Postal Service solution: Cut costs not service

U.S. Sen. Susan Collins, R-Maine
U.S. Sen. Susan Collins, R-Maine

Editor’s note – U.S. Sen. Susan Collins, R-Maine, spoke in support of S. 1789: 21st Century Postal Service Act of 2012 on March 20. Her speech follows:

The Majority Leader has indicated that the Senate may soon turn to legislation to reform an American institution, the United States Postal Service.

Our Founding Fathers recognized the importance of having a Postal Service. Article I, Section 8, of the Constitution gives Congress the power to establish Post Offices.

The Postal Service is also required by law to provide, as nearly as practicable, the “entire population of the United States” with “adequate and efficient postal services at fair and reasonable rates.” This is called the universal mandate and ensures that the Postal Service cannot leave rural states or small towns behind.

The Postal Service, which has delivered mail to generation after generation of Americans, will not be able to make payroll sometime this fall, according to the Postmaster General himself. 

In the past two years alone, the Postal Service has lost $13.6 billion, and first-class mail volume has dropped 26 percent since 2006.

No one wants the mail to stop later this year. That means that we must pass a bill.

The U.S. Postal Service is the linchpin of a mailing industry that employs more than 8.5 million people and generates almost $1 trillion in economic activity every year. Virtually everyone — from big retailers to small businesses to online shops — relies on the Postal Service to deliver packages, advertise services and send out bills. The jobs of American in fields as diverse as direct mail, printing, catalog companies, and paper manufacturing all are linked to a healthy Postal Service.

Nearly 38,000 Mainers work in jobs related to the mailing industry, including thousands at our pulp and paper mills like the one in Bucksport, Maine, which provides paper for Time magazine.

The crisis facing the Postal Service is dire, but not hopeless. With the right tools and action from Congress, the Obama Administration, and the Postal leadership, the Postal Service can reform, right-size and modernize.

My colleagues, Senators Lieberman, Carper, Brown, and I have crafted legislation to update the Postal Service’s business model and give it the tools it needs to survive and succeed. We have introduced a bipartisan bill that will help the Postal Service reduce operating costs, modernize its business model, and innovate to generate new revenue.

However, the Postmaster General and I fundamentally disagree on how to save the U.S. Postal Service. He continues to make decisions that will severely degrade service and drive away customers.

It is clear we have two very different visions on how best to help the Postal Service. While each of us wants to ensure the Postal Service is set on a sustainable path, I fear Mr. Donahoe’s approach would shrink the Postal Service to a level that will ultimately hasten its insolvency.

The current plan by the Postal Service to slow first-class mail, close facilities, and ignore Congress flies in the face of the good faith we extended during the many months we have worked on the reform bill.

We worked hand in hand over a number of months with the Postmaster General to craft a bill that would save the Postal Service money in a way that prioritized the lifeblood of the mail – mailers and the service around which business mailers have built their business models and around which individual customers have developed their mailing habits.

Despite these negotiations, the Postmaster General has pushed ahead with plans to abandon current mail service standards in favor of reduced access, slower delivery times, and higher prices, which will force many customers to pursue delivery alternatives. If those adjustments involve shifting to non-postal options in even a minority of cases – say 10 or 20 percent, the Postal Service would face an irreversible catastrophe. Once customers turn to other communication options and leave the mail system, they won’t be coming back, and the Postal Service will be sucked into a death spiral.

What do I mean when I say businesses will adjust their business model? Companies large and small that rely on the mail tell me that if service continues to deteriorate, they will conduct more business online and encourage their customers to switch to online services for bill-paying and other transactions.

Other businesses, such as small newspapers or pharmacy suppliers, have told me that they would seek non-postal delivery options, such as for local delivery and transport services. Again, let’s assume only a small fraction of businesses change their operations by shifting to these online or non-postal options – it could still spell the end for the U.S. mail system. For every five percent drop in First Class Mail volume, the Postal Service loses $1.6 billion in revenue.

That’s why the downsizing of the labor force and excess capacity that the Postmaster General states is so critical to saving the Postal Service must be carried out in a way that preserves service and does not inflict avoidable harm on these dedicated workers. Too many have assumed that this simply can’t be done.

But the fact is, there are many options to cut costs and expand revenue while preserving service such as: reducing the size of processing plants without closing them, moving tiny post offices into local grocery stores, reforming an expensive and unfair workers’ compensation program, allowing the Postal Service to ship wine and beer, refunding an overpayment into the federal retirement system, developing a new health plan that would greatly decrease the need to pre-fund future retirees benefits, and using buyouts to encourage employees to retire.

The Postmaster General is instead proceeding with a disastrously flawed plan, as evidenced by the recent announcement of draconian processing plant closures. This coupled with the still-pending closures of almost 4,000 mostly rural post offices and the Postmaster General’s push to eliminate of overnight and Saturday delivery tell me that the current Postal Service leadership is gravely underestimating the consequences of lesser service on revenue from customers who depend on the service as it is provided today.

It also suggests the Postmaster General is prepared to have rural America bear the brunt of service reductions in violation of the universal service mandate.

The Postal Regulatory Commission concluded just that in its analysis on the impact of the proposal to end Saturday delivery.

The Postal Service will not be saved by a bare-bones approach that will require massive adjustments by its customers. Perhaps that might have made sense in a time when customers had no other options, such as would have been the case decades ago. But today, the massive shift to online publications and commerce provides most businesses alternatives to using the mail. And a good portion of them will explore and settle on those alternatives if the Postal Service makes it harder for them to serve their customers.

Then there are the customers who simply can’t adjust their business model and could be forced out of business, taking the jobs they support with them.

Instead, the approach taken by our postal reform bill, the 21st Century Postal Service Act, would be to reduce excess capacity in the Postal Service while preserving service for customers. While our bill would not ban the closure of all postal facilities, it would establish service standards and allowed for meaningful public comment procedures that would ensure that delivery delays and impact on customers were mitigated. The result would be that most facilities would remain open so as to preserve overnight delivery, Saturday delivery, and easy access to bulk processing for commercial mailers. Our bill would still reduce the workforce and processing capacity at those facilities to match the volume coming in.

For example, rather than closing a plant that has excess capacity, our plan would allow a plant to downsize its labor and volume capacity. This could mean running one shift instead of two, or half a shift instead of a whole shift, using one sorting machine instead of two, using half the space and renting out the rest, and so forth. That way the plant still could process mail in the region providing the same service it receives today, while saving money.

Under the Postmaster General’s plan, however, the plant would close, and its volume would be processed much further away, often hundreds of miles away. That megaplant further away would add shifts and capacity to handle the new volume, but because of the distance, overnight delivery would no longer be possible or guaranteed, and Saturday delivery would end.

The loss in revenue due to dramatically reduced service under the Postal Service’s plan would not take place under our plan – and the negative ripple effects on customers, jobs, and the broader economy would be avoided.

With our bill set to come to the floor imminently, the Postmaster General has, nonetheless, moved forward with preparations for sweeping closures and service reductions. That means that even if our bill were to pass, get through conference, be sent to the President’s desk, and start to be implemented over the coming months, the Postal Service’s ill-conceived actions would have already done damage to its customer base.

Customers have to plan now for what they see coming. With all these closures announcements, customers are already making contingency plans. In this way, the Postal Service has already triggered the hemorrhaging of customers that our bill could prevent if it were to become law.

But on top of the damage already incurred, what this reckless move demonstrates is an attitude that is dead-set on its service-degrading, customer-be-ignored approach. That attitude seems so stubbornly entrenched that I worry that even if our bill becomes law, the current Postal Service leadership would not enact it properly in good faith. Without an attitude of “service first,” I am concerned that all the important processes and considerations we place in the bill could just become box-checking exercises for a Postal Service that is looking to just maintain the appearance of compliance rather than embarking on a new path.

This approach by the Postal Service is all the more inexcusable given its reputation for fuzzy math. By cutting service and raising prices, and not calculating the resulting disastrous revenue losses, we have to ask ourselves if the savings estimates under the Postal Service plan are pure fantasy.

This is nothing new – the Postal Service’s assumptions about projected losses and savings from service cuts have proven unreliable in the past. For instance, the magnitude of the savings the Postal Service estimates from eliminating Saturday delivery has been challenged by the Postal Regulatory Commission, in part because of the Postal Service’s significant underestimation of likely lost revenue.

Furthermore, we are relying on the Postal Service’s data and projections about savings and revenue, without giving the Postal Service’s regulatory body, the Postal Regulatory Commission, the opportunity to provide its Advisory Opinion. That opinion, likely due this summer, will provide valuable feedback from stakeholders and independent economic analysts.

I hope my concerns can be addressed. But for now, is it futile to move ahead on postal reform legislation? If the Postmaster General chases away his customer base with price hikes and service cuts before we can enact legislation to stop him, are we just wasting time trying to pass a bill that can no longer save the Postal Service? And if the Postal Service managers are so stubbornly attached to their flawed plan now, who’s to say they’ll faithfully execute the bill once it becomes law?

So, Mr. President, I find myself in a quandary, one created by the Postmaster General himself as he shifts from plan to plan, from negotiation to negotiation. This makes it extraordinarily difficult for those of us who want to save the historic Postal Service so it can continue to be a vital American institution for generations to come.