Congressman Ross Open to Tradeoffs in Postal Reform Bill

In a set of tweets relating to a tweet promoting the Post, "Congressman Ross Clarifies His Position on Retiree Obligations," Congressman Ross states that

RepDennisRossDennis Ross

@CEP_Observer It is not in there now, but there are many things that could change about the bill. Open to tradeoffs.

 

The full discussion in Twitter is as follows:

 

CEP_ObserverAlan Robinson

Did @RepDennisRoss change his position on #usps FERS overpayment? What else did he say about retiree payments? http://t.co/BWtXWlb

 

RepDennisRossDennis Ross

@

@CEP_Observer didn't change positions at all. even OPM says FERS is a diff story than CSRS. still, FERS "overpmt" is not in hand.

 

CEP_ObserverAlan Robinson

@

@RepDennisRoss Then why is a "FERS fix" not in your bill?

 

RepDennisRossDennis Ross

@CEP_Observer It is not in there now, but there are many things that could change about the bill. Open to tradeoffs.

Congressman Ross Clarifies His Position on Retiree Obligations

In response to a comment on his Facebook Page, Congressman Ross clarified his position on prefunding and overpayments of retiree liability.

Doc Piper's Comment

Rep. Ross, if you truely denied the overpayment of USPS to OPM, you are intentionally lying. OPM collects it into their budget with no reguard to the overpayment. If you are an honest Representative you will admit the money paid and demand it into a trust fund, so that no taxpayer will have to supplement the USPS. But you canot deny the payment made and then refuse its return. That's a plain lie.

Congressman Ross's Response

Post #1

FERS, perhaps, but not CSRS. The prefunding requirements is in line with the number of retirees and the per person benefit cost per retiree. $11,000 per person at 500,000 retirees. The USPS IG says there is an overpayment, but the OPM denies the overpayment. I do not believe there is an overpayment into CSRS, especially since retiree numbers will continue to rise as will the obligations. As OPM correctly points out, it is easy for USPS to not want to prefund or claim an overpayment - if they are wrong, or do no prefund, and can't meet retiree benefit obligations, it isn't USPS that will go under, it is a liability of the taxpayer.

Post #2

In the end, if you eliminate taxpayer liability (which means from this day forward, no retiree cost or benefit will be backed by the taxpayer - since all current retirees are under the taxpayer umbrella), and the USPS stops prefunding, then. everyone who works for USPS today better hope their unions were telling them the truth about the financial solvency of the USPS. Because the only way you will ever eliminate prefunding, within the current failed USPS business model, is if unions and management agree to end the federal backstop.

Congressman Ross's first comment, "FERS, perhaps, but not CSRS" suggests that he would concede that there is a FERS overfunding.   This is a different position than what is contained in the Issa/Ross postal reform bill.   The difference needs to be clarified by Congressman Ross and Congressman Issa.

Congressman Ross's support of the OPM-IG's conclusions in the first Post over the conclusion of the USPS-IG and the Postal Regulatory Commission confirms that he supports measuring the liability in a a way that minimizes any overpayment and maximizes what the Postal Service must pay to cover its retiree liabilities.  As noted in a previous post this is a position supporting the interests of the creditor over all other stakeholders.  (See A Creditor's Plan for the Postal Service.)

The final sentence in Post #2, Because the only way you will ever eliminate prefunding, within the current failed USPS business model, is if unions and management agree to end the federal backstop is accurate.  Given the budget challenges, the only way the Postal Service would be able to fund its retiree health benefits at the same level as United Parcel Service and other firms that offer the benefit would be if they were no longer guaranteed by the Federal Government.  

 However, it should be noted that future Federal budgets and legislated levels of compensation could eliminate retiree health care benefits.   So it is not clear how secure retiree health benefits will be for postal or government employees who are starting a government career now right after high school or college.   (The Issa/Ross bill illustrates that Congress has the power to adjust wages and benefits of postal and federal employees so that if benefits offered federal employees now are eliminated in the future, they can be eliminated for postal employees either through law or arbitration decisions.

Congressman Ross's Response to this Post

My original tweet (the link takes you right back to this Post):

CEP_ObserverAlan Robinson

Did @RepDennisRoss change his position on #usps FERS overpayment? What else did he say about retiree payments? http://t.co/BWtXWlb

Congressman Ross's response.

RepDennisRossDennis Ross

@CEP_Observer didn't change positions at all. even OPM says FERS is a diff story than CSRS. still, FERS "overpmt" is not in hand.

My respone to his.
CEP_ObserverAlan Robinson

@RepDennisRoss Then why is a "FERS fix" not in your bill?

Is Privatization Worse for Labor than the Issa/Ross bill?

Congressman Dennis Ross made the following comment in a discussion on his Facebook page suggesting the alternative to the Issa/Ross bill is privatization.  The quote in full:

I have sat down with NALC, Rural Carriers, APWU and many others. I have met with the PMG on countless occasions. What your union wont tell you is, the status quo, will lead to privatization of the USPS in less than 5 years and ...a nullification of every contract. The current path of the USPS is financially unsustainable and for the last time, it has NOTHING to do with prefunding. Those are the facts. 

Congressman Ross is correct that the current path is financially unsustainable.  It is unsustainable if retirement liabilities and payments are adjusted and it is even more unsustainable if they are not.   The problem is the Postal Service is a transportation company and has to have financial goals similar with other transportation companies to be a sustaining enterprise.   The Postal Service cannot meet a standard financial target without addressing the retiree payments and unless it can operate with a standard financial target it will never have the cash necessary to make investments needed to serve its existing and future customers.  

Also, Congressman Ross in his bill confirms that an adjustment is needed by adding debt to the Postal Service's balance sheet that is used to pay its retiree obligations.   Technically, what is happening is the Postal Service is borrowing money from the Treasury Department to pay the Office of Personnel Management which deposits the money in the Treasury Department.   Metaphorically , the Treasury Department is doing little other than shifting money from its left pocket to its right.   By increasing the Postal Service's debt, the Issa/Ross bill "reduces" the Postal Service's problems by changing a cash obligation into additional debt that may or may not be paid in full.

He is also wrong that privatization means nullification of every contract.   Labor contracts that the Postal Service now has will change regardless of whether it is privatized because changes in demand for services has been so great.   Nullification of Postal Service labor contracts will occur only if the Postal Service enters bankruptcy as a private corporation.   (This does not mean that contract provisions will change in negotiations but it does not mean they will be nullified outside of bankruptcy.)

Privatization offers two benefits for Postal Service employees that the Issa/Ross reform does not.   1) Privatization allows for the infusion of private capital as well as cash generation opportunities from the sale of assets that can make Postal Service employees more productive, allowing the Postal Service to pay its employees more than they would have otherwise.   2) Privatization creates the possibility that employees will receive a share in the company in return for changes in labor contracts and compensation levels.  Trading reductions in compensation and changes in workrules for an ownership stake is common when negotiating changes in labor agreements inside and outside of labor agreements.   The opportunity for employees to receive a share of the business in return for changes in contracts does not exist as long as the Postal Service remains a government entity.

A Creditor's Plan for The Postal Service

The Issa/Ross Postal Reform Bill presents a future for the Postal Service and stakeholders that serves the interests of two of the Postal Service's creditors: the Office of Personnel Management, to whom the Postal Service currently must make payments for retiree benefits and the Department of Labor, which administers workers compensation programs.   The bill forces changes in Postal Service operations, labor contracts, and rates all designed to ensure that those payments are made according to the schedules currently in law.

If the Issa/Ross Postal Reform Bill is signed into law, the Office of Personnel Management and the Department of Labor face minimal risk that the Postal Service will not pay them.  For the Office of Personnel Management and the Department of Labor this is a good bill, as they will likely get 100% of what the law now states they are owned regardless of what happens to the Postal Service and postal market once the obligations to them are paid.

The Issa/Ross Postal Reform bill does not leave the Federal government as a creditor off the hook.   By expanding the Postal Service's borrowing authority by $10 billion, the bill increases the risk facing the Department of the Treasury.  Given the losses and cash needs of the Postal Service, by 2020,  the Department of the Treasury will then hold $25 billion in Postal Service debt with no clear indication as to whether demand for Postal Service's products will give it the revenue needed to pay off that debt.

By increasing the debt held by the Department of the Treasury, the Issa/Ross Postal Reform bill creates a conflict between two of the largest creditors (i.e. the Office of Personnel Management and the Department of Labor) and other large creditor, the Department of the Treasury.    This bill should force the Department of Treasury to become more involved in postal reform policy as repayment of Postal Service debt requires either a business plan that creates a financially viable Postal Service or a plan to liquidate assets as the delivery and other services of the Postal Service are wound down over time.

By focusing on meeting the needs of two of the creditors, the Issa/Ross downplays the federal government's ownership role  as it relates to the Postal Service.  By ignoring the ownership role, the bill has little interest in maintaining the value of the enterprise so that it can thrive as either a government entity or private corporation.   

Finally, the Issa/Ross develops postal policy that takes the Postal Service in a different direction than nearly every other government has taken then national postal operator.   In most of the world, the national postal operators have been put on a path involving corporatization and eventually privatization.  In these countries, the goal is to ensure that there is a postal operator that can operate as a viable business that can attract private debt and possibly equity investors as the best way to develop the digital and physical communications delivery infrastructure as well as a parcel delivery infrastructure necessary for the growth of on-line and mobile retail sales.

Instead, the Issa/Ross bill takes the Postal Service in the opposite direction.   Over time the Postal Service will increasingly look more like any other United States government entity and less like the businesses that handle other parts of the print and parcel delivery supply chains or the enterprises that run the national posts outside of the United States.  



   

Representative Ross Indicates that Issa/Ross Bill will have no Change in Retiree Payments

In a tweet, Representative Dennis Ross hinted that the bill that Representative Darrell Issa and he will introduce tomorrow will not contain any change to the payment schedules for retiree obligations that are now contained in all other postal reform bills.

RepDennisRossDennis Ross

#USPS, this is why you prefund retiree benefits. http://t.co/wm1cnvI | "no one else does..." and this is where they are now.

If there are no changes in the payment schedules to reflect overpayment of either FERS or retiree healthcare benefits then the Issa/Ross bill will need to find quick reductions in Postal Service costs elsewhere.   There are few options but all will likely affect both compensation to postal employees and service to postal customers.

Representative Issa and Ross have given some hint to these changes in the hearings that they have held and in particular the titles of the hearings.  These hints have indicated that the bill likely include the following:

• Expedited reduction in service from 6-days per week to 5-days per week;
• Expedited public review process for the consolidation or closure of processing facilities;
• Expedited public review process for the closure of post offices and changes in the law to allow closure of post offices solely for operating at a deficit;
• Reductions in Postal Service compensation at least as great as proposed by Senator John McCain in amendments 251 and 252 to Senate Bill 493, the Small Business Reauthorization Bill.  Cuts will occur in:
• Executive pay
• Postal Service share of health care and life insurance benefits
• Reduction in retiree benefits for postal employees including the possible elimination of Postal contributions to FERS and the benefit that these contributions provide.  (A similar proposal was made for all government employees in the Senate.)
• Postal Service's ability to manage labor costs either through the labor negotiation process or in defining positions of employees currently represented by employee associations.

While these provisions will save the Postal Service money, it is unlikely that they will reduce Postal Service costs sufficiently and sufficiently quick to eliminatethe Postal Service's deficits and allow it to continue to make the retiree healthcare payments.   To do that, Representatives Ross and Issa may need to include a provision in their bill to institute a reduction in force (RIF) of around 10% of Postal Service employees to reduce payroll quickly to match income and possibly a provisions to reduce Postal salaries and/or benefits beyond those proposed by Senator McCain and others and that these cuts would include cuts in compensation to both employees that are and are not covered by labor agreements.    

A reduction of 10% of the Postal Service Workforce reflects the workforce cuts that Representative Issa, Ross and Chafitz introduced in HR 2114.   While that bill would reduce the the Federal workforce over 3-4 years, to get the cost savings required, the Postal Service would need to reduce its workforce almost immediately by 10% to get the cost savings needed to reduce costs to break-even levels.  It is unclear how far or how quickly cuts in salaries or benefits could be implemented to employees who are and are not covered by labor agreements.

Why the April 5th Hearing is Important

The quotes from Congressmen Darrell Issa and Dennis Ross that have been quoted in the press have all come from  a press release of  the House Oversight and Government Reform Committee.    Most articles ignored the following quote "This hearing will establish an important baseline for Congress' upcoming work on the Postal Service's structure, fiscal health and self-governance," from Congressman Darrell Issa that better than anything so far lays out the issues that the committee will look at in regards to the Postal Service.  These are:

• Postal Service's structure - this most likely focuses on the management structure as well as questions regarding the network of processing plants and retail outlets, the use of contractors, work sharing, civil service employment law and how it applies to the Postal Service, and labor relations issues including the current collective bargaining process
• Postal Service's fiscal health - the focus here is clearly the prospects of the Postal Service being financially self-sufficient.   This will likely include the question, "Can the Postal Service be self-sufficient and pay the retiree benefit liability obligations currently required by law?"
• Postal Service Self Governance - the focus here is the Postal Service's business model.   Here the committee will likely focus on the Board of Governors and senior management looking to see if the current structure gives the proper incentives to ensure financial self-sufficiency.   The focus on the business model will need to include returning to a government department model as well as corporatization and privatization models employed outside of the United States. 

The hearing on April 5th will be a full committee hearing.  As a full committee meeting, the review of the APWU contract will get broader coverage on the 24 hour news channels, other print and broadcast media, on talk-radio and the blogosphere.   This could raise the Postal Service up a notch or two on the national policy debate.   How that affects the ability of Congress to find a solution that solves the Postal Service's problems is anyone's guess.

Why Didn't APWU Compensation Go Down?

Government Executive and Federal Times both reported today that the House Oversight and Government Reform Committee will be holding a hearing on April 5 on Postal Service pay.   It is clear from quotes attributed to Congressmen Darrell Issa and Dennis Ross that the Postal Service's witness is going to have a very unpleasant time. 

The Postal Service should expect a grilling from members of both parties in Congress.   Congress is the representative of the shareholder and the two largest creditors facing the prospect that their bills for over $5.5 billion will not be paid next fall and similar bills in future years may not be paid.  If the Postal Service takes actions that do not reduce the non-payment risk of those payments due next fall and ones due in future years than Congress is within its right to raise questions as to whether the current Board of Governors needs to be replaced and could even put the new Postmaster General and his management team at risk of replacement.  
The grilling that the Postal Service faces will likely ask one question repeatedly.  Why was the Postal Service willing to sign any contract that did not freeze or reduce the compensation of current APWU members if APWU members enjoy a significant wage premium?  

This will be the central question because testimony was presented by Michael Wachter in 2003 to the President's Commission that stated Postal Service employees enjoyed a 34.2% wage premium has been quoted by Representative Dennis Ross as the basis for his concern that the Postal Service was not tough enough in negotiating the APWU contract.  Dissapointment with the agreement was also expressed by Congressman Darrel Issa who stated "The union contract renewals are the best chance to find new savings. Unfortunately, this looks like a missed opportunity. The Postal Service must show Congress and the American people that it can pay its own way, because the numbers do not seem to add up."


These comments reflect real concern because it is not clear if the Postal Service will have the money to pay the wage increases to current employees in 2012 through the end of the contract.   However, it is not clear that going to arbitration would have produced a more favorable settlement for the Postal Service, even if it presented new testimony of Dr. Michael Wachter that continued to show a wage premium of a similar magnitude.  Having looked at the challenges of unionized firms facing the need to reduce compensation expenses in order to remain competitive found few firms that were able to do this outside of bankruptcy regardless of whether negotiations were conducted under the Railway Labor Act or the National Labor Relations Act.   Even firms without unions find it difficult to impose significant pay cuts on current employees, although it was not uncommon during the last recession for non-union firms to both increase the share of health care premiums paid by employees and eliminate the match to 401-K plans.   Many of these companies have restored these benefits as the recession ended. 
 
The House committee has two options in looking at the compensation question.  The easy way is to bash Postal Service management and grab headlines by focusing only on the wage premium issue.  A more constructive alternative would look at what would be required to bring compensation closer in line to market values.   To do that they need to look at the following questions:

1. Update the Wachter study and include analyses that look at alternative alternative approaches to this question.  
2. Update the Wachter study using the compensation of APWU members under various scenarios under which increasing proportions of APWU members are employed under the new compensation schedules, employee classifications and work rules.
3. Examine the impact of the contract provisions that increase flexibility that allow the Postal Service to eliminate the cost of contracted services for work that an APWU member could do for 2 to 4 hours within a longer shift.  
4. Similarly, what is the difference in cost between using an APWU member and the non-union employee that the Postal Service is planning to displace?
5. Examine the options the Postal Service has to convince existing APWU members to retire.   A large share if not the majority of APWU members are at the highest pay step for the type of work that they do.   Replacing these employees that are earning the highest availalble salary with those who are new would significantly cut costs.   
   
   In particular, the committee needs to ask two questions here.  First, what proportion of APWU members, other postal unions, and management employees are eligible to retire now?  Second, what is the increase in the retirement rate if a VERA is introduced and for retirement incentives ranging between 5,000 and a half year's salary?  The answer to these questions would help illustrate the type of incentive necessary to increase the attrition rate to a level high enough to significantly cut compensation.
6. Examine the arbitration process in order to determine the probability whether the Postal Service would have been generated a better result than what the Postal Service agreed to using either current law or changes suggested by Senator Susan Collins.  This examination should also determine whether alternative approaches allowed by the National Labor Relations Act or Railway Act could have produced a result that would have had frozen or reduced the compensation of APWU employees without the threat of barnkrutcy or liquidataion.

If the committee concludes after asking these questions that the APWU contract and similar negotiated contracts with other unions as well as contracts that arbitration would produce would still be unaffordable, then it must determine if the more drastic option only available to firms in bankruptcy should be pursued.   That would allow the Postal Service to break existing labor agreements and impose lower cost compensation schedules.  In doing so, the committee has to ask how much this option would disrupt the mail delivery system and the probability that the Postal Service will have a business that can generate the cash over the next thirty years to cover its payments on retirement liabilities.

Tweets from Congressman Dennis Ross and Possible Implications for Postal Unions

In the last few days, Representative Dennis Ross has made a number of tweets regarding the conflict between the Governor and the teachers unions in Wisconsin.   While none of the tweets mention postal issues, they may provide a hint to stakeholders and policymakers  regarding the tone on labor issues that the House will take when discussing changes required to return the Postal Service to solvency.   

RepDennisRoss Dennis Ross

Hypocrisy & big labor are synonymous. RT @Reaganista: RT @JebBush: Must see video. Stay strong @GovWalker. http://bit.ly/dPHMH5 #wiunion

RepDennisRoss Dennis Ross

Working on that. RT @michellemalkin: Unions get waivers from Obamacare. Why can't workers get waivers from forced unionism? #wiunion

RepDennisRoss Dennis Ross

@crbones private sector unions were needed in the 20s and 30s. They are even helpful in some ways today. Public sector unions must go.

RepDennisRoss Dennis Ross

I wonder how many of the 10% unemployed in America would like a job as a teacher in Wisconsin? Time for an air traffic controller solution.

Representative Ross's tweets suggest that postal labor may find that the best they may expect from postal reform legislation could be the changes in the criteria arbitrators must use that are contained in bills proposed by Senators Tom Carper and Susan Collins.