Tuesday, April 13, 2010

Postal Policy: Now its Congress's Turn

Now that the Government Accountability Office report is out it is time for Congress to get down to the serious business of re-evaluating the current business model and regulatory framework.  Congress is starting this process with hearings in the House and Senate, this week and next. In preparing for these hearing, members on the relevant committees have a significant challenge preparing for the postal and other governmental witnesses.
Both hearings will focus on reports by the Postal Service, Government Accountability Office and the USPS Office of Inspector General.
In addition to representatives of the entities that produced these reports, members of Congress will hear from the Office of Personnel Management and the Postal Regulatory Commission who have an interest in many of the suggested changes in law that the reports discuss.

The three reports by the USPS Office of Inspector General cover technical actuarial and accounting issues over which there is a dispute between the Postal Service and the Office of Personnel Management as well as a critique of Congressional budgetary actions relating to the Postal Service. The CRS, GAO and the Postal Service have recognized the importance of the resolving the CSRS accounting and retiree health care funding issues in their reports. The critique of Congressional budgetary actions provides some context as to how Congress and the Office of Management and Budget has historically viewed their responsibility for the Postal Service and how the Postal Service’s cycles of strong and weak financial performance can be used as part of the solution of meeting budget goals.

The Postal Service’s report provides an action plan for operating its business within the current business enterprise business model. The modifications requested are changes from current financial, operating, employment, and marketing efforts that Postal Service management and the Board of Governors are sufficient to return the Postal Service to financial stability.The Postal Service’s report does not address the overarching mail industry policy, corporate governance and regulatory framework issues in any detail. Nor does the Postal Service report provide a vision for the Postal Service’s role in the US economy in 2020 that is much different than what now exists with the exception that its impact will be much smaller.

The GAO’s report, like the one produced by the Postal Service, provides strategies necessary to improve Postal Service operating, and to a lesser extent revenue management, and highlights Congressional action necessary to allow those improvements to occur. The GAO report goes beyond previous reports in its examination of the Postal Service’s cost structure and the legal impediments that prevent it from adjusting its costs to match current and projected revenue. The GAO report, like the Postal Service report does not address in detail the mail industry policy, corporate governance and regulatory framework issues that affect the Postal Service’s ability to implement operating, and marketing plans to best meet the needs of mailers and parcel shippers.Neither does the GAO report provide Congress with information that would help it understand the role that the mailing industry, and the Postal Service as the core of that industry could have in the US economy in 2020 and beyond.

The Congressional Research Service (CRS)report focuses on a “number of ideas for incremental reforms have been put forth that would improve the USPS’s financial condition in the short term so that it might continue as a self-funding government agency, all of which would require Congress to amend current postal law.” The ideas that the CRS reviews are those previously presented by the Postal Service and the USPS OIG and include many included in the GAO report as well. The CRS notes the objections of the Office of Personnel Management to the changes in retiree benefit obligation calculation or funding schedules. CRS’s description of the report’s focus nicely summarizes the overall tenor of all of the reports that Congress will review in upcoming hearings.

Before developing their approach to questioning the witnesses, members of Congress have to first understand what the reports that the witnesses are presenting to them are and what they are not. The reports that Congress has before it present:
  • Incremental reforms that proponents suggest would improve the Postal Service’s financial condition in the short term; and
  • Incremental reforms that retain the current model of the Postal Service as a self-funding government agency
What Congress does not have before it is a framework for understanding the broader policy context within which these incremental reforms fit. As CRS notes, the incremental reforms in the various reports do not answer the question: “Is the USPS, as currently constituted, incapable of responding to a shifting, and possibly declining, market for its products and services?” It is this question that raises the fundamental questions about postal industry policy, governance of the Postal Service, and the regulatory framework that makes sense for the postal industry. If the answer to this question is yes, then the incremental reforms make little sense unless they are steps in the direction required to create an entity capable of responding to a shifting and possibly declining market for its products and services.

The following set of questions represent examples of the types of questions that Congress needs to ask witnesses in order to develop the framework within which incremental reforms make sense.   While some of the government entities can answer these questions, many of them go beyond the scope of the studies that they have just completed or their role in developing postal industry policy.
It may be time for Congress to begin the process of framing these questions so that GAO, CRS, the USPS OIG, the USPS or entities in the executive branch responsible for economic development, communications and transportation policy answer them.  After they are answered, Congress will be able to move forward on the incremental steps that the various reports suggest with an understanding of the broader policy context within the individual steps fit.

General Postal Industry Policy
  1. What should the overall objective of postal industry policy over the next decade and beyond and where does the Postal Service fit into that objective?
  2. Is that objective different from the objective of either the Postal Reorganization Act or the Postal Accountability and Enhancement Act both written when digital competition was less pervasive?
  3. Is a self funding government enterprise, the best way to employ the postal market to generate economic growth and jobs in the United States or do other models provide greater opportunities to grow the US economy?
  4. What impact do restrictions on entry of private sector entry into mail delivery and the Postal Service into non-postal products have on economic growth and jobs in the United States?
  5. What benefits are generated by these restrictions and how do the benefits compare to the impact on economic growth and jobs?
  6. What impact do current postal pricing law and the Postal Regulatory Commission’s interpretation of that law have on U.S. economic growth and jobs?  How would different postal pricing law affect or regulatory policy affect economic growth and jobs?
  7. How does Postal Rate Commission regulatory responsibility affect economic growth and jobs and how does that compare to the benefits of regulation?

Postal Governance
  1. Is the USPS, as currently constituted, incapable of responding to a shifting, and possibly declining, market for its products and services?
  2. Is the USPS as currently constituted handicapped in responding to a shifting and possibly declining, market for its product and services?
  3. How does the current governance structure as a government sponsored enterprise affect the Postal Service’s ability to manage the types of changes that the GAO, the CRS and the Postal Service describe?
  4. How does the governance structure affect the speed at which the Postal Service reacts to changes in the postal market?
  5. Does the current Postal Service board have sufficient experience in managing similar enterprises?
  6. What would be required to ensure that it does?
  7. How does the choice of a governance model (i.e. private sector vs. government enterprise) affect the choice of regulatory policy for the industry?
Financial Objectives
  1. What is the financial measure that determines whether the Postal Service’s action plan or for that matter any action plan succeeds?
  2. Is that financial measure sufficient to ensure that the Postal Service is self sufficient?
  3. What is the financial measure that determines that a government enterprise is self-funding and is that the same measure that would determine if it is self sustaining?
  4. Does self sustaining require only accounting break even or does it require a positive operating margin and rate of return?
The Postal Market
  1. What is the fundamental role in the US Postal Service in the US communications and goods distribution infrastructure today?
  2. By 2020, what proportion of mail will contain advertising whether in the form of direct mail, inserts in bills and statements or periodicals? How much greater is that from today?
  3. How will the increased importance in revenue from advertising change the fundamental role of the Postal Service?
  4. What impact does digital delivery of transaction documents, advertising, and personal communications have on the value of the Postal Service monopoly?
  5. How should that impact be measured?
  6. How does the existence of digital alternatives affect the price competitiveness of mail?
  7. In particular, which industries using mail to distribute periodicals, send documents and correspondence, handle business transactions or advertise of customers are most sensitive to competition from electronic alternatives?
  8. How does the proposal to eliminate a day of delivery affect individual vertical mail markets (i.e. personal correspondence, weekly newspapers, real estate advertising, supermarket advertising, utility bills and payments, etc.)?
Employee Costs
  1. How do Postal Service wages and benefits compare with those offered by private sector firms in the postal industry such as FedEx, United Parcel Service, and Pitney Bowes?
  2. What was the difference in the retirement rate of early retirement offers using voluntary early retirement authority and the incentives granted last fall?
  3. How many months prior to normally planned retirement date do those that retire with an incentive retire and how much does that save the Postal Service?
  4. What is the difference in net present value cost of offering an early retirement incentive to an employee as compared to retaining an employee whose position is excessed and paying them a salary above what their new position normally calls for?
  5. How does attrition rate affect the decision to reduce network capacity?
Network Optimization
  1. (For the GAO) How long have you presented recommendations that the Postal Service take effort to reduce its operating network?
  2. What are the impediments in the Postal Service’s governance structure, labor agreements, cash flow, or culture that has prevented it from acting on network realignment faster?
  3. How do attrition rates affect the decision to restructure the network?
  4. How would the restructuring differ if the proportion of part-time employees increased?
  5. How would the speed of the processing network optimization change if retirement incentives were readily available to handle the reduction in the need for employees?
  6. What would be the upfront cost of using retirement incentives as part of a network restructuring?
  7. What should the overall objectives of a postal network / retail network realignment commission be set?
  8. Should a postal network / retail network realignment commission have the authority to make recommendations in regards to policy, governance, or regulatory impediments to the development of an efficient and effective network of processing and retail facilities?
Retail Access
  1. What should the metric be for determining retail access to the services the USPS offers?
  2. What proportion of users of retail customers of households and what proportion of users are non-households?
  3. How often do households on average use a retail postal outlet? Does it vary by age, geography, or rural area?
  4. What is the difference in access to retail services today in urban, suburban and rural parts of the United States?
  5. How does access to USPS retail services compare to access to retail services of UPS and FedEx in urban, suburban and rural parts of the United States?
  6. How have UPS and FedEx managed with primarily a contract/self-service model and are there differences in their retail customers that could affect the use of that model by the Postal Service?
  7. What is the experience in other countries with their satisfaction with postal retail services before and after a switch to self-service and contract models?
Pricing
  1. Is the issue of money losing products more an issue of cost levels or price levels?
  2. What impact would only solving the problem with raising price have on the volumes handled and the ability of the Postal Service to meet its policy objectives?
  3. GAO in its list of highlights for revenue generates suggests that the Postal Service revise pricing for market-dominant products, such as First-class Mail and Standard mail?
  4. What revisions does the GAO suggest the Postal Service make?
  5. How does current regulatory precedent and pricing objectives affect the ability to make the changes that GAO would suggest?
  6. How do pricing objectives in the law and PRC precedent affect the ability of the Postal Service to implement the pricing flexibility that GAO and others suggest?

1 comment:

Rob said...

The internet has changed the way in which we interact. Postal services are subject to change as the user demans more quality parcel and delivery services.