Reform: I Just Don’t Get It

Sen. Susan Collins, chairwoman of the Senate Governmental Affairs Committee, recently published an article in a local Maine newspaper. Its purpose appears to be to communicate that the postal legislation she co-sponsored “will make the necessary reforms to ensure that nine million jobs [dependent on the USPS] are protected and that Americans, regardless of where they live, can continue to rely on services from this vital 225 year old organization into the 21st century.”

In other words, don’t worry, I’m here to ensure that none of our small rural Maine post offices will be closed. But will the bill really help the U.S. Postal Service?

As most readers know, two somewhat similar bills passed House and Senate committees and await action by the full membership of Congress. In the Maine article, Collins outlines, from her perspective, the key problems facing the USPS:

· Declining First-Class mail volume.

· Difficulty in cutting costs from its nationwide infrastructure.

· Highly labor-intensive organization that makes up 75 percent of expenses.

Given her analysis, which I am in general agreement with, what do the somewhat different House and Senate bills propose to do to solve the problems?

First, and probably most importantly, both bills provide relief from onerous and unfair pension requirements. Both require a determination of the actuarial value of the postal pension plan in relationship to payout requirements. The bills then require the USPS to pay into the pension system based on the actuarial requirements. If it is determined that a surplus exists in the pension plan, both bills require certain surplus funds to be transferred into the postal service’s retiree health benefits fund. This fund apparently has a significant deficit.

In addition, both bills transfer back to the Treasury Department the responsibility for the pension liability expense incurred by USPS employees when they were in the military. It should be noted that both pension changes discussed above, even though appropriate and correct, will increase the federal budget deficit, and therefore are likely to cause difficulty gaining final approval.

The major element of the bills, and the element that industry seems to be hanging its hat on, pertains to rate setting. The bill simplifies the process as it lets the USPS raise rates on its monopoly products annually, as long as the increase doesn’t exceed an inflation index. Many in the mailing industry think this section will act as a control over USPS labor costs. Their rationale is that the rate inflation limit will act as a ceiling on wage increases.

In other words, the industry thinks that labor contract negotiations, or the arbitrator in a binding arbitration process, will limit any wage increase because of the limitation on rate increases. But what should happen to wage increases if/when First-Class mail volume drops 10 percent and delivery addresses continue to grow? Should/will the inevitable arbitration process award a minimal wage increase? I doubt it.

Another important area to industry deals with the accuracy of the postal service’s costing systems, cost allocations to product lines and work-sharing costs. I agree that accurate costs and cost allocations are important. However, unless legislation gives the USPS the ability to control costs, this issue is a bit like the deck chairs on the Titanic analogy.

To me, some issues have gotten too little attention, such as workers’ compensation. The USPS spends $1 billion yearly on workers’ compensation. The Senate bill tries to bring this cost under some control. It would withhold pay for the first three days of a temporary disability, requiring the employee to use sick leave or annual leave for compensation. Second, the bill would not permit a disabled employee to stay on permanent disability when reaching retirement age. American Postal Workers Union, the largest postal union, strongly opposes this provision. It will be interesting to see what happens to it.

Another issue involves management compensation. General agreement exists that compensation for senior management is less than equivalent compensation in private industry. And industry often has spoken of the need to introduce incentives into the compensation process. Though the Senate bill is silent on the issue, the House bill provides for bonus payments that could exceed the current statutory limit on compensation.

The House bill requires the new Postal Regulatory Commission to provide prior approval to the “form and manner” for the bonus, and approval prior to payment that the bonus terms and conditions have been met. This is a section, given the right bonus objectives, that could improve the postal service’s operation. Yet industry has been noticeably silent on it. Why?

Lastly, even a casual reading of the bills makes clear that the new Postal Regulatory Commission would be given the responsibility to determine the regulations, including rates and service, under which the postal service will operate. Consistent with that responsibility, both bills state that “commissioners shall be chosen solely on the basis of their technical qualifications, professional standing and demonstrated expertise in economics, accounting, law or public administration.”

However, the Senate recently approved an individual who, though quite honorable, does not appear to meet these criteria. Until the USPS and the mailing industry fight to receive the respect due a $900 billion industry, the future of the postal service will remain in doubt.

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