“The Affordable Mail Alliance – a growing coalition of nearly 1,000 non-profits, Fortune 500 companies, small businesses, major trade associations, consumer groups, and citizens representing the vast majority of the mail sent in the United States – submitted further comments to the Postal Regulatory Commission yesterday. The comments focused on last week’s hearings at the Commission, where the Postal Service admitted that it is not facing an immediate cash crisis – the original rationale for demanding a rate increase ten times the rate of inflation.”
The Postal Service’s August 2 Response and testimony on August 10-12 also confirm the Postal Service’s failure to show that it would face a cash crisis—or suffer any losses at all—if it adhered to “best practices of honest, efficient, and economical management.” 39 U.S.C. § 3622(d)(1)(E). The Alliance’s July 26 motion summarizes decades of official reports, from the 1968 Kappel Commission to the present, documenting the Postal Service’s inefficiencies and the uneconomic costs that result from them. Specifically:
• The Postal Service maintains an inefficiently large network of undersized and obsolete mail processing facilities. Motion at 21-25.
• The Postal Service has an oversized work force, inflexible work rules, and low productivity. Id. at 25-30.
• The total compensation of Postal Service employees—more than $80,000 per employee on average—is well above the amounts paid in the private sector for comparable work. According to the Postal Service’s own experts, this compensation premium is probably more than 30 percent. This inefficiency costs the Postal Service and the public $10 to 14 billion or more in needless costs annually. Id. at 30-34, 55-56.
The loss of mail volume to the Internet was not an unforeseeable surprise. The Postal Service had notice of this threat years before significant volume losses occurred. Id. at 35-39.
• The Postal Service’s failure to cope effectively with the 2008-2009 recession is further evidence of structural inefficiency. The average firm in the private sector saw its revenues collapse by nearly as much as the Postal Service; and many large firms saw their revenues collapse by 20 percent or more. Well-run private firms, including the Postal Service’s competitors, responded to the downturn with immediate headcount reductions and other aggressive and painful austerity measures that resulted in a return to profit relatively quickly, even while sales volume and revenue remained depressed. The Postal Service, by contrast, contented itself with a business-as-usual incremental approach to cost cutting that allowed productivity to plummet and unit costs to get further out of control. Id. at 39-55.5
• The Postal Service’s financial loss projections in this case assume no major improvements in cost control in the future. Id. at 55-57
The Postal Service has many cost-saving opportunities available to it that remain to be pursued seriously. Given the magnitude of the Postal Service’s inefficiencies, even a modest improvement could result in billions of dollars of additional savings annually. For example:
(1) The Postal Service makes much of the supposed legal obstacles to closing retail post offices. But the Postal Service cites no legal obstacles (including restrictive language in appropriations bills) to the closure of most Processing & Distribution Centers and other central mail processing facilities. Since 2005, however, the Postal Service has closed only 2 of its 270 P&DCs. “U.S. Postal Service: Strategies and Options to Facilitate Progress toward Financial Viability,” Report No. GAO-10-455 (April 2010) at 13-14, 31. Instead, the Postal Service boasts because it saved $68 million—only about 1/10 of one percent of total USPS revenues—from area mail processing consolidations (“AMPs”) in the past year. Tr. 1/60-61 (Corbett).
(2) A number of enterprises in the United States have asked their employees to reopen existing collective bargaining agreements in light of the recession. See Motion to Dismiss (Aug. 2, 2010) at 15, 45-46. Given the supposedly parlous state of the Postal Service’s finances, reopening of existing collection bargaining agreements with postal labor would be a logical step. During the August 10 hearing, however, USPS witness Corbett admitted that he was completely unaware of whether such relief would be sought. Tr. 1/100.
(3) Two of the Postal Service’s national collective bargaining agreements expire in November 2010 (with the American Postal Workers Union and the National Rural Letter Carriers’ Association), and two more in November 2011 (with the National Association of Letter Carriers and National Postal Mail Handler Union). The expiration of these agreements presents a timely opportunity to negotiate reductions in head counts, greater freedom to employ layoffs and furloughs, and improved flexibility in work rules and employee utliization. Successful negotiations could narrow, or even eliminate entirely, the forecast 10-year shortfall.
(4) The expiration of the same collective bargaining agreements also presents a timely opportunity to deal with the more than $10 billion in above-market compensation that the Postal Service concedes it pays. The Postal Service, however, already appears to have taken the renegotiation of these compensation premiums off the table. Tr. 1/120-121 (Corbett). Instead, the Postal Service appears content simply to try to reduce its share of the total cost of the health benefit packages—from the current 81% down to 72%, the percentage paid by other federal agencies. Id. Even a full nine-point reduction would save the Postal Service only about $750 million per year. This is a small fraction of the $10 to $14 billion or more in excess costs that the Postal Service incurs each year because of the existing compensation premiums. Moreover, even these limited savings would occur with halting slowness: the Postal Service does not seek to increase the employee contribution by more than one percentage point per year. Tr. 1/121 (Corbett).
At that pace, even the $750 million savings target will not be reached until 2020.
(5) The Postal Service suggests that seeking relief in arbitration from inflexible hiring and work rules and above-market compensation premiums is useless because arbitrators tend simply to rubber-stamp the status quo. USPS Response at 31-33. But the Postal Service has not invoked its right under 39 U.S.C. § 1207 to arbitrate its major collective bargaining agreements in years, and certainly not since the beginning of the recent recession. It is premature to assume without exhausting the arbitration remedy that arbitrators today would ignore the supposedly “extraordinary” and “exceptional” economic developments since the last arbitration decisions, and the desperate financial straits the Postal Service says it now faces as a
result. This is particularly so given the number of economic concessions made by unionized employees of state and municipal government employees downturn. Motion to Dismiss (July 26, 2010) at 45-46; Brophy (Consumers Union) Impact Statement. At a minimum, best practices of “honest, efficient and economical management” certainly require that the Postal Service at least exhaust its administrative remedies under 39 U.S.C. § 1207 rather than throwing up its hands and shifting $3 billion in costs annually to mailers as the stakeholders of first resort.
(6) Finally, the Postal Service’s analysis of the legal implications of the “honest, efficient and economical” standard is as inaccurate and one-sided as the Postal Service’s discussion of the facts. The notion that the standard of “honest, efficient and economical management” requires the regulator to ignore inefficiencies that result from past decisions by the regulated company (USPS response at 23-25) is contrary to precedent and would have perverse consequences. It is well-established, for example, that the standard of
honest, efficient and economical management supports the disallowance of capital investment in long-lived assets as imprudent when made, even though the investment was the result of past decisions, and is now sunk and irrevocable. Missouri ex rel. Southwestern Bell Tel. Co. v. PSC, 262 U.S. 276 (1923); Verizon Communications Inc. v. FCC, 535 U.S. 467, 485-486 (2002). Indeed, the regulator may deny a regulated company a return on a sunk longlived investment that was prudent when made but “rendered useless by
unforeseen events.” Verizon, 535 U.S. at 484 n. 6 (citing Duquesne Light Co. v. Barasch, 488 U. S. 299, 311-312 (1989)).
In any event, a very large share of the Postal Service’s excess costs is neither fixed nor sunk. Inefficient Processing and Distribution Centers, for example, can be closed or consolidated in a relatively short period. Likewise, as previously discussed, the Postal Service’s major collective bargaining agreements are up for renegotiation when they expire this year or next, even if the Postal Service is unwilling to seek to reopen them during their term.8 as well as private sector employees—including the unionized employees of the Postal Service’s customers—since the beginning of the current economic downturn. Motion to Dismiss (July 26, 2010) at 45-46; Brophy (Consumers Union) Impact Statement. At a minimum, best practices of “honest, efficient and economical management” certainly require that the Postal Service at least exhaust its administrative remedies under 39 U.S.C. § 1207 rather than throwing up its hands and shifting $3 billion in costs annually to mailers as the stakeholders of first resort.