On December 4th, 2018, the U.S. Treasury Department issued its much anticipated report from the President’s Task Force on the United States Postal Service®. The report, titled United States Postal Service: A Sustainable Path Forward, has since received a myriad of reviews, of which most have been negative. At best, it will be viewed as a “contribution to the conversation” and will keep the Postal Service's™ financial woes top of mind for lawmakers and stakeholders.
Looking back, President Trump issued his Executive Order in mid-April of 2018 establishing a task force to evaluate the Postal Service’s finances and operations and develop recommendations for administrative and legislative reforms. The Task Force was to be chaired by Treasury Secretary Steven Mnuchin and include heads of the Office of Management and Budget and the Office of Personnel Management. The executive order dictated that the Task Force summarize its findings and recommendations within 120 days.
During their review process, the Task Force actively engaged with industry stakeholders and held meetings with many of the leading mailing organizations, including Association for Postal Commerce (PostCom), Alliance of Nonprofit Mailers, Association of Magazine Media (MPA), and the Coalition for a 21st Century Postal Service (C21). According to several of the meeting attendees, the Task Force was clearly looking for a long-term solution to the USPS®’ financial woes and listened intently to their ideas. They voiced optimism that meaningful recommendations would be an outcome.
In the 74-page report, the Task Force lays out the following recommendations:
The Universal Service Obligation
- Without a clearly defined Universal Service Obligation (USO), it is difficult for the USPS to make business decisions in a timely and efficient manner. The USO must be clearly defined.
- With over 60 percent of counties and 14 percent of the population classified as rural, the geographic scope of the USO should continue to be defined to include all addresses in the United States.
- Statutes impose generic, minimal requirements for access to the Postal System, but do not require a certain number of Post Offices or collection boxes. The USPS needs a clearly defined USO standard for delivery.
- Although the USPS has broad discretion over the mode of delivery, Congress annually mandates that USPS deliver mail six days per week. USPS should have greater flexibility for determining delivery frequency.
- Current statutes afford the USPS the discretion to determine the delivery mode, based on reasonableness and efficiency, including door-to-door, curbside, and centralized delivery. The USPS should maintain and use its discretion to determine the mode of delivery that is consistent with developing and maintaining a financially sustainable business model.
- As speed of processing is less important to mailers than geographic coverage, predictability, and frequency of delivery, the USPS should retain discretion to determine processing speed.
- Although the USO has historically been funded by the mail monopoly, revenue generation outside of the mail monopoly will continue to become increasingly important. The USPS should determine ways to optimize activities to cover the costs of the USO.
Mail and Package Markets
- The USPS mail business is not sustainable under the existing operating model. USPS should develop a new model for setting rates and controlling costs to achieve sustainability.
- The benefits of the USPS monopolies continue to diminish. The USPS must pursue price increases, reduce service costs, or exit the business line for any class of mail that falls outside of the determined essential services and that does not cover attributable costs.
- Despite the mail monopoly, the end-to-end mail value chain (origination, pickup/collection, processing, transportation, and delivery) is divisible and has many suppliers and competitors. To achieve more cost efficiencies, the USPS should expand third-party relationships.
- The legal mailbox monopoly remains highly valuable. As a means of generating more income, the mailbox monopoly could be monetized.
- The USPS has a dominant market position in B2C e-commerce segments and can take advantage of lower delivery costs and mailbox access. The USPS should price these competitive products to generate income rather than maximize volume.
- While there is no direct financial subsidy of competitive products, mail products and the mailbox monopoly allow for an indirect delivery subsidy. The USPS needs to provide full price transparency and fully distribute costs.
- The USPS should retain the package business but establish a separate balance sheet for packages to help prevent cross-subsidization between the mail and package business units.
Operational Structure, Governance, and Long-Term Liabilities
- USPS’s dual-labor model – combining private sector collective bargaining law with government employee compensation law – creates unsustainable labor costs. USPS employee rights should be more closely aligned with other federal employee rights by eliminating collective bargaining over compensation.
- USPS employee wages should be reformed in a manner consistent with proposed reforms pertaining to the broader federal workforce outlined in the President’s Management Agenda.
- The USPS should explore new business opportunities that allow it to extract value from its existing assets and business lines.
- The USPS suffers from a lack of institutional governance, both in authority and in practice, and there is an immediate need for the US Senate to confirm Governors.
- The Postal Regulatory Commission authorities are limited, leaving gaps in the supervision of significant USPS monopoly and competitive activities.
- USPS represents approximately 46 percent of the federal government’s workers compensation cost. The Federal Employees Compensation Act should be reformed as proposed in the President’s FY 2019 Budget.
- While the USPS pension liabilities are better funded than those of the rest of the federal government, they would benefit from further reform.
- The USPS, not the taxpayer, is responsible for funding the USPS’s retiree health costs and the Task Force believes that it should remain this way.
As noted earlier, the report has received mixed reviews but most are negative. To no one’s surprise, the Postal Unions reacted with furor. American Postal Workers Union President Mark Dimondstein began his press release with the following remarks: “If the White House Task Force on the Postal Service’s report was assigned a ZIP Code™ it would be 00000. This poorly conceived report makes many of its recommendations based on myth and misinformation that instead of improving mail services, would deliver higher prices and less service for the public.” Mailing industry association executives have referred to the report as a “disaster,” a “disappointment,” or “an opportunity lost”.
Despite the negative reactions, stakeholders should view the report as a continuation of a much-needed effort to reform the Postal Service and return it to financial sustainability. 2019 could be the year.
You can find the full report here.