Advocacy Group Urges New PMG to Act on Old Challenges

When a new leader is appointed to any significant government entity, it’s not unusual for groups to contact that individual to urge action on the writers’ key issues.  So it was when Tom Schatz, president of Citizens Against Government Waste, a conservative DC think tank, wrote on June 19 to new Postmaster General Louis DeJoy, urging DeJoy to take his recommendations on topics of interest to that group.

Recommendations

After reciting well-known numbers illustrating the financial straits of the Postal Service, Schatz urged DeJoy “to consider the following principles, highlighted both by CAGW and the US Treasury Department’s Postal Task Force’s Report, United States Postal Service: A Sustainable Path Forward.”  Schatz focused on six specific topics:

  • “Focus on the core mission of physical mail and package delivery. An entity so financially unstable that it struggles with its core operations should not expand into non-core businesses in private markets where it does not have recognized credibility or expertise.  Too often the USPS’s motives for striking out into these non-core businesses is not to remedy a market failure, but to justify and create make-work for a bloated workforce.  Alternatively, as in the case of postal banking, USPS is chasing illusory and unrealistic revenue estimates, without any serious consideration of the associated regulatory complexity and risk.  All proposals to have the USPS enter into financial services should be rejected.  As the Treasury Department’s Task Force report stated, ‘[g]iven the USPS’s narrow expertise and capital limitations, expanding into sectors where the USPS does not have a comparative advantage or where balance sheet risk might arise, such as postal banking, should not be pursued.’”

Aside from the simple absence of undeveloped high-margin opportunities outside its core business that the USPS might conceivably pursue, the notion of postal banking has been advocated by liberal politicians (such as Sens. Bernie Sanders (VT) and Elizabeth Warren (MA)) as a socially desirable service for persons who, for whatever reason, do not use commercial banks.  Regardless of the social benefit of such a service, the question is why the USPS – with no expertise in the field – should undertake the risk of serving persons that commercial banks – who do have financial expertise – have reasons not to.  So far, the USPS hasn’t bought into the idea.

  • “Prioritize private sector partnerships.  Postal private partnerships called work-sharing should be expanded to outsource the cost and risk of many activities that could more efficiently be performed by the private sector. USPS management should leverage work sharing to reduce costs and improve operational efficiency. Third-party private-sector logistics, processing, and delivery partnerships will help wring excess costs from the USPS’s operations. Workshare has been a successful model for USPS since the 1970s; We urge you to advocate for the expansion of work-sharing wherever possible.”

The postal clerks’ union abhors work-sharing because it reduces the need for mail processing work by its members. Unfortunately for the union, the concept of outsourcing activities currently performed by postal employees is most feasible for those tasks that the union’s members now perform. All aspects of mail processing, between collection and delivery, could be outsourced to contractors subject to USPS performance standards. (Ironically, USPS employees are not themselves subject to any performance standards.)

The biggest obstacle, which Schatz didn’t mention to DeJoy, is the significant political influence the postal unions have in Congress – a tool that the unions would readily use to thwart any further outsourcing or work-sharing by the USPS.

  • “Improve the USPS’s ability to identify wasteful and inefficient practices.  Several recent USPS OIG reports highlight the agency’s difficulties in identifying efficiencies and realizing savings.  A 2018 USPS Inspector General (IG) audit report found that the agency had predicted that it would save $1.6 billion due to an operational window change for FYs 2016 and 2017, but it only saw a paltry 5.6 percent of the projected savings for both years.  The report concluded that it was not only ‘unlikely’ that the USPS would ever achieve the yearly $805 million in savings, but also that management never developed any way to track the savings.  A 2019 March IG report found that the USPS’ overall transportation costs have risen by 18 percent in the past decade, even though mail volume has dropped by 26 percent and service standards were lowered.  The OIG found that the USPS could not adequately explain the reasons for the disconnect.  A January 30, 2019 IG report reviewing USPS’s methodology for calculating savings related to reducing surface transportation costs and eliminating unnecessary highway contracting routes found that the methodologies used in that effort were ‘inadequate,’ ‘undocumented,’ and ‘inconsistently followed.’  As a result, the USPS had overstated its savings in that program by $119 million.  We ask that you support better cost control and cost accounting procedures to ensure that cost-saving initiatives achieve their stated goals.”

While there’s likely some substance to criticism of the USPS for the accuracy of its savings estimates or its ability to realize them, Schatz omitted reference to the role played by Congress in impeding the USPS from executing all that it had planned.  The 2012 service standard change and ensuing facility consolidations and transportation realignments were designed to be implemented as a whole, yet political interference caused over four dozen facilities planned for closure to be retained (and still operating).  Therefore, though some criticism is merited, not all of the agency’s failures to achieve planned results can be laid at its doorstep.

  • “Impose an immediate hiring freeze on new postal employees.  This is the first order of business for a new leader of any company of any size with serious financial problems.  When the hole is this deep, it is time to stop digging.  The USPS could and should get by with fewer workers.  It may be more difficult for those who remain, but they would still have jobs.”

Schatz again overlooks that DeJoy isn’t empowered to act contrary to the admittedly generous provisions of USPS labor agreements.  Long ago the agency agreed to the “no-layoff clause” and set the pattern of regular raises and cost-of-living allowances; non-career workers are guaranteed automatic conversion to career status under specific circumstances, and rigid work rules prevent moving employees to different assignments as workload shifts.

  • “Realign labor costs and practices with the broader labor market.  Labor costs make up 76 percent of USPS’s overall operating costs, a trend that continues even though the agency has shed 300,000 jobs since 1999.  Labor contracts between the USPS and its unions are negotiated as if the USPS was a thriving, profitable concern, and feature escalating wages and cost-of-living increases.  Current binding arbitration rules do not permit arbitrators to take the USPS’s financial condition into consideration. 

    The Treasury Department’s Postal Task Force Report recommends that USPS ‘align compensation for both its career and non-career workers with peers in the broader labor market.’  Reforms in this area would dramatically reduce costs and put the USPS on a level playing field with its private-sector counterparts.”

As noted, Schatz is writing as if DeJoy could unilaterally alter the existing USPS labor contracts, and fails to note the level of resistance the unions (and their political allies) would muster to any effort to trim what those contracts provide.  Moreover, he didn’t mention the Postal Service’s dismal record when contracts are resolved by arbiters.  Aligning USPS salaries and benefits to the private sector also overlooks the differences that apply to the two groups under federal law, notably the access of postal workers to federal health insurance and retirement programs and the contributions the agency makes to both that are more generous that those of private sector companies to their corresponding programs.

  • “Allow USPS to close and consolidate underperforming facilities.  While USPS management has the authority to close postal facilities without congressional consent, USPS has struggled to consolidate and shutter some of its failing facilities because of a set of overly cumbersome rules, as well as congressional interference.  That process should be streamlined, and congressional meddling must be kept to a minimum.”

As noted above, postal executives long have been well aware of the opportunity to reduce costs by making the postal retail and processing networks more efficient, and Louis DeJoy won’t see anything in that regard that isn’t already obvious.

The challenge he will face, as have his predecessors, is the resistance of the postal unions, local communities, and politicians to USPS actions that alter services, trim complement, close retail facilities, or consolidate operations. Schatz’ advice is far from novel and overlooks the political reality in which management’s “authority” must operate.

What’s next

Much of what Schatz is recommending reflects his lack of appreciation for the difference between what the private sector can do and what a public entity like the USPS can do.  Regardless of whether his ideas are sensible, they can’t be implemented as easily as he might think in an organization that’s hamstrung itself in labor agreements and meddled with constantly by self-serving politicians.

Given that DeJoy is the selectee of business-oriented governors who themselves were nominated by a conservative, business-oriented president and confirmed by a conservative Senate, Schatz likely expects his opinions to be well-received; maybe they will be.  And cynics might suspect that Schatz is acting as an “objective” advisor channeling administration views on what DeJoy should do; that’s unknown.

What is known is that addressing the challenges Schatz listed isn’t as easy as he, or DeJoy, or any past PMG, might like and that resolving them will take more than an executive decision as could be made in the private sector.

Of course, what DeJoy will do remains to be seen.

 

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