Lest anyone forget, Postmaster General Pat Donahoe remains keenly interested in creating a stand-alone health insurance plan for about 1.1 million U.S. Postal Service employees and retirees.
The latest reminder came at last week’s Senate hearing on the USPS’s financial crisis. Although lawmakers’ attention was predictably focused on the agency’s decision to end Saturday mail delivery, Donahoe also stressed the urgency of pulling out of the Federal Employees Health Benefits Program.
“An astonishing 20 cents of every revenue dollar the Postal Service takes in must go toward health care costs,” Donahoe said in prepared testimony. “By moving away from the federal system, nearly all of our employees and retirees would reap the benefits of getting equivalent or better healthcare coverage and paying less for it.”
Creation of a new health plan was a major stumbling block in contract talks with the National Association of Letter Carriers; although labor and management couldn’t reach a deal, a joint task force will keep discussing the issue, according to an arbitration panel’s recent decision.
But the Postal Service hasn’t furnished many details about what it has in mind. And employees may understandably be skeptical of any promises to provide comparable (or better) benefits at lower cost. Fortunately, the USPS inspector general took a look at the subject last year that fleshes out some specifics.
The inspector general’s report, whose conclusions drew a vigorous dissent from Postal Service management, can be read here. It’s of course possible that the USPS human resources team has since made changes to their plan; if so, however, those changes haven’t been made public.
In the meantime, here are a few takeaways from the IG’s review. By the Postal Service’s reckoning, creation of a stand-alone plan would save $52 billion. (The original total was $62.1 billion, but the agency then dropped the idea of freezing its contributions for retiree health insurance, according to the report.) Although the IG doesn’t say over what period of time those savings would occur, the key is requiring employees and retirees to move to Medicare, the taxpayer-funded medical benefits program for people aged 65 and older.
That step alone would save some $37 billion; for older employees and retirees, the Postal Service’s health plan (whatever it turns out to be) would become the back-up insurer to Medicare. The Postal Service would also be freed of much, if not all, of the obligation to set aside billions of dollars now for future retiree care.
But from the employee/retiree perspective, there’s one immediate concern. By law, anyone eligible for Medicare Part B (which covers things like doctors’ visits and lab tests) is supposed to sign up after turning 65 or else face a 10 percent, per year, enrollment penalty.
According to the IG, there were about 88,000 USPS retirees over 65 who hadn’t signed up. Those folks would thus face late-enrollment penalties totaling $53 million per year, or an average of $625 per person. The Postal Service needs to settle that issue, the inspector general said, either by ensuring that the penalties will be waived or by deciding who’s going to foot the bill.
USPS workers and retirees could also pay more under another proposed change that would require anyone retiring after the end of this year to pay a standard deductible before the Postal Service picks up any cost not covered by Medicare. But the Postal Service would also expand coverage options from the two currently offered by the FEHBP to four. In some instances, employees could pay less than they do now. (Check out p. 11 of the IG report for a side-by-side comparison.)
The overall goal here is simple. The Postal Service, like any other money-losing enterprise, is trying to tamp down costs wherever it can. And postal workers generally pay less for their health benefits than other federal employees.
But because congressional approval is required, the Postal Service’s plans need political traction that so far appears to be lacking. At a September 2011 congressional hearing, for example, Office of Personnel Management Director John Berry was notably unenthusiastic about letting the Postal Service leave the FEHBP. A fuller analysis of the potential effects was needed, Berry said, adding that he thought postal employees were “well-served” by the status quo.
In last year’s report, the inspector general recommended that USPS officials lay out to affected employees and retirees, as well as the government, “all potential cost increases, cost savings and cost shifts that would result from a transition to a Postal Service-proposed alternative health care plan.”
In their strongly worded response attached to the report, postal executives both disputed key findings and objected to what they called its “negative tone.” The Postal Service, for example, has proposed relief from the Medicare late enrollment penalties, they wrote. A draft of the report, they added, “totally ignores the fact that total costs will decrease substantially and that out-of-pocket costs for most employees and retirees will decrease.”
The Postal Service has yet, however, to make the kind of detailed disclosure urged by the IG. Until it does, a tough sales job lies ahead.
In announcing plans to end Saturday mail delivery, Postmaster General Pat Donahoe himself posed the key question yesterday: “Is this legal?”
Donahoe’s answer, naturally, was yes, hinging on a rather complicated analysis of the impact of congressional spending legislation (more about that in a moment).
Official U.S. Postal Service talking points obtained by Federal Times offer a more straightforward explanation: USPS leaders are under orders from the agency’s board to accelerate cost-cutting measures; they believe they have the authority to go to five-day mail delivery on their own; and they are hoping that Congress won’t take any action to stop them.
“The biggest driver of this change is our obligation, consistent with the requirements of Title 39 of the United States Code, to take the responsible steps necessary to ensure our financial stability so that we can provide efficient, reliable and affordable mail delivery service to the American people,” according to the talking points, marked “For Internal Use Only.”
“Given our worsening financial situation, the strong public support for this change, and the plan to maintain six-day package delivery, it is anticipated that most members of Congress understand the urgent need to implement this change.”
At the moment, that hope appears to be debatable.
Reaction to yesterday’s announcement has broken mostly along party lines, with Republican lawmakers supportive and Democrats opposed.
In a news release today, Senate Majority Leader Harry Reid, D-Nev., accused Donahoe of using “flawed legal guidance” to circumvent Congress’s authority and warned that the postmaster general has damaged his reputation with congressional leaders and complicated prospects for comprehensive postal legislation. More encouraging, from the Postal Service’s perspective, was the reaction from House Minority Whip Steny Hoyer, D-Md., who called on Congress to “get serious about comprehensive reform” to put the mail carrier on a long-term path to financial stability. (House Speaker John Boehner, R-Ohio, and Senate Minority Leader Mitch McConnell, R-Ky., have thus far not weighed in.)
For Capitol Hill critics, the flash point is their belief that the Postal Service is doing an end run around a long-standing legislative ban on reducing six-day mail delivery.
For almost 30 years, that prohibition has been folded into annual appropriations bills. But yesterday, Donahoe suggested that the continuing resolution now in effect offers an opening. Although the Postal Service gets no taxpayer dollars for operating expenses, it does receive a relatively small amount of money for providing free mail to the blind and for overseas voting purposes. Because that money is reimbursement for services already provided—not to fund operations going forward–the prohibition against mail delivery is non-binding, Donahoe indicated.
Left unanswered is why—if this interpretation holds good for any appropriations bill—the Postal Service hadn’t already moved to end Saturday delivery rather than waiting for Congress to drop the prohibition. The unstated answer, perhaps, is that the Postal Service has now been waiting for years, and lawmakers still haven’t acted. In addition, there’s an argument that by continuing to drop off packages on Saturday, the Postal Service really isn’t defying Congress, but simply changing the classes of mail that are delivered.
USPS officials have declined to release the legal analysis that undergirds Donahoe’s position. In a In an email, USPS spokesman Dave Partenheimer also would not comment on the talking points, which he called “documents meant for internal audiences.”
“To be clear, we believe we have authority under current law to make this change,” Partenheimer added. “Also, if there is any question, the continuing resolution expires March 27. We will urge Congress not to take any action to prevent this delivery schedule change.”
But in a letter, Reps. Gerald Connolly, D-Va., and Sam Graves, R-Mo., have asked Donahoe to “immediately” supply the legal justification for the Saturday cutback, as well as all documents related to the decision.
And although USPS executives don’t think they’re under any legal obligation to do so, they’re going to ask the Postal Regulatory Commission to update its 2011 advisory opinion on an earlier, more expansive plan to eliminate virtually all Saturday delivery.
In that opinion, the commission found that the Postal Service had significantly overstated the projected $3.1 billion annual savings from that proposal. Because the Postal Service has only provided a “broad outline” of its newly revamped schedule change, a commission spokeswoman said in a news release this week, the five-member oversight panel “is currently unable to evaluate how the new plan differs from the previous proposal.”
[This post has been expanded and updated.]
It looks like a long road lies ahead in the high-stakes legal battle between Northrop Grumman Corp. and the U.S. Postal Service over a botched automation project worth more than $900 million.
In a joint filing last week, lawyers for the two sides laid out their timetable for conducting the legal fact-finding process known as discovery. Their deadline for wrapping it up (and yes, you are reading this right): Jan. 15, 2016. Along the way, each side may conduct up to 50 depositions a piece, and that doesn’t include expert testimony.
As Federal Times has previously reported, the Northrop Grumman suit filed last May accuses the Postal Service of violating the terms of the 2007 contract intended to improve automated handling of flats. Not surprisingly, USPS officials tell the story a little differently. We won’t rehash all the arguments here, but suffice it to say that each side says the other owes it lots of money.
“A change would do you good,” according to that noted management consultant, Sheryl Crow. But for the U.S. Postal Service, change has been wrenching, particularly when it means shaking the habits acquired during years as a complacent semi-monopoly. A couple of recent reports highlight the rigors of reinvention for USPS leaders, not just in chasing new revenue and overhauling slipshod management practices, but in ultimately retooling their sprawling operation to survive in the digital age.
You might think, for example, that the Postal Service enjoys an inside track with its sister agencies in the federal government. Instead, it’s taking a beating from private-sector rivals in competing for a big part of agencies’ shipping business, according to a review by the Postal Service’s inspector general. This is the piece awarded under General Services Administration schedule contracts that last year generated almost $337 million for participating shippers.
The Postal Service’s share of that pot amounted to $4.8 million, or 1.4 percent. Federal Express led with $190.1 million (56.4 percent), followed by UPS with $138.7 million (41.2 percent). If there’s any upside to be found, it’s that the Postal Service’s cut increased markedly from the year before. (It should be noted, incidentally, that the Postal Service got another $96 million worth of agencies’ shipping last year outside of the GSA schedule.)
In part, USPS prices just weren’t competitive, a fact that the inspector general blamed on a requirement that products like Express Mail and Priority Mail cover their costs (i.e., no using them as loss leaders to attract other business). But the Postal Service also didn’t bother to compete via the GSA schedule until 2009, eight years behind FedEx and UPS. “Consequently many federal agencies have long-term relationships with competitors and are reluctant to switch to the Postal Service,” the IG found.
Why were USPS execs so slow to look for customers in their own backyard? The report doesn’t give a reason, but they evidently just weren’t interested, lacking even ”a sales force or market strategy that targeted the federal sector.” It has a sales force now, but the IG questioned whether the 13-member squad is adequate to meet agencies’ specialized needs. In a written response, USPS executives acknowledged the need to be more nimble, but there’s obviously plenty of catch-up ahead.
Inertia of a different sort is evident in the findings of a separate IG audit that examined the Postal Service’s handling of its two largest advertising contracts, worth a combined $136 million in fiscal 2011. But for an organization in crisis, the Postal Service didn’t do a very good job of overseeing how that money was spent, the audit found. To take just one example, USPS officials signed off on almost $632,000 in “questionable” bonuses to the two contractors in fiscal 2011 and 2012 “even though the process for evaluating contractor performance was not clear.”
Also a problem: Keeping track of where money went and why. Some $4 million in invoices were missing from the contracting officer representative’s files and another $2.3 million worth of bills had not been certified properly. On the larger of the two contracts, the Postal Service went beyond the standard federal maximum to pay hourly rates of more than $302. While the agency was within its rights, the IG said, “the magnitude of these rates–particularly considering the Postal Service’s recent financial challenges–necessitated a corresponding amount of oversight to protect the Postal Service’s financial interests.” By the IG’s reading, that scrutiny was lacking; the relationship between the Postal Service and its ad companies was apparently so cozy that one of those firms was leaked a draft copy of the IG’s report. That no-no is under further investigation, according to the report.
Last fall, well before the report’s official release, the Postal Service had opted not to renew the larger contract with Michigan-based Campbell-Ewald (neither contactor is identified in the report, but the termination was reported in the advertising trade press). It has also redesigned its marketing and sales organization and is following up on the IG’s recommendations to improve oversight, according to a written response from Nagisa Manabe, who joined the Postal Service as its top marketer last year.
Of course, assuming that the IG’s findings are on base, the question is why it took so long to clean up basic business practices. At a time when management is pressing rank-and-file employees for concessions, these are the kinds of lapses that set the average clerk’s teeth on edge.
As Postmaster General Pat Donahoe frequently points out, he doesn’t have full command over the agency’s destiny. Congressional action (or inaction) will play a outsized role in the Postal Service’s long-term direction, not just in cutting costs but in finding new ways to adapt to a world that’s buying a lot fewer stamps.
This month, the Government Accountability Office released a handy overview of USPS efforts to boost revenue and move ahead with both new non-postal services and experimental postal products. The survey found plenty of ferment that so far hasn’t translated into a big effect on the bottom line. While the Postal Service is currently pursuing 55 new initiatives, most of them build on existing products and services, such as letting customers handle address changes through mobile phones. For fiscal 2011, non-postal revenue was $173 million. Nothing to sneeze at, but still a tiny fraction of that year’s total of $65.7 billion. And it’s hard to see non-postal income growing significantly without some help from Congress.
Under current (somewhat complicated) law, the Postal Service can introduce new non-postal products if they fall under the umbrella of something it’s already doing, subject to approval of the Postal Regulatory Commission. Under the category of licensed retail products, for instance, post offices can sell items like stamp dispensers and framed postal art. But the Postal Service decided not to pursue more than two dozen other ventures, mainly on the grounds that they needed too much up-front investment or weren’t likely to be profitable.
USPS leaders see money-making potential in three other areas: Shipping alcoholic beverages, performing services for state and local governments, and selling non-postal services. But those would all require legislation, and involve knotty questions about competition with private business and other issues. In these times, however, lawmakers have a tough time dealing with relatively routine measures, let alone more complex ones. And those proposed new business avenues would be no cure-all. While postal leaders saw the potential to improve the agency’s financial position, the report said, “they emphasized that these additional innovations will not be sufficient to return USPS to financial solvency.”
Meaning more change–and more pain–lies ahead.
On Monday, the Postal Service announces that its governing board has given orders to accelerate cost-cutting measures. On Thursday, the Postal Service notifies the National Postal Mail Handlers Union that it is speeding up the shutdown of mail processing operations at 18 plants.
Contrary to what some might assume, though, “the decision is not part of the package directed by the USPS Board of Governors,” postal spokeswoman Sue Brennan said in an email. “But because we have had the flexibility to consolidate operations in the past—when we could do so—we’re following through now as the opportunity exists.”
For employees at the affected plants—which include facilities in Florida, Texas and Wyoming—that may be a distinction without a difference. Under the Postal Service’s three-year plan to halve the size of its processing network, the 18 were supposed to be axed next year. Under the new timetable, they’ll join 82 other facilities set for consolidation between this month and July. In an interview, John Hegarty, president of the mail handlers union, was hopeful that the departure of thousands of workers under two early-out programs in the last year will lessen the number of employees who will have to move to keep working for the Postal Service. In any case, he said, the union will continue to stress that dislocation be kept to a minimum.
For anyone who’s wondering, incidentally, postal officials still aren’t saying exactly what they will be doing in response to the Board of Governors directive. Information on that score will come “as soon as possible,” another spokesman said.
As early as this week, members of the National Association of Letter Carriers could get the terms of a new contract. Whatever a three-man arbitration panel decides, the outcome is sure to furnish fresh evidence of the painful tradeoffs facing labor as the embattled U.S. Postal Service presses to cut personnel costs.
NALC members “understand that difficult things were necessary,” Jim Sauber, the union’s chief of staff, said in an interview today. “But on the other hand, we also want to reward the people who are working harder and have harder jobs.”
The NALC, for example, is proposing to create a new class of lower-paid, non-career employees dubbed “city carrier assistants” that would replace an existing classification known as transitional employees. Although those carrier assistants would earn less than today’s transitional employees, they would get first shot when it comes to applying for career letter carrier jobs, Sauber said.
Under the NALC’s proposal, “both sides kind of get what they wanted,” Sauber said. “Even though the pay is lower, we think it’s going to be a better result for the people who take these jobs.” But in written testimony to the arbitration panel, union President Fredric Rolando underscored that the organization is only reluctantly pursuing this option. “We trust that the panel will appreciate that, but for the present crisis, the concept of a lower paid, non-career letter carrier workforce would be totally unacceptable to the NALC,” he said.
For the arbitration panel, Sauber said, the key issues are now how many non-career employees to allow and how much to pay them. The Postal Service, he said, wants more such employees with lower compensation than the union has proposed. According to Rolando, the Postal Service also wants to freeze wages, eliminate cost-of-living increases and cut benefits for career employees. All three are “completely unacceptable” to the NALC, he said in his testimony posted on the union’s website.
A USPS spokesman, citing standard policy, declined to discuss labor negotiations.
But the NALC isn’t just up against postal leaders intent on more payroll reductions as the agency continues to hemorrhage red ink. The organization is also battling precedent set by previous contract decisions involving two other postal unions. In 2011, the American Postal Workers Union agreed to a two-tier wage system that pays new career employees less. Last July, the National Rural Letter Carriers’ Association had to swallow a similar arrangement under a new contract set by a separate arbitration board.
With about 180,000 employees in its bargaining unit, the NALC is among the largest of the four major postal unions. It has so far successfully fought the Postal Service’s efforts to eliminate most Saturday delivery, a move the agency estimates would save about $2.7 billion a year. But Sauber stressed the union’s work with management to slash the number of routes as mail volume has declined—a step that puts more work on remaining letter carriers.
“We feel like we’ve been a very responsible bargaining partner with the Postal Service,” he said. “We didn’t stick our head in the sand when the crisis hit.” The new contract will replace an agreement that formally expired in November 2011. Rolando’s testimony, incidentally, is noteworthy for the disappointment expressed with the Obama administration, which has endorsed five-day delivery.
The White House, he said, “is like a deer frozen in the headlights on postal issues.” Despite the union’s political support, Obama “has not been of any great help on our critical issues, and we have to own up to that.”
It isn’t just your imagination—Congress really is spending more time on the urgent business of naming post offices.
In an online article today, the Courier Express and Postal Observer runs the numbers from 1973 to the present and finds a startling increase both in the number of post office naming laws, and their share of the overall volume of legislation passed in each Congress. Although the totals have fallen the last four years, they remain way above the average for much of the period in question.
The Observer attributes the trend largely to the post-9/11 desire to honor those who died in the 2001 terrorist attacks and the ensuing wars in Afghanistan and Iraq. It also tartly notes lawmakers’ failure thus far to pass legislation shoring up the U.S. Postal Service that runs all those post offices.
“It is too bad that Congress does not understand the irony in its rush to name post offices to honor heroes when it has not taken steps to ensure the survival of the institution whose facilities are used to provide the memorial.”
The chances of postal legislation clearing Congress this year are now zero following the House of Representatives’ abrupt decision to quit town Thursday night. A band of five retired and current postal workers nonetheless is nonetheless persevering in a hunger strike as scheduled through Saturday.
“We’re maintaining our guard,” Jamie Partridge, a retired city letter carrier from Portland, Oregon, said in a phone interview this morning. The group, encamped on the National Mall in downtown Washington, began the six-day fast at 9 a.m. Monday to protest efforts to end most Saturday mail delivery; they will keep going on until tomorrow at 5 p.m. The hunger strike is also intended as commentary on what the group sees as a congressionally sanctioned policy to “starve” the U.S. Postal Service by requiring it to pay billions of dollars each year into a fund for future retiree health care benefits. The five are part of a group called Communities and Postal Workers United that mounted a similar hunger strike in June.
This afternoon, participants and supporters are planning a parade up Pennsylvania Avenue to the White House, where they will seek to deliver a giant postcard to President Obama urging him to use his veto pen to block any legislation that lets the U.S. Postal Service go to five-day delivery.
That step is at the top of USPS leaders’ cost-cutting agenda. While the White House endorsed five-day delivery earlier this year, the move still effectively requires congressional approval.
A bill by Rep. Darrell Issa, R-Calif., that would have given the go-ahead never made it out of the House. A proposed compromise to allow continued Saturday package delivery drew some attention, but apparently couldn’t overcome disagreements between lawmakers over other issues. Although House members are scheduled to return to Washington on Dec. 27, it’s a safe bet that they’ll be focused on spending and tax issues, not the Postal Service.
The five hunger strikers occupied Issa’s office on Thursday. One–identified in a press release as John Dennie, a retired mail handler from New York–was arrested by Capitol police and later released, Partridge said.
As the U.S. Postal Service’s problems grow, its governing board is shrinking.
The board, which is supposed to have 11 members, currently has eight and will lose another next week when Chairman Thurgood Marshall Jr. steps down, leaving it with just one more body than the six needed for a quorum to conduct business.
As of today, however, the Senate Homeland Security and Governmental Affairs Committee hasn’t scheduled confirmation votes on three board nominations that have been awaiting action since summer. In an email, committee spokeswoman Leslie Phillips said she did not know the reason for the delay.
Although there have no recent meetings where the lack of a quorum has been an issue, “we look forward to having all the board vacancies filled and hope that happens as soon as possible,” USPS spokesman Dave Partenheimer said, also by email.
The increasing number of empty seats on what is officially known as the Board of Governors comes as the Postal Service is grappling with record financial losses and questions about its long-term direction as the Internet continues to drain away business. Besides nine presidentially appointed part-time members, the board includes Postmaster General Pat Donahoe and Deputy Postmaster General Ron Stroman. Among other jobs, the board sets postal policy, directs agency spending and decides top officers’ salaries.
“Certainly the Postal Service could benefit from the advice and wisdom of more members who bring a wide range of expertise,” Postal Regulatory Commission Chairman Ruth Goldway said in an interview. The mail carrier also needs “people of status” to take its concerns to Congress, she added.
The commission, which oversees the Postal Service, is facing its own personnel issues. The terms of two of its five members recently expired; while they can serve another year, the Obama administration has yet to either renominate them or name replacements, Goldway said. The White House did not respond to a request for comment.
Neither Marshall, a Washington lawyer, nor the incoming board chairman, Mickey Barnett, a former state legislator and lawyer from New Mexico, could be reached for comment. Because the panel usually meets in private, its influence is hard to assess.
But George Gould, a consultant and former lobbyist for the National Association of Letter Carriers, called the board’s makeup “a serious concern.” The Postal Service’s challenges are so great that the board “has become more directly involved in policy than it has in the past,” Gould said. “I think you need people who really understand the Postal Service, understand government, understand the employees.”
Under the law, board members are supposed to be chosen for their experience in public service, law, accounting or demonstrated management ability. They collect a base annual salary of $30,000, along with as much as $12,600 depending on the number of meetings each year. Their seven-year terms can be extended for another year in the absence of a replacement.
Of the three nominees whose appointments are awaiting Senate action, two are no strangers to the Postal Service. James Miller, who headed the Office of Management and Budget during part of the Reagan administration, was on the board from 2003 until last year; Katherine Tobin, a senior Education Department official earlier in the Obama administration, served from 2006 to 2009.
The new member, if confirmed, would be Stephen Crawford, a public policy professor at George Washington University who has written on postal issues. In an interview, Crawford attributed the nomination holdup to the press of other business and the fact that Congress has mostly been out of session since the Senate committee held a hearing on his nomination in July.
But with lawmakers now consumed with tax and spending conundrums, Crawford wasn’t counting on a final confirmation vote before the 112th Congress effectively goes out of business next month.
“There may just be too many other things competing with the limited time left.”
The U.S. Postal Service may have its problems, but they evidently aren’t severe enough to persuade many supervisors and administrators to jump at an early retirement offer.
Out of 3,594 Executive and Administrative Schedule employees eligible for the package, just 186 signed up by the Nov. 19 deadline, according to Postal Service figures provided today.
The package—standard for the federal government–allows employees to retire early if they are at least 50 years old with a minimum of 20 years’ service, or any age with at least 25 years’ service. Unlike recent early retirement offers to postmasters, mail handlers and clerks, however, this one was not coupled with a cash incentive (i.e., buyout).
“If there was an incentive, you could have gotten a lot more,” Louis Atkins, president of the National Association of Postal Supervisors, said in an interview. But because there are already plenty of vacancies in EAS ranks, he said, “it would have been very difficult to convince Congress that they needed that.” Factor in the shaky economy and the fact that Civil Service Retirement System participants under 55 take a penalty for retiring early, and Atkins wasn’t surprised at the low number of takers.
The Postal Service had unveiled the offer in September, saying at the time that about 3,300 employees were eligible. Those who have accepted must leave by year’s end. But Atkins was confident that more EAS early retirement offers are coming next year as the Postal Service resumes mail processing plant closures and consolidations.