PRC Chief Robert Taub on the Near Future of the Postal Service

URBANSKI: Hi. This is Al Urbanski, Senior Editor of Direct Marketing News, and this is DC Direct, where we talk to movers and shakers in Washington. Today we have Acting Chairman of the Postal Regulatory Commission, Robert Taub. Mr. Taub was designated as Acting Chairman by President Obama in December of 2014, was originally sworn in as Commissioner in 2011, and has followed postal issues for many years, having been involved in the crafting of the original PAEA legislation in 2006. Chairman Taub, pleasure to have you with us today.

TAUB: Thank you, Al. Good to be here, moving and shaking in D.C.

URBANSKI: Great. Well, it’s kind of a transition time — not kind of a transition time, it really is a transition time–at the Post Office. They have some problems with their balance sheet. Postal reform was stalled last year, and it doesn’t look like a whole lot of chance of it moving forward with the new Congress. You recently issued a financial report that spells out some of the problems and some of the positives with the Postal Service. So what’s up with reform? Is it a crucial thing for the Postal Service to have to move forward this year?

TAUB: Oh, definitely. The Postal Service’s actions alone under its existing authority are going to be insufficient to achieve the sustainable financial liability that’s urgently needed. And comprehensive legislation is important from the standpoint of helping fix this balance sheet problem they have. The Postal Service has $51.7 billion in net losses over the last eight years. They just don’t have the working capital and liquidity to put into the Postal Service.

They have more than $10 billion in deferred investments — whether it’s postal delivery vehicles or package sortation equipment–and so it’s got a real liquidity challenge on its plate, There’s a limit to how much they can fix it within their control.

URBANSKI: And the prefunding of the retirees’ health care program, that’s not the only problem they have, is it? Because I know that’s like about 5.6 billion a year. It pretty much matches the loss they showed last year. But does it go beyond that?

TAUB: Oh, definitely. You know, the Postal Service, both driven by the Great Recession that accelerated this long-term trend — of first-class mail, particularly, moving to electronic media– compounded by the prefunding mandate that was setting an overly ambitious requirement in law of specific dollar amounts to prefund for future retiree health benefits. Both of those created stresses on the system that they’re now in a situation where they have maxed out their borrowing authority. They have no more ability to borrow from Treasury.  They have these continuing debts and unpaid bills, and they just don’t have the cash to put into the system.

And a lot of that are the result of balance sheet problems that– if they get some legislation to help sort that through, whether it’s looking at the retiree health benefit payments and modifying that in a fiscally responsible manner and looking at some of the other outstanding obligations they have– would give the Postal Service some breathing room to build upon the strength that is in the system. That is demonstrated by its recent quarter showing a net operating income, those things that are in their control, outside of things like prefunding future retiree health benefits or worker compensation costs.

They are demonstrating right now that the revenues and volumes that they have coming in, particularly in the competitive category, there is strength in the system that they can build upon, but not at the rate given the hole they’re in.

URBANSKI: You sat on an interesting panel recently at the Brookings Institution, and this many years after PAEA, there still is kind of a discussion there of, is the Postal Service a government agency that should adhere to the universal service obligation and be supported in that way, or can it be partially a free-market business and work the competitive products. How do you see that argument going? Where’s the split there in philosophy?

TAUB: Sure. You know, in the 2006 law, PAEA took a very strong line that said the Postal Service cannot get into non-postal activities. And if it’s non-postal, Postal Service would be barred from doing it. But postal, all bets are off, shall we say? It’s up to the Postal Service to undertake as it deems appropriate providing postal services to the nation.

The Commission, since the law took effect, is the one that calls balls and strikes on approving new products, ensuring that they aren’t offering products that would violate the non-postal prohibition, and then regulating the postal products they offer in simply one of two ways, whether they’re market-dominant, or whether they’re competitive.

Both are postal products, but market-dominant ones, which is where the bulk of the postal services in revenue or volume are, are those where you have captive customers that really have no other alternative than the Postal Service and are subject to the Postal Service’s ability to price. And they’re subject to a price cap system.

On the other hand, the competitive products are those that are deemed to be facing the competition in the marketplace, and as long as the Postal Service is pricing those at cost, at a minimum, and then collectively are priced in a way that all the competitive products contribute to the overhead of the Postal Service in a certain percentage set by the Commission, one is ensuring that the competitive products are not being subsidized by the market-dominant side.

But the Postal Regulatory Commission was also mandated in 2008 to study this issue of universal service, and in its definition in review of the system, it defined universal service as all postal products and services that the Postal Service offers. So whether it’s competitive or market-dominant based on the definition of the Commission, these are meeting the universal service obligation of the Postal Service.

And so the issue at the end of the day for competitive postal products are the issue of ensuring that they are offered in compliance with the law, but all are on the table for the Postal Service to have that opportunity to innovate and look for new ways to enhance the offerings, whether they’re competitive postal products or those in the market-dominant category.

URBANSKI: Understood. So it doesn’t look — it looks like it’s going to be a lot of the same as far as postal reform this year and some other issues for the Post Office. But one thing that is different this year is a new leader. And sometimes a new leader can get things done or turn things in another direction. What do you think of Megan Brennan, and could she have some kind of an impact to get some of these issues put across this year?

TAUB: Oh, sure. I think the world of Megan Brennan. Obviously, she’s just finished her most recent responsibility at the Postal Service as the Chief Operating Officer and has had a long and illustrious career within the Postal Service.  Any time you have a new CEO coming in, it’s a new opportunity,  a new day to look at things with one’s own perspective, even a fresh perspective.

And so we’re still early in on her tenure, but I’m certainly optimistic that any time you have someone come in new, it’s an opportunity for a fresh perspective, particularly a fresh perspective on the challenges any entity faces. And in this case, as we know, the Postal Service is facing immense challenges.

And it coincides — At the same time, there’s new leadership on Capitol Hill. The Senate and House committees that oversee the Postal Service have brand-new chairmen. I myself as the Acting Chairman and Head of the Postal Regulatory Commission took over in December. So in some ways, we have new leadership throughout the postal, federal, regulatory and operational and congressional end. And so all of those, I would argue, are new opportunities to look at things fresh.

URBANSKI: A great segue into my next question, which is, what are some of your goals as the new Chairman of the PRC?

TAUB: My goals are to make sure we’re doing the job that Congress has mandated to us. But really, when I came in, I’ve got three things that I’m trying to focus on every day as the head of the Postal Regulatory Commission, starting on December 4th, when the president designated me.  And those are, first and foremost, with the new leadership on Capitol Hill, either making a dedicated point to engage with the new leadership on both sides of the aisle and on both sides of Capitol Hill so they understand what the Postal Regulatory Commission is all about, why we’re here to protect the public interest from unfair competition issues or protect captive customers, what the equities are.  So that as these new leaders in Congress that oversee postal issues start to get into the area, they understand what the Postal Regulatory Commission is about and what we have to offer.

The second of the three areas that I’m focused on is the staff. We’re a very small agency. We’re roughly 70 staff  members altogether that’s overseeing a nearly half-a-million-person organization and a $67 billion budget. We’ve got less than $15 million appropriated to us to oversee the Postal Service.

And so when it comes to what we do, we work very hard. You know, we just finished a quarter in which we adjudicated two rate changes. We had a look at an annual compliance determination. We’ve been adjudicating a variety of complex transfer cases and a whole host of other dockets that come before us on a regular basis. So I want to make sure the staff have what they need to do their job, and morale is good.

And the third of the three areas is efficiency and effectiveness. I started my federal career at the Government Accountability Office. It’s not lost on me that in the executive branch, you know, we have a public trust of using these funds. And even more so, I would argue in this context, that it’s a distinction without a difference. But unlike taxpayer-appropriated dollars, we’re getting our appropriation out of the Postal Service fund, which is the rate payers’ money, and it’s out of an entity and a fund that’s nearly insolvent.

So that is incumbent upon us to operate as efficiently and effectively as possible. So that’s really the three I’m focused on when I’m not drinking out of the proverbial firehose — the Hill, the staff and efficiency and effectiveness of our operations.

URBANSKI:  And finally, if you were walking across the mall in Washington and came across the proverbial genie in the bottle and you had one wish that you could grant to the Postal Service this year, what would it be?

TAUB: This year I would wish for financial solvency and their balance sheet problems to be fixed. That would be my wish for the genie.

URBANSKI: And something tells me that would be Megan Brenna’s wish also. Mr. Chairman, thank you.

TAUB: And probably the one we could get everyone agreeing on, yeah.

URBANSKI: Exactly. Mr. Chairman, thank you very much for taking time out for us today. This has been Al Urbanski with Postal Regulatory Commission Acting Chairman Robert Taub, signing off for DC Direct. Thank you very much for joining us.

TAUB: Thank you, Al.

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