Friday, August 21, 2009

Postal Service and the Federal Budget

More than anything else, the greatest political obstacle to a new business model for the Postal Service is the Federal budget deficit. Every legislative action to maintain postal services in light of current financial losses, and fund the transition that will create a new business model will have budgetary implications. Thee budgetary implications will likely become the primary arguments of postal competitors and other opponents of reform for delaying necessary changes that would make the Postal Service a viable and customer-focused provider of delivery and delivery related services.

Currently, the Postal Service is seeking relief from the demand of the Office of Personnel Management as included in the Postal Reorganization and Enhancement Act (PAEA) for accelerated funding of retiree benefit. The accelerated payments had a positive budget impact that smoothed the passage of the PAEA. However, the accelerated payment schedule reflected three misconceptions about the Postal Service that made the accelerated schedule seem reasonable.

  • First, demand trends for mail were sufficiently strong to generate the revenue necessary to cover the payments. Congress, like many governmental and business executives at the time assumed the rosiest scenario for the Postal market and in particular demand for advertising mail and the mail revenue that it generated. When the recession hit and the revenue disappeared, the Postal Service lost its ability to meet the new payment terms.

  • Second, the Postal Service was sufficiently capitalized to continually modernize its distribution and retail networks to reduce costs and improve service. The Postal Service had aggressively reduced its debt through the good fortune of strong demand for advertising mail, improved management of operating costs, and parsimonious spending on capital projects. Congress did not have an independent assessment of the true capital and cash needs of the Postal Service, particularly as they related to the legislation demand for improved cost management and network realignment.

  • Third, cutting operating costs does not require significant one-time expenses if they are to be done quickly in ways that are transparent to customers. Both Congress and the Postal Service assumed that it had the time to reduce its workforce and streamline its network through the nearly costless method of employee attrition and minimal capital spending to move postal operations to locations that better fit today's mail distribution patterns. With no funds to reduce the workforce, the Postal Service is limited to those streamlining efforts that can be accommodated through moving employees to new jobs within the network that will not require payment of moving expenses.

    Unfortunately, markets can and did change more rapidly than either historical attrition rates or the slower attrition rates caused by the sagging stock market and economy. Accelerating reductions in the workforce, including supervisors and management at all levels, requires either early retirement incentives or severance pay. With an average hourly wage ranging from $25.70 for bargaining unit employees to $42.10 for headquarters employees, these incentives or severance payments can be a significant challenge for a Postal Service with limited or no cash reserves and the need to reduce its workforce faster than what attrition will allow.

    Similarly, limited cash reserves restricts both planning for and funding capital projects that can improve the placement of postal facilities in an effort to both reduce costs and improve service. While no company managing an operating network would replace an operating network with a new green-field one, all well capitalized transportation companies know that a continuously improving network requires having sufficient capital to fund moving operations over time as demand, technology and distribution patterns shift.

Right now, the increasing visibility of deficit politics affects the viability of proposals designed to enable the Postal Service to survive the next two years. In requesting that the GAO complete its report on potential business models in April, the Senate appears to acknowledge that more needs to be done. Given the political calender, dealing with the misconceptions of the PAEA and the financial reality of funding the needed transformation that each alternative business model suggested by GAO would require could put the impact that proposed alternatives will have on the deficit right in the middle of the 2010 political debate. If that happens, developing a long-term solution that the Postal Service continues to meet the needs of its customers will be far more politically charged than any previous efforts at postal reform.

4 comments:

Anonymous said...

ONE COURSE OF ACTION IS TO DO NOTHING. BOTH THE CONGRESS AND THE USPS ARE GOOD AT DOING THAT. A QUICK SOLUTION IS TO GIVE THE USPS THE MONEY IT NEEDS(YOU GAVE IT TO GM) AND BRING IN OUTSIDERS TO REVAMP THE USPS FROM TOP TO BOTTOM ASAP. ALL KINDS OF SUGGESTIONS HAVE BEEN ASKED OF AND RECEIVED FROM THE EMPLOYEES TO GIVE YOU A STARTING POINT. IT IS A NO BRAINER TO REALIZE THAT RIGHT NOW THE DEMAND FOR 6 DAY DELIVERY IS NOT THERE AND I FORONE DON'T BELIEVE IT WILL RETURN. THERE WILL BE JOBS LOST IF THERE IS 5 DAY DELIVERY. UNFORTUNATELY PEOPLE IN HELL WANT ICE WATER TOO. SOMEONE HAS TO GET OFF THEIR DEAD BUTT AND MAKE THINGS CHANGE ASAP.

Anonymous said...

The only way to reduce the workforce, would be to offer any type of an incentive. Otherwise people (especially the older ones)are not going to leave! That is a fact. Why should they?

Anonymous said...

See, this is exactly what is wrong with Americans and why our country is in the shape it is, people are only looking at an object and only see the object; they do not look at what makes the object, an object. The primary purpose of the postal service is not to deliver your mail. Each one of those letters that runs through the sorting machines, gets read and thus, the government could find anyone they want without too much difficulty. Even if Joe is hiding out in a motel somewhere and has somebody send him something, there is a trail to find Joe. Oh, and look out for those pay cuts next year.

Anonymous said...

Sirs, My observation tells me that the USPS needs a twofold approach. First the short term, right size the workforce by providing an incentive for early retirement. General Motors paid $50,000 for every employee with taxpayer money, so should the government. Thsi will immediately tqake the pressure off the USPS and allow them to make better decisions. Second, a longer range, yet flexible plan that accounts for the short term effects of the recession, but allows for expanding business opportunities using the current network. Location is preeminent, and the USPS has useful presence everywhere which would be difficult to reacquire.ingst