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?

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 Mail Matters: Macy's

Macy's today announced its First Quarter 2011 earnings this morning and provided another clear indication that the courier, express and postal industry provide the an increasingly important role by delivering web based sales to consumer's homes. 

The description of Macy's sales in the press release provides an indication as to how important web-sold and home-delivered sales are to Macy's

Sales in the first quarter of 2011 totaled $5.889 billion, an increase of 5.7 percent, compared with sales of $5.574 billion in the same period last year. On a same-store basis, Macy’s, Inc.’s first quarter sales were up 5.4 percent. Online sales (macys.com and bloomingdale's.com combined) were up 38.3 percent in the first quarter. Online sales positively affected the company’s same-store sales by 1.3 percentage points in the first quarter. Online sales are included in the same-store sales calculation for Macy's, Inc.

A back of the envelope calculation provides a rough idea what this growth means to FedEx, UPS and the Postal Service.   

• For on-line sales to have such a large impact on Macy's total same store sales, home web-based and home-delivered sales has grown from 14.5% to 18.4% of Macy's retail revenue.  
• If one assumes that an average shipment has a $200 invoice amount, Macy's first quarter home deliveries grew from just under 4 million in 2010 to 5.4 million.    
• If Macy spends on average $7 per shipment, then it spent nearly $40 million on parcel delivery and express charges in the quarter.

Macy's illustrates how the business of FedEx, UPS and the Postal Service is changing.   Increasingly parcels that would have been delivered directly to stores are shipped less frequently or in fewer boxes.  

Instead, shipments need to be sent from warehouses to homes.   All three carriers are working to adapt to this change.  

One of the results is the growth of the Postal Service's Parcel Select and Parcel Select Return services as these services fit the needs of Macy's for inexpensive and reliable home delivery.   The challenge for the Postal Service is to try to figure out how it can improve its ability to integrate the last mile with the first miles of other carriers to reduce the time from order-to-delivery and make the customer's delivery experience as good as the products Macy's sells.

Hiccups in Consolidation

Recently, the USPS-OIG issued a report on the consolidation of Lima Ohio processing into the Dayton Ohio plant.  The USPS-OIG conducted the investigation at the request of Congressman Jim Jordan (R-OH).   The audit showed that the transition did no go smoothly

The result of the audit resulted in critical comments from Congressman Jordan but he did not call for processing to return to Lima Ohio.   In fact, his comments, and a careful reading of the USPS-OIG report clearly indicates that the problems in delayed mail that has occurred between December 2010 and March 20111 are solvable through better management of labor and capital assets and hiring additional staff in Toledo, Ohio.  

The problems that occurred in Toledo reminded me of a similar USPS-OIG report in 2009 reporting on delayed mail in the Philadelphia Customer Service District following the movement of the main processing facility in the district to a new facility.   Philadelphia then was on the top of mailers complaints about service as time sensitive periodicals, advertising and transaction mail was facing delays that did not exist when the old facility was working.    However,  March 2011 audit of the the Philadelphia plant conducted by the USPS-OIG between November 2010 and February 2010, showed that most of the problems that existed shortly after the new plant opened have been resolved and productivity at the new plant was significantly higher than what existed previously.   Management felt that the problems that remained with color coding of mail and delayed small parcels could be resolved within two months of the report's publication.

Both Philadelphia and Toledo provide illustrations that moving operations involves good planning, strong communications with employees, and flexibility during the first few months of transition to ensure that service problems are solved quickly.  The Postal Service reviews of consolidations in Manasota, Lakeland, and South Florida, and Daytona Beach FL, and Watertown, and Binghamton, NY show that consolidations can produce EXFC scores equal to or above that what existed when two facilities operated within a quarter or two of consolidation.    Once the initial problems identified in Toledo are solved, Congressman Jordan and his constituants can expect results similar to what has happened in Florida and New York.   When that occurs,  Lima Ohio will have the mail serivce that the residents and businesses they expect.

One of the problems in Northwestern Ohio requires an additional comment.  This consolidation illustrates the challenge of staffing the receiving facility when consolidations involve facilities that are more than 40 miles apart.   Toledo and Lima Ohio are 78.8 miles apart according to Google Maps.   So it is not surprising that only 31 of the 41 craft employees made the transfer.   The others retired, were on leave that the Toledo facility did not know about or found jobs elsewhere in the Postal Service.   To solve the problem, the Postal Service and the local union signed an agreement that allowed for an increase in the number of casual employees and 8 employees were brought in who formerly worked in Detroit. (60.5 miles away) 

The new contract with the APWU gives Postal Service management significantly more flexibility to dealing with short term staffing problems like what occured in Toledo.   The new Postal Support Employees classification provide the Postal Service with an ability to hire staff quickly when forecasting errors that underestimate expected volumes or changes in the number of expected transfers of existing employees reduces the numnber of existing Postal Service employees that the facility now handling mail processing has available to work.

The addition of individuals from Detroit in Toledo, also suggests that plants going through consolidations that are more than 50 miles from the originating plant need to have access to a broader list of potential employees than just those from the facility losing mail processing to ensure full staffing.   If the Postal Service does not have a system in place already one needs to be developed as plants going through consolidation could be helped by having information on employees that are available.   In addition, the Postal Service might want to follow a practice used in other industries going through major operational changes and create a list of experienced postal clerks and mailhandlers who would be willing to accept a one or two month assignment in a new facility during a transition period in order to ensure that sufficient fully-trained staff is available.   This may require some additional travel expenses but creates opportunities for senior clerks and mailhandlers to gain experience in the transition process that could prove valuable to local managers needed extra hands to fill in where needed.

Senator McCain's Healthcare Premium Amendment Explained

In offering Amendment 251 ot S. 493, the bill reauthorizing a number of Small Business Administration programs, Senator McCain proposes to reduce the Postal Service's share of the the health insurance premium from  81%  to 72%  and reduce the Postal Service's share of the life insurance premium from 100% to 33%.   According to the Government Accountability Office this would have saved the Postal Service $619 million in FY 2009.   Given increases in health insurance premiums, this is likely significantly higher today.


This amemdment has different effects for the Postal Service's unionized and non-union employees.    The Postal Service could implement this provision nearly immediately for its non-union employees.  For unionized employees, it takes benefits off of the negotiating table.  It would likely require the Postal Service to amend the language in the recently negotiated APWU contract to comply with the provisions in this amendment.   For the Postal Service's other three unions, the amendment changes the dynamics of contract negotiations as it would force a reduction in total compensation before negotiations begin.

The legislative language is not clear in two respects.

• First, it is unclear whether the certification that needs to be filed before fiscal year 2012 requires that the Potsal Service paid no more than 72% of the health care premiums and 33% of the life insurance premiums in all of fiscal year 2011 or whether those percentages must apply for all pay periods beginning in fiscal year 2012.  If the former applies, Postal Service could see a significant cut in take home pay for the rest of the fiscal year to bring their share of premiums up to the level that Senator McCain is proposing.  
• Second, it is not clear if the Federal Govrnment can pay the Postal Service for the postage that it would want to use in fiscal year 2012.   This could end all mail generated by the government, as the Postal Service would be unlikely to accept mail from the Federal Government without postage applied.  Members of Congress could use campaign or political party accounts to pay for newsletters and letters to constituants.  

Legislative Language

(a) IN GENERAL.--If the Postmaster General does not submit a certification described under subsection (b) to Congress before fiscal year 2012 and each fiscal year thereafter--

(1) no sums may be appropiriated from the United State Treasury to the United States Postal Service with respect to that fiscal year; and

(2) notwithstnding section 2005(a) of title 39, United States Code, the United States Postal Service may not borrow any money under that section with respect to that fiscal year.

(b) CERTIFICATION.--A certificatin referred to under section (a) is a certification that, with respect to the applicable fiscal year, the contribution by the United States Postal Service for employees for--

(1) life insurance benefits shall not exceed the maximum contribution provided for under section 8708 of title 5 United States Code; and

(2) health insurance benefits shall not exceed the maximum contributin provided for under section 8906 of title 5, United States Code

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.

Compensation Comparison Chart

Thanks to my readers I was able to create a chart comparing Postal Service compensation to compensation at FedEx Express and United Parcel Service.  As all readers know FedEx Express is non-union UPS is organized by the Teamsters and the Postal Service is organized by one of four craft unions.  The Postal Service compensation figures are from 2009 and were provided by the Postal Service to reporters prior to beginning of negotiations with APWU and NRLC.

The comparison's are a bit disingenuous for the APWU includes a number of maintenance crafts that are higher paid then the most employees that sort mail.  Therefore a fairer comparison would compare the average compensation of employees that sort mail or work at a retail counter with the wages paid UPS and FedEx inside workers.   

The comparisons illustrates why the compensation levels negotiated with the APWU for new employees and non-career positions have much lower wages.   It is clear that the new wage structure should bring APWU members that sort mail or work a retail counter to an average compensation level that will fall between what FedEx and UPS now pay.   If one assumes that UPS and FedEx employees see increases in compensation in the next few years, either due to contract provisions or increases reflecting improving business at both firms, then it is possible that by the end of the contract, APWU average compensation will likely be closer to what FedEx will pay its employees than what UPS will.

In many ways, Mailhandler union members face a worse comparison that APWU members.   Few of their employees are in maintenance and other positions that generate higher salaries.   Therefore, their average salary is likely further above market rates than APWU members.   Therefore, the contract that they will negotiate next fall will likely have all of the changes in work rules and pay schedules that the APWU just agreed to.  They may find it more difficult to negotiate any protections for current employees that the APWU did.

For members of the NALC and NRLC unions the comparison is a bit more complicated.   Their current compensation falls between UPS and FedEx compensation levels.   However, Postal Service is seeing its volumes decline while UPS and FedEx volumes are growing.  Also determining what is a fair wage for the delivery portion of the service depends on an estimate of the value of the delivery service alone and the division of revenue for all activities other than delivery and delivery.   Only after that is conducted would it be clear whether the compensation paid to Postal Service carriers is at, above, or below market rates. 

The difficulty of doing a comparison with compensation of the NRLC members most likely explained why the NRLC was not willing to continue to negotiate.  They most likely face a lower risk of an adverse ruling in arbitration than APWU members as the economic case of the Postal Service is much more complicated in that negotiation.

Comments and suggested additions to this table are requested.   They will be added to the table and posted when received.

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.

Unbundling Postal Prices

Currently most postal customers have their rates set as a discount from a base rate for the class of the product being mailed.   The discount is based on an analysis of the savings generated from reductions in the amount of work that the Postal Service that the Postal Service does for the customers.

One of the most common discounts for Periodical, Standard, and Parcel products are drop shipment discounts.  These discounts allow customers to reduce their rate by tendering the mail or parcels at a facility close to the destination.

In order to get the drop shipment discounts, the mailer must either provide or purchase transportation services from their plant to the location where the mail is tendered.     In order for the mailer to justify paying for the transportation costs, they must have sufficient volume to generate discounts greater than the transportation costs.    Making drop shipping pay requires larger volume levels the closer the mailer gets to the final destination.

Since 2009, the Postal Service has conducted the Collaborative Logistics Market Test which has tested the sale of less-than-truckload transportation services over its existing transportation network.   The most recent quarterly report indicated that the customers for this service represented "traditional freight companies as well as mail consolidators."

The interest of mail consolidators in this service makes perfect sense.  By using the Postal Service's transportation service they can then use an agent at the destination who can both claim the pallet and direct that the pallet be moved to the appropriate location at the facility for acceptance and/or processing.  In doing so the consolidator can then provide its customers with a service that allows them to pay the lowest possible rate for both postage and transportation of the mail from origin to destination.  

If the Postal Service had to charge the "official" rate for mail that was dropped in Dallas rather than Shreveport, La the mailer would pay more than the charges that they can pay with the market test that allows them to pay the postage for mail entered at Shreveport and the transportation from Shreveport to Dallas separately.   The mailer's only additional cost is for the agent of the consolidator or the freight firm who will ensure that mail that arrives in Shreveport is moved to the location in the facility where paperwork can be checked and the processing and delivery process begins.

The Postal Service currently can offer services in an unbundled way if it keeps a Chinese wall between the two services.   This prevents the postal service from handling the movement of the mail from its loading dock area that handles the Collaborative Logistics services to the area on the same loading dock for drop-shipped mail as well as collecting the paperwork for the transportation and processing charges at the origination facility.  Clearly, mailers would benefit if this Chinese wall was removed.

Removing the Chinese wall requires rethinking how postal products are costed and priced.  In this case, the Postal Service would generate profitable prices by first estimating the cost of only providing acceptance, processing, transportation and delivery service from the destination processing facility to the recipient and then estimating the cost of providing transportation service from another facility.  
The customer's price would then be the price for delivery from the destination facility plus an add-on charge for transportation from another facility where the pallet of mail is dropped off.

Fixing this problem requires the Postal Regulatory Commission to agree that postal costs should be measured from the bottom up and not from the top down as they are now.  It would require it to accept the use of imperfect automated data systems as a replacement for costly sampling systems that were not designed to develop precise product costs at the level of product and customer detail necessary for today's Postal Service.   



Once product costs were measured from the bottom up, the Postal Service would have the ability to expand this market test and introduce a bundled service that combines a mail processing and delivery service for mail dropped at the destination facility and a transportation service for moving a pallet of mail from another facility on a Postal Service truck.   The sooner this occurs, the sooner the Postal Service can offer lower rates to mailers who can palletize their mail but can't justify the transportation costs to move the pallet to a destination facility.   Given the Postal Service's financial challenges, there is no time to wait to shift to a pricing system based on bottom-up costs that would allow this to happen.