The Washington Post Does Not Understand the Postal Service

Once again the Washington Post's editorial board illustrated their ignorance on Postal issues. In an editorial focusing on labor issues, the editorial board illustrated an understanding about labor negotiations that is particularly peculiar given the newspaper industry's history in reducing labor costs as it faced the threat of e-competition.  The editorial board reinforced the impression that it does not know what it is talking about by confusing retirement with health benefits.

By stating that the contract with the APWU is inadequate, they assume that a better contract could have been negotiated or obtained through binding arbitration. The truth is changes in wages in benefits that the Washington Post believes are needed only are implemented when the company negotiating new labor agreements faces the threat of liquidation from creditors or shut down by owners outside of bankruptcy. The only way that would have occurred with the Postal Service would be if Congress demanded that the Postal Service liquidate its business to pay off its retiree health care and workers compensation obligations unless the Postal Service and its unions agree to reductions in wages and benefits.  The Post editorial board should know that because only through the threat of liquidation and bankruptcy have newspapers been able to cut the wages and benefits and changed the work rules in the contracts of its employees.


Given that the Postal Service is the core part of the mailing industry that generates over 8.4 billion million jobs and $1.1 trillion in sales. Most of these jobs exist because businesses, including the Washington Post Corporation advertise their products and services through the mail or deliver parcels to consumers through the USPS or a private sector competitor in conjunction with the Postal Service. Shutting the Postal Service down on September 30, 2011 to force further reductions in labor wages and benefits would wreak havoc on next fall's retail sales.   Currently 20% of all retail sales that can be delivered are now being delivered and that share will likely to be higher by next fall as on-line sales are growing at double digit rates while sales of these items regardless of sales method are growing at low single digit rates.

The contract that the Postal Service signed goes far to eliminate the fixed 40-hour schedules that drive up costs and increase the possibility that employees will be on the clock with no work needed.   This change is the equivalent to the elimination of the work rule changes that took the railroad industry nearly a decade to negotiate that eliminated the 110 mile rule, eliminated jobs for firemen in diesel locomotives that no longer required a fireman, and eliminated the caboose.  Discounting this change, ignores what is probably the biggest cost impediment preventing the Postal Service from cutting the costs of sorting mail and parcels.

The contract puts wage rates and benefit levels for new hires at competitive levels that reflect the poor financial health of the USPS. These new hires will not only start at a lower wage rate but it will take them longer to reach the top salary and that top salary will be lower than the top wages for current employees. The new contract also allows the Postal Service to have up to 20% of its clerks and mailhandlers filling non-permanent positions with health care benefits below that of the non-Postal Federal employee.   Once the contract is signed, a significant portion of clerks will be in this position and over time the Postal Service should reach the 20% level.

The health care premium issue (that the Post wrongly describes as a pension issue) is a bit more complicated than what the Post noted.   While full time APWU members will pay a smaller share of the total health care premium than other Federal workers, the levels negotiated are not out of line with benefits offered at FedEx or UPS.  Furthermore, once you add it the health insurance costs of the 20% of APWU members that will not have permanent positions,  the average cost for health benefits per hour paid at the Postal Service should be equal or less than the cost per hour for all other Federal employees.

The Postal Service could get even more savings from the APWU contract by using a tactic that the Washington Post has used repeatedly to cut its own costs, early retirement incentives.   If the Postal Service had the cash to offer early retirement incentives to its older APWU and other union employees, just as it has offered management employees that it could increase the rate of attrition so that it could lower the average wage rate of its employees by taking advantage of the provisions in the new contract that allow for non-permanent employees and a lower wage scale for new employees.

The lack of cash is where legislation proposed by Representative Stephen Lynch, Senator Tom Carper and  Senator Susan Collins fits.   By providing needed operating cash now, these bills give the Postal Service the cash necessary to offer the retirement incentives and make the capital investments necessary to shrink its processing network and modernize its retail network.   In criticizing Representative Lynch's bill, the Post Editorial Board appears to prefer liquidating the enterprise rather than giving it the cash necessary to fund the transition to the modernized retail infrastructure and streamlined network that will be required for the 150 billion pieces of mail and parcels that will be delivered in 2020.

This Post's position makes sense only if the liquidation value of the Postal Service equals its retiree and workers compensation liabilities.  This is unlikely to be the case so the Post's position would force the federal government to take losses after liquidation.  

Representative Lynch's bill as well as similar provisions in bills introduced by Senators Carper and Collins make sense if they are part of comprehensive financial rescue plan that includes real financial targets needed to ensure self-sufficiency and a capital and transition investment plan that includes significant retirement incentives and investments in a lower cost network, modern information systems, and a modern retail network.  Then the Postal Service like other corporatized postal entities should generate the profits from both its competitive and monopoly products necessary to operate as a self-sufficient entity and pay dividends on its profits.

Are 30,000 Enough?

Over the past several days, there has been some debate about what the 30,000 reduction in Postal Service employees really mean.   Both postalnews.com and the Washington Post have reported that 30,000 represents a combination of regular attrition and the reduction in 7,500 management positions that will be announced on March 25.

So how much will the reduction of 30,000 employees save the Postal Service?   The Postal Service's average monthly compensation cost is $6339.27 per employee.   (This works out to a salary of around $54,000 per year or $4,500 per month with the rest being the cost of employee benefits and employment taxes.)   If one assumes that retiring employees earn 15% above average then the savings per month per retiring employee is $7,290.16 per month.   Attrition then reduces the Postal Service's compensation by around $6.736 billion this year.

The March 25th announcement will just start the process of eliminating positions, so it is likely that the Postal Service will not see the full impact of the announcement until the end of June.   So the cuts in positions will cut the payroll for only three months this fiscal year.  The savings, using the same assumptions will be $306 million.

Combined the total savings is $7.042 billion.  However, even with this reduction in compensation the best the Postal Service can do is cover its operating expenses.    These cuts generate an insufficient profits and cash to cover the Postal Service's capital needs and other investments necessary to maintain universal service and transition to a leaner more efficient operation, let alone pay one dollar of the disputed retiree payments.

So let's ask a hypothetical question.   What is the total number of employees that the Postal Service can employ and still be a self-sufficient enterprise?   This question needs to be asked both with and without the retiree payments and with both current compensation levels and reduced compensation levels that would come through retirement incentives and the introduction of a two tiered wage structure. 

Assumptions

• The Postal Service does not pay any of the disputed retiree obligations.
• The average monthly compensation is $6339.27 (including all benefits and employment taxes)
• The Postal Service's revenue in 2011 will be near the plan level of $67.1 billion.
• The Postal Service needs an operating margin of 12% to be self-sufficient.
• Total costs need to be $59.1 billion.
• Cost reduction required above current plan $8 billion.
• 90% of the savings come from reduction in employees.

Result

If one assumes that salaries remain at current levels, the Postal Service must reduce its workforce by 94,648 employees to be self-sufficient.  That is close to 1/6 of the current workforce.  The number would be lower if the Postal Service is able to negotiate a two-tiered wage agreement with its unions but will still be a shockingly large number.

This little exercise should give stakeholders pause as it is clear that many things have to be put on the table to cut costs that Congress and other stakeholders are resistant to change.   These include:

1. Cut an additional 20 to 40 district offices and 1 to 2 Area offices - Cuts in management will like need to be at least twice what is announce on March 25.  The Postal Service cannot be too agressive in cutting out a layer of management.
2. Acceleration of plant consolidation - Members of Congress may object to the consolidations but they will proceed regardless of their efforts.   Future consolidations after those that will occur this year and next will likely start to require capital expenditures and the cash to finance them.
3. Modernization of the retail infrastructure - Mail services need to be accessible but the current method may be unaffordable.   A new model needs to be put into place quickly.
4. Restructuring of rural mail services - The Postal Service needs to look at the Australian model for providing service in the most rural parts of the United States.   It would require looking at rural service as a profit center that includes revenue and costs associated with retail and delivery and a major expansion of services that they are legally allowed to offer in a rural retail facility.   It may require doing what Australia Post has done and franchising to a local company to provide both the retail and delivery function.
5. Changes in civil service employment law -  Senator Susan Collins has already introduced legislation to change rules for workers compensation but more changes are needed in employment law as it affects the Postal Service.   If the Postal Service is going to implement the major operating changes required to reduce the number of employees to levels that the business can support, it needs streamlined rules to implement reductions in force and early retirement incentives. Current rules were not designed to handle the rapid reductions in employment counts that the Postal Service will need to be self-sufficient.  Without these changes, reducing the number of employees through any method other than attrition remains a difficult and expensive option to implement.
6. Five-day delivery - A switch to 5-day delivery is unlikely in the next few years.  However, unless the Postal Service can find a way to reduce its costs in other ways five-day delivery will likely need to be introduced by 2020 even if savings are well less than one billion dollars.
7. Rate increases - Rate increases above CPI have to be the last option but rate increases are probable even if the previous six changes are implemented.   In particular, single-piece First Class mail rates need to rise to cover the costs of reducing the number of employees to reflect the rapid decline in these employees and the future liabilities for their retiree expenses.  Rates for the Postal Service's largest mailers will also likely rise with some loss in volume

As the last oversight hearing showed, the Federal government is a creditor that holds a note (legislated retiree health-care obligation payments) that the Postal Service has stated it will not pay.   In the private sector, creditors faced with situation would be forced to put the enterprise that will default on its obligations into bankruptcy to see how it can be repaid either through liquidation or restructuring.   As the equivalent of the creditor committee, Congress needs to quickly figure out if there is a plan that can put the Postal Service on the road to self-sufficiency that would allow it to pay some or all of the retiree-obligations that are currently baked into the Federal budget.

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.

What do House Republicans Think About Budget Changes Relating to the Postal Service?

Now that the President's 2012 budget is out, both Senator Tom Carper and Senator Susan Collins have already commented on the proposal to provide some modifications to the Postal Service's retirement obligations.   To date, members of the house who are leading the subcommittee responsible for marking up legislation that would enact the changes that the President proposed have made any public statement about their views on the proposed statements.

As both Representatives Dennis Ross (R-FL) and Justin Amash (R-MI) are freshmen,  they have no history with Postal issues and are more than likely coming to the issue with not much more background in the postal market than the average consumer.  Given their lack of experience with the issue, it is not surprising that they did not immediately respond to the budget as the Senators Carper and Collins did.

What we have to go on is their public statements so here is a review of quotes from articles and press releases that may provide some guidance.

Congressman Dennis Ross

Ed O'Keefe of the Washington Post interviewed Congressman Ross after he was appointed chairman of the Government Reform Committee's subcommittee on federal workers, the Postal Service and labor policy.  In that interview he honestly expressed that the issues before the subcommittee were new to him although he had proposed similar changes in the federal payroll during his campaign.

Ross noted that he proposed trimming the federal payroll through pay freezes or attrition during his campaign. His new role, he said, presents "an exciting opportunity to open up and look inside the workings of our federal workforce" and learn more on a topic about which he admits he knows little.

Later the article gave an impression as to how he plans to run the subcommittee

Ross's subcommittee will focus first on those proposals by gathering facts and not pushing "a hidden agenda," he said. "We want to ask a lot of questions, we want to get a lot of experts testifying before us, and we want to find out what it's going to take" to deliver benefits to active and retired federal employees in a cost-effective manner, Ross said.

Congressman Justin Amash

Congressman Amash has a bit more of a public record that is available from his press releases. In a jhttp://amash.house.gov/press-release/amash-selected-oversight-leadership following his appointment as Vice Chairman of Government Reform Committee's subcommittee on federal workers, the Postal Service and labor policy, he presented an initial position on postal issues:

"USPS has raised its rates in the last several years and now is threatening steep service cuts. I look forward to examining closely whether some of USPS's functions could be done more efficiently through competition and the private sector."

In a press release announcing his appointment to the Congress's Joint Economic Committee, Representative Amash stated, 

"I look forward to studying how the government’s expansion has inhibited our economic growth and how we can be champions of job creators.”

Finally, in a press release following the publication of the President's budget, Congressman Amash provides the following quote:

“Instead of fresh ideas and a bipartisan way forward, the proposed budget feeds Washington’s addiction to more taxes, more spending, and more debt.  The White House’s own projections show a ‘new normal’ of debt that we have not seen since we were fighting World War II."

“Americans expect more from their representatives, as well they should.  With four years in a row of trillion dollar deficits, the public demands that we be more than caretakers of a bloated federal bureaucracy.  They deserve more than token cuts.  They deserve a responsible government.

“I look forward to working with House leadership and my colleagues on both sides of the aisle to remove the debt burden from our children and future generations.”  

In sum,  these statements suggest that the Republicans leading the Government Reform Committee's subcommittee on federal workers, the Postal Service and labor policy are faced with looking at a signifiant change in postal law with a limited understanding of:

• the postal market, 
• the roll that the Postal Service plays in the economy and 
• the challenges of turning around an enterprise as large as the Postal Service in a manner that does not disrupt the success of businesses, governments, and non-profit entities, including the campaigns they will likely run in another year that depend on the existence of a nationwide postal network. 

In all likelihood, both Congressman Ross and Amash will soon realize that gaining that understanding will take more effort than either of them envisioned when they were first appointed. 

When is $600,000 more than $6,200,000?

When the $600,000 involves sex and "waste, fraud, and abuse" of Postal Service funds.

The $600,000 is the amount of money that the USPS - Inspector General has indicated that the Postal Service could save over the next two years if it improved training on travel expenses were introduced.   Overspending on travel and abuse of corporate credit cards is nothing new in either the private sector or public sector.   Reports similar to the one issued by the Inspector General probably have been written since at least the times of the Roman Legion.  Given that Postal Service currently spends $97 million on travel expenses annually, the impact of the Inspector General's findings suggest that better training on travel rules would reduce travel expenses by 0.32%.     Discovering that travel rules are complied with 99.68% of the time would suggest that employees are not doing all that bad of a job complying with travel spending rules and appropriate use of corporate credit cards.

The $600,000 in savings identified has received lead stories in nearly every paper covering the Postal Service and comments from both Senator Susan Collins and Senator Tom Carper.   It has generated some truly salacious headlines:

Washington Post:
Report: Postal workers expensed private travel and 'adult entertainment'

Business Insider:
Postal Workers Buy Porn, Plane Tickets While USPS Drowns In Debt

The $6.2 million is the cost of the fines that OSHA has imposed on the Postal Service.  Stories of individual fines as well as the fact that OSHA is now seeking enterprise relief has received coverage only by local newspapers and publications that cover OSHA actions.    These fines have received scant attention by either the national, Federal Government or postal press.   These fines have not generated statements from any member of Congress who are looking at changes in postal legislation.

Even though spending $6.2 million in OSHA fines is ten times more waste than the abuse of travel rules, the attention that policymakers place on it suggests that they believe that  the $6.2 million in OSHA fines are less than the $600,000 that would be saved by the Postal Service if no employee abused travel rules and corporate credit cards.  

The real reason for the failure of policymakers in elementary school arithmetic is that the travel abuse issue has an obvious fix and the OSHA fine problem only suggests that there is a more serious underlying problem that needs investigation.   Doing that investigation is critical particularly as it would likely identify significant capital spending, training, and non-capital equipment and supply needs that fall outside the financial capabilities of the Postal Service with or without relief from all of its retirement benefit accounting issues.   Until this and other similar investigations are completed, a significant portion of Congress will believe that all that is needed is to remove "waste, fraud and abuse" making fixing the retirement benefit accounting issues much more difficult.