable contract to… Explain to me, where you are in the fleet and your perspective on it. Brennan: Yes, Mr. Chairman. Well, we have one of the largest civilian fleets in the country, with over 212,000 vehicles travelling more than four million miles a day. The fleet, though, is at the end of its expected life, particularly our delivery vehicles that the average age is over 25 years, and the annual maintenance cost is over a billion dollars. So, we have an approach to look at the next-generation delivery vehicles, that currently we’re in the midst of a prototype-testing period where we’re working with six different suppliers to provide us with these vehicles that we will test over the course of the next 18 months. We also just—this week, actually—a request for proposal for a commercial off-the-shelf solution for right-hand-drive vehicles is expected. So, we’ve got a multi-prong approach looking at how to address the vehicle fleet.
  • 58:35 Rep. Stephen Lynch: There are some concerns out there about the funding of that piece that will require postal employees to sign up for Medicare and that it is some type of giveaway. That’s what I’ve heard out there. Now, you and I know differently. But could you explain to me how much money the postal workers have contributed to Medicare but, in large part, have not participated in that? Could you describe that for me, please? Megan Brennan: Yes, Congressman. In our opinion, this is a question of fairness. We’re merely asking that we be treated like any other self-funded entity that provides retiree health benefits. As noted by a number of the panelists, it’s best practice in private sector. And that’s the ask from the Postal Service, and our employees and the Postal Service have paid more than $30 billion into the Medicare trust fund since the early ’80s. We’re just asking to receive the benefit for which employees have paid.
  • 1:03:35 Rep. Blake Farenthold: You mentioned that part of your expenses is six-day delivery to everywhere. Is it worth looking at, at some point in the future, maybe not six days to everywhere for everything? I mean, to be competitive, maybe you do need six. And, actually, I think one of your competitor’s advantage is seven-day package delivery. Over Christmas, I got packages from Amazon that you guys brought on Sunday. Matter of fact, I got one a couple of weeks ago. Apparently you’re still doing it. So, is shrinking to a less-than-six-day delivery for non-packages a potential cost savings? Megan Brennan: Yeah, as you noted, we are delivering packages seven days in select locations, primarily major metropolitan areas. Farenthold: I’m happy Corpus Christi, Texas, is now a major metropolitan area. Brennan: I said primarily. And we are expanding that, because, certainly, we serve every home— Farenthold: Right. Brennan: —and every business, Congressman. To your point, and candidly, we’ve spent the better part of the past two years trying to build a coalition around core provisions of a bill likely to generate broad support. Farenthold: Right. Brennan: And that’s what we focused on. And, also, I would offer candidly, it’s been my experience that there’s no congressional consensus around moving to five-day delivery. Farenthold: Oh, I could tell you that for sure, as well.
  • 1:06:02 Rep. Blake Farenthold: You talked about capital expenses, your biggest being vehicles. What are your big capital—just list off a couple of items that are your big capital items beyond vehicles. Megan Brennan: The information systems, our IT infrastructure, repair and alteration, facility modifications, additional capacity for package sortation.
  • 1:17:56 Rep. Darrell Issa: Additionally, the United States Post Office, with the power of the government, if they chose to aggressively site in or near people’s homes cluster boxes that could safely hold packages, they would leapfrog in service capability what Amazon is trying to build at your corner gas station, wouldn’t they. And I guess I should take that to the postmaster general. Not, what are the problems, but if you did that, wouldn’t you, in fact, offer a service far better and far more distributed than that which Amazon is trying to build today in some parts of urban America? Megan Brennan: Congressman Issa, as you and I discussed, the Postal Service approach is all new, possible deliveries. As noted—excuse me—we add nearly a million a year. Based on the delivery characteristics, we either implement box on post at the end of your driveway or centralized delivery. And just looking at last year, where when we looked at the growth by mode, over 750,000 new deliveries were centralized. So, there's certainly an efficiency gain associated with that.
  • 1:26:40 Rep. Jody Hice: One of the issues that came up specifically dealt with Amazon and a serious competitor that they are, and one of the areas of technology that they’ve excelled in, obviously, is drone delivery. Is there any looking into consideration of drone delivery with the Postal Service? Megan Brennan: Currently, our engineering group is researching, and we’re probably on the peripheral of this advanced technology, currently just learning. And I would say whether it’s drone exploration or any other type of new technology, Congressman, we need the capital monies to be able to invest. Hice: Well, I understand the need for capital monies to invest, but you are looking into the possibility? Brennan: We’re exploring and recognizing what’s happening in the industry. Right now, we’re not an early adopter, I would categorize that, but we’re certainly aware of what’s happening in that space. Hice: Okay, so, at the current time, then, the commitment is to continue with the vehicle delivery. Brennan: Correct.
  • 1:45:15 Rep. Mark Meadows: The gentleman recognizes the gentleman with the stylish glasses, from Missouri, for five minutes. Rep. William Lacy Clay: And, Mr. Chair, I noticed that the ranking member took some of my time. Oh, no—they restarted. Very good. Meadows: The gentleman will recognize that the chairman is always fair with— Clay: All right. Meadows: —his time. Clay: The— Meadows: We’re glad the gentleman from Missouri could get out of bed to come to this hearing.
  • 1:49:00 Megan Brennan: We just recently, Congressman, raised prices on our market dominant, within that strict price cap— Unknown Speaker: Yeah. Brennan: —of eight-tenths of a percent. We also have the 10-year price review before the Commission, currently.
  • 1:51:23 Rep. Mark Meadows: Well, you said all four unions support this bill, with no changes. Is that correct? With no changes, you support this bill, all four unions. Fredric Rolando: Yeah, all four unions support this bill. I think we mentioned two tweaks in the written testimony that we thought would be helpful. Meadows: Yeah, and then, but if those two tweaks don’t get done, this is better than— Rolando: Totally support this bill coming out of committee. Absolutely.
  • 2:07:14 Arthur Sackler: I think that with the establishment of so much trust and reliance on electronic media, there is little that can be done to reverse some of the outflow of mail. But if you add a huge increase on top of that, it’s going to accelerate it dramatically. That’s the worry of the industry. Rep. Glenn Grothman: Okay, you consider the 2.1% not a significant increase? Is that what you’re telling us? Sackler: It is significant, but it is one that, to put it colloquially, we’re all holding our noses and accepting in the spirit of compromise in order to get this bill done.

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