Response to The Hill op-ed on PRC 10-year review

While the U.S. Postal Service welcomes constructive dialog surrounding the Postal Regulatory Commission’s (PRC) 10-year review of the pricing system for market-dominant products, we cannot let false and irresponsible claims made by several mailing industry leaders in a recent The Hill op-ed go unchallenged.

Although we remain optimistic about our future with continued aggressive management and legislative and regulatory reform, the Postal Service is not currently “in good financial shape,” despite what the authors say.  To the contrary, we continue to face very serious, but solvable, financial challenges. First-Class Mail — our most profitable product — declined by 36 percent since 2007 and is expected to continue to decline as a result of divergence to digital communications and the increase in online transactions. The consequence of this loss of mail volume, along with continued growth of approximately 1 million delivery points every year, and unaffordable, legally-mandated payments, has been 10 consecutive years of net losses, and our liabilities exceeding our assets by more than $95 billion.  The authors point to the net income that the Postal Service generated from operations over the last three years, but neglect to mention that those results can almost exclusively be attributed to the exigent surcharge which they aggressively opposed, and which has now expired.  The authors also attempt to tout the amount of cash the Postal Service has on hand.  However, they don’t explain that such amounts are woefully inadequate for an organization of our size, are necessary to pay our ongoing operating expenses and to deal with contingencies, and were generated only by exhausting our borrowing authority, deferring capital expenditures, and defaulting on $33.9 billion in mandated payments for Retiree Health Benefits (RHB).

In another subterfuge the authors assert that they have “not seen any evidence of sustained cost control and modernization efforts…”  While our modernization efforts might not have been as robust as we would have preferred, given our need to conserve cash and to defer capital investments, they were significant, and our cost control efforts have been nothing short of massive.  In response to the changes in our marketplace and within the constraints of our existing business model, we acted to rightsize our network and infrastructure. We pursued an aggressive agenda of cost cutting, efficiency improvements, and innovation that resulted in approximately $14 billion in annual savings. We achieved these annual savings by consolidating  360 mail processing facilities and 20,000 delivery routes; modifying retail hours at more than 13,000 Post Offices; reducing the total workforce size by more than 150,000 through attrition; negotiating contracts that control wages and benefits and increase workforce flexibility; and through reductions in administrative overhead.

Despite our achievements in improving operational efficiency and growing revenue, we cannot overcome systemic financial imbalances caused by legal and other constraints. For instance, the Postal Service’s ability to adjust prices of products that produce over 70 percent of our revenue is restrained by an austere price cap that does not allow prices to increase more than the rate of inflation. The current cap does not take changes in Postal Service volumes and costs into account, and hence is wholly unsuitable to ensuring the Postal Service’s continued ability to provide prompt and reliable universal services in a self-sufficient manner. Without legislative and regulatory reform, our net losses will continue and our financial position will worsen — threatening our ability to meet America’s evolving mailing and shipping needs.

Because the current pricing system is not achieving the objectives of the 2006 postal law, including the objective to ensure that the Postal Service is financially stable, the Postal Service has proposed an alternative pricing system that does not include a price cap. Contrary to what the authors assert, we are not seeking “unchecked power to set our own rates, with little or no oversight by the PRC.” Instead, we have suggested that the PRC would be responsible for comprehensively monitoring the Postal Service’s costs, rates, initiatives to reduce costs and increase efficiency, and service performance, which will ensure that the objectives of the law are being achieved, and that the rates we charge are just and reasonable.  Given the realities of the current postal marketplace, there is simply no need for a price cap to ensure that the Postal Service has strong incentives to operate efficiently and to set reasonable prices.   

America deserves a financially stable Postal Service that can continue to play this vital role in our economy and society. There is a path forward that depends upon the passage of provisions in H.R. 756 postal reform bill, combined with a favorable outcome of the PRC’s 10-year pricing system review. Once enacted, and together with aggressive management actions, the Postal Service can meet all of our obligations and continue to improve the way we serve the American public.