Legislative Issues Brief

National Association of Postal Supervisors

March 2011

National Association of Postal Supervisors
REPRESENTING MORE THAN 33,000 POSTAL SUPERVISORS, MANAGERS AND POSTMASTERS
AND THE LARGER POSTAL COMMUNITY OF MORE THAN THREE MILLION VOTING POSTAL FAMILIES

Five Things to Know About the Postal Service
Number 1. No tax-payer dollars support the United States Postal Service.
The Postal Service is self-funded without taxpayer dollars. Congress reorganized the Post Office Department in 1970 and created the U.S. Postal Service as an independent agency of the executive branch. The USPS operates as a commercial entity and is expected to cover its costs. The Postal Service has not received taxpayer dollars to fund operations since 1982. Its revenues, which amounted to $67 billion in 2010, rely on the sale of postage and mail products. Annual increases in postage rates cannot exceed inflation. To live within its means, the Postal Service, since 2002, has cut its costs by $43 billion, including $6 billion in 2009. These savings have come through work-force and overtime reductions, the renegotiation of more than 500 supplier contracts, the consolidation of facilities, the closing of administrative offices and cuts in travel expenses and supply budgets. These cost-cutting moves are continuing. tutional obligation of the federal government to maintain and operate post offices. The USO is achieved through a Postal Service delivery network that reaches all addresses in the nation and serves a larger geographical area than any other post in the world. The Postal Service delivers mail to 149 million residences, businesses and post office boxes in every state, city, town and borough in the country. UPS and FedEx do not deliver express mail or packages to suburban, rural and remote locations that are not profitable; they rely on the Postal Service to take their packages the “last mile” for delivery. Yet the Postal Service does not even impose a fuel surcharge on its customers.

Number 4. Postal Service customer service and trust are at record levels.
Customer satisfaction with the Postal Service and the Postal Service’s satisfaction of its own service standards are at the highest levels ever reported. For six years in a row, the American public has rated the Postal Service the most trusted government agency, according to the Ponemon Institute.

Number 2. The Postal System is an economic engine for the nation.
The Postal Service is the driver of a $1.2 trillion-a-year mailing industry in the United States, responsible for 8.3 million jobs. The Postal Service is the nation’s second largest employer, with 600,000 employees. The mailing industry includes catalog companies, publishers, charities, advertisers and transactional mailers— banks, insurance companies, utilities, telecommunications companies—as well as those that support these businesses, including printers, paper companies, technology companies and other service providers. These businesses and organizations rely on a healthy and affordable Postal Service to communicate with customers and promote commerce. Households rely on the mail to communicate and receive goods.

Number 5. The Postal Service is “Going Green.”
While mail remains reliant on paper and its delivery requires energy, the Postal Service is becoming an increasingly eco-friendly government agency. Its fleet of 44,000 alternative-fuel-enabled vehicles is the largest in the world and includes electric, three-wheeled electric, hybrid electric, ethanol, fuel-cell, biodiesel and propane technology. More than a half-billion of the packages and envelopes the Postal Service provides free are recyclable and made of environmentally friendly materials. Last year, the Postal Service recycled more than 200,000 tons of paper, plastics and other waste— the equivalent of saving 1.67 million barrels of oil, according to the Environmental Protection Agency. The EPA also reports that advertising mail represents less than 2.1 percent of the material in our nation’s landfills. By comparison, disposable diapers represent 2.2 percent; glass beer and soft-drink bottles, 3 percent; and yard trimmings, 6.9 percent.

Number 3. The Postal Service delivers everywhere, others don’t.
The Universal Service Obligation (USO) ensures that every American citizen can send and receive mail at affordable prices. The USO originates from the consti-

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NAPS Legislative Issues Brief Executive Summary
The National Association of Postal Supervisors represents more than 33,000 postal Supervisors, managers and postmasters and the larger postal community of more than three million voting families. NAPS urges the Senate and the House of Representatives to focus attention on three issues: communicates, the Postal Service must adapt. Congress needs to confer greater authority to the Postal Service to introduce new products and services that expand the definition of “mail,” as well as provide for wider pricing flexibility. This involves a reexamination of the Postal Service business model and its underlying legal and regulatory framework. The Postal Service also needs to continue to cut costs, reduce infrastructure capacity and eliminate wasteful programs. However, moving to five-day delivery should be the last resort, not the first, because of the greater and more preferable cost-savings available through restructuring of the Postal Service’s pension and retiree health benefit obligations.

1. Fix the Postal Service’s Financial Problems: Correct Pension Mistakes and Restore the Postal Service to Financial Stability
Two massive pension-related errors by the federal government have caused the Postal Service to near the brink of financial insolvency. These mistakes were avoidable. The Postal Service should not be penalized for errors that were not its doing and have driven it into the red. Congress should correct both errors and restore the Postal Service to financial stability. First, Congress should refund to the Postal Service the billions of dollars in overpayments the Postal Service has made to the civil service retirement fund in the federal treasury. Second, Congress should relieve the Postal Service of the huge financial burden of setting aside billions of dollars to satisfy the future costs of medical care for its retirees and restructure the prefunding payments to a more manageable level. These steps will generate a substantial savings to the Postal Service and return it to a more secure financial footing in the short term.

3. Pursue Balanced Deficit Reduction and Preserve America’s Commitments to the Postal Service and Its Employees
Increasing public concern over the size of the federal budget deficit and ballooning debt is drawing attention to federal mandatory and discretionary spending and taxes. The nation must restore fiscal order through a combination of cuts in mandatory and discretionary spending, as well as restore fairness in our nation’s tax code. No taxpayer dollars are used to run the operations of the Postal Service or compensate its employees. Cuts in the pay or retirement benefits of postal employees will not reduce the federal deficit. The key to successful deficit and debt reduction lies in shared sacrifice by all Americans.

2. Reinvent the Postal Service: Make the USPS Responsive to America’s Needs, Including Preserving Six-Day Delivery
The Postal Service must adapt to meet the changing needs of the American people. For more than 225 years, the Postal Service has served the communication needs of America. As America changes how it

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Fix the Postal Service’s Financial Problems: Correct Pension Mistakes and Restore the Postal Service to Financial Stability
Summary
Two massive errors by the federal government in the administration of the civil service pension fund have caused the Postal Service to near the brink of financial insolvency. These mistakes were avoidable. The Postal Service should not be penalized for these errors that were not its doing and have driven it into the red. Congress should correct both errors and restore the Postal Service to financial stability. First, Congress should refund to the Postal Service the billions of dollars in overpayments the Postal Service has made to the civil service retirement fund in the federal treasury. Second, Congress should relieve the Postal Service of the huge financial burden of setting aside billions of dollars to satisfy the future costs of medical care for its retirees and restructure the prefunding payments to a more manageable level. These steps will not use taxpayer funds, will generate a substantial savings to the Postal Service and return it to a more secure financial footing in the short term.

Will the Postal Service Run Out of Cash?
In testimony on March 2, 2011, PMG Pat Donahoe warned Congress the Postal Service would not have sufficient cash on hand on Sept. 30, 2011, to make a required payment of $5.5 billion into the Retiree Benefit Health Fund. “Without changes to the law mandating this onerous obligation,” Donahoe warned, “the Postal Service will be forced to default on a financial obligation to the federal government, due at the close of the fiscal year on Sept. 30, 2011.” The testimony was before the Subcommittee on Federal Workforce, U.S. Postal Service and Labor Policy of the House of Representatives. The Postal Service also will be required to make a $1.3 billion payment for workers’ compensation in November 2011.

An Avoidable Crisis for the Postal Service Nears
Without changes in current law, by Sept. 30, 2011, the Postal Service will be insolvent, unable to meet all its financial obligations (see sidebar). The Postal Service will reach its statutory borrowing limit, resulting in a cash shortfall.1 This alarming outcome will not be due to the Internet, or Postal Service mismanagement or even the deep economic recession. Two massive pension-related policy and administrative errors by Congress and the federal bureaucracy have caused the Postal Service to

reach the brink of financial insolvency. These mistakes were avoidable. The Postal Service should not be penalized for these errors that were not its doing. The funds should be returned to the Postal Service to satisfy other obligations mandated by Congress. Here’s why.

The Hidden “Stamp Tax” on Postage Ratepayers
An ongoing and long-standing error by a federal agency—the Office of Personnel Management—has forced the Postal Service to make pension overpayments into the federal civil service pension system. For the past four decades, the Postal Service has been required by OPM to pay far more than necessary to satisfy its pension obligations to its workers.

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Federal statute bars the Postal Service from borrowing more than $3 billion in any one year and $15 billion total (39 U.S.C. 2005(a)).

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These overpayments are documented. Following indepth investigations, the Postal Service’s Office of Inspector General (OIG) and the Postal Regulatory Commission (PRC) both have determined the Postal Service, since 1971, has overpaid its pension obligations to the Civil Service Retirement System (CSRS) by as much as $55 - $75 billion.2 The USPS OIG and the PRC conclusively found that the actuarial methods used by the Office of Personnel Management to determine CSRS pension costs for postal employees have been unfairly split between the Postal Service and the federal government since 1971, when the Postal Service was created, resulting in the overpayment. The OIG also found that the Postal Service has overpaid nearly $7 billion into the Federal Employees Retirement System (FERS).3 All overpayments have been deposited in the Civil Service Retirement and Disability Fund, an account within the Department of Treasury. The billions of dollars used to make these pension overpayments did not come from the Postal Service. The money came from postal ratepayers—businesses and individuals using the nation’s postal system— improperly charged for USPS retirement contributions far beyond the correct level. This has amounted to no less than a hidden “stamp tax” wrongfully imposed on postal ratepayers for more than four decades (see sidebar on page 6). It is time for the federal government to correct this wrong and recalculate the exact amount the Postal Service should have paid.

have contributed to almost 90 percent of the Postal Service’s $20 billion cumulative loss over the past four years.4 The payments have caused postage rates to rise and forced the Postal Service to incur tremendous debt. Why are the payments flawed? Congress, in the Postal Accountability and Enhancement Act of 2006, required the Postal Service to prefund its future retiree health benefits for the next 40 years at a cost of approximately $5.6 billion per year (Figure 1) for 10 years.5 In doing this, Congress moved the Postal Service from funding its retirees’ health care costs from out-of-pocket annual payments to prefunding those obligations for the present and future years. Congressional insistence that the Postal Service adequately prepare for its future financial obligations, particularly its large retiree health benefit costs, was a responsible policy decision. But the size of the Postal Service prefunding payments written into the 2006 postal reform law were far too large, driven principal-

Figure 1. Postal Service Retiree Health Benefits Fund Payments Under PAEA
Fiscal Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Payment (billions) $5.4 $5.6 $5.4a $5.5 $5.5 $5.6 $5.6 $5.7 $5.7 $5.8

A Crippling Set of Billion-Dollar Payments to Prefund Retiree Health Benefits
The second mistake that has thrown the Postal Service into the red involves a crippling and deeply flawed schedule of payments that Congress imposed on the Postal Service to satisfy its future retiree health benefit obligations. These retiree health benefit payments

Source: Postal Accountability and Enhancement Act (P.L. 109-435, Sec. 803; 120 Stat. 3251-3252; 5 U.S.C. Sec. 8909(d)(3)(A).) a. FY 2009 payment amount of $5.4 billion was reduced to $1.4 billion with enactment of P.L. 111-68.

2 Office of Inspector General, U.S. Postal Service, Management Advisory Report—Civil Service Retirement System Overpayment by the Postal Service (Report Number CI-MA-10-001), June 18, 2010. PRC Press Release: “PRC Finds $50 Billion Discrepancy,” July 30, 2010. The OIG-USPS study was conducted in conjunction with the Hay Group, a human resources consulting firm. The PRC study was conducted by the Segal Company, a human resources compensation consulting firm. 3 Office of Inspector General, U.S. Postal Service, Management Advisory—Federal Employees Retirement System Overfunding (Report Number FT-MA-10-001), Aug. 16, 2010. 4 Testimony of David Williams, Inspector General, U.S. Postal Service, before the Subcommittee on Financial Services and General Government, Committee on Appropriations, House of Representatives, Feb. 11, 2011, at 1. 5 Any remaining obligation is to be amortized over the subsequent 40-year period, beginning in 2017.

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ly by budget scoring requirements underlying enactment of the 2006 law.

This is a burden that no other organization, public or private, has been required to bear. No federal component—other than the Postal Service—has been required to prefund its future retiree health obligations. Even in the private sector, prefunding future retiree health obligations at such a massive payment rate Figure 2. USPS Operating Revenues and Expenses, FY 2004-FY 2010 is highly uncommon. The impact of these prefunding health benefit payments on the financial health of the Postal Service—even without its pension overpayments— has been horrendous. As Figure 2 shows, the Postal Service’s operating expenses outpaced its revenues after the Postal Service began paying into the Retiree Health Benefit Fund (RHBF) in FY 2007.
Source: U.S. Postal Service, Annual Reports, 2004-2010

deepest depths of the recession, the Postal Service would have been profitable were it not for these prefunding payments. As the chairman of the Postal Regulatory Commission recently pointed out, “Without the RHBF requirement, the Postal Service would have broken even financially, despite the large mail volume declines that occurred during that time and without use of its borrowing authority.”7

In the four years prior to the enactment of the prefunding requirement, the Postal Service saw positive net income in each of those four years (see Figure 3). Since 2007, the Postal Service has paid $21 billion into the RHBF and, during the same period, the Postal Service had a net loss of $20 billion.6 If the Postal Service had not been required to make the payments into the RHBF, it would have experienced no operating losses until FY 2009. Put another way, in two of the four years following enactment of the 2006 postal reform law, even during the

Figure 3. The USPS Is Experiencing Unprecedented Losses

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Includes one-time reduction of $4 billion.

Note: All years refer to fiscal years ending on Sept. 30.

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Statement of Ruth Goldway, Chairman, Postal Regulatory Commission, before the House Subcommittee on Federal Workforce, U.S. Postal Service and Labor Policy, House Committee on Oversight and Government Reform, March 2, 2011, at 4. 7 Id.

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Congress, nonetheless, has been slow to restructure the Postal Service’s prefunding payments, largely because of the impact on the federal deficit. Although the Postal Service is not included within the federal budget, the Retiree Health Benefit Fund is; assets deposited into the RHBF count as income for the federal government. This means that reducing or eliminating the Postal Service’s prefunding payments into the RHBF would appear to increase the federal budget deficit. The result: $42 billion in postal retiree health assets currently sit in the federal treasury, earning interest for the treasury and reducing the federal deficit, while the Postal Service is on a path to run out of cash in the coming months.

OPM Has Erred Multiple Times
As incredible as it may seem, there is a long history of repeated miscalculations by the Office of Personnel Management of the Postal Service’s pension obligations, resulting in billions of dollars of costly overpayments by the Postal Service into the civil service pension fund. • In 2002, it was determined the Postal Service was on track to overpay the Civil Service Retirement System by $78 billion. This error was corrected by Congress in 2003 through legislation. • In 2003, Congress rejected an attempt by OPM to make the Postal Service responsible for $27 billion in military service pension obligations for Postal Service employees. • In 2009, the Office of Inspector General (OIG) of the Postal Service found that OPM used an exaggerated forecast of health-care inflation in connection with Postal Service payments into the Postal Retiree Health Benefits Fund. The miscalculation was putting the Postal Service on track to overpay the PRHBF by $13.2 billion by 2016. Congress ordered OPM to review the forecast, resulting in its correction. • According to the Postal Service OIG and the Postal Regulatory Commission, the most egregious miscalculations have involved OPM’s repeated erroneous directives to the Postal Service over the course of 40 years, resulting in estimated overpayments of $7 billion into the Federal Employees Retirement System and $55 - $75 billion into the Civil Service Retirement System.

Correction of Postal Pension Overpayments Should Not Increase the Federal Deficit
We remain unconvinced that an intergovernmental transfer of funds from the federal treasury to the Postal Service—an independent establishment within the federal government—will increase the federal deficit. This transfer of funds is not intended to expand federal spending, but only to right an administrative wrong: overpayments into the civil service pension fund. Fair dealing between one arm of the federal government and another should not permit incorrect and unjustified payments into the federal treasury to stand. Moreover, the revenues for these payments were provided by postage ratepayers to fund benefits for postal employees, not non-postal federal employees. Fairness to the Postal Service and its ratepayers mandates the return of these overpaid funds to the Postal Service.

Correcting Two Wrongs Will Produce Financial Stability for the USPS
Meanwhile, the Postal Service has continued to sharply eliminate costs and increase productivity. It has reduced its work force by 240,000 employees in

recent years. Last year, it cut costs by $3 billion and expects to reduce spending by another $2 billion this year.8 At the same time, the Postal Service—aided by a conscientious and loyal work force—continues to deliver the mail at historic service levels. The current national score for overnight Single-Piece First-Class

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Statement of PMG/CEO Patrick R. Donahoe, supra, at 1. The Postal Service also has proposed to reduce delivery frequency by eliminating Saturday delivery—a move it projects will save $3 billion per year. The return of the Postal Service's pension overpayments and their use to satisfy future retiree health benefits will remove the need for the present time to cut a delivery day. That is why we regard the proposed move to five-day delivery as a last resort, not the first.

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Mail is at an astounding 96 percent on-time rate, an improvement over the same period last year. Without a change in the current law, the Postal Service faces severe liquidity problems, due to the burdensome retiree health prefunding payments. (In addition to the prefunding, the Postal Service also pays $2.2 billion for annual health benefit premiums for current retirees.) The Postal Service has forecast it will exhaust the $3 billion in borrowing authority available this year. It will hit the budget ceiling and run out of cash by Sept 30. In the 111th Congress, Sen. Tom Carper (D-DE), Sen. Susan Collins (R-ME) and Rep. Stephen Lynch (DMA) each introduced measures (respectively, S. 3831, S. 4000 and H.R. 5746) to establish a process to use the postal pension overpayments to fund the Retiree Health Benefit Fund obligations. The three measures did not advance, in part because of concerns by some that transferring funds from the CSRS to the Postal Service would add to the federal deficit. Sen. Collins has reintroduced her measure in the current Congress: S. 353, “The U.S. Postal Service Improvements Act of 2011.” Among other things, it would direct the Office of Personnel Management to recalculate the Postal Service’s pension obligations and transfer overpaid amounts to the Postal Service for its use in satisfying its future retiree health benefit obligations.

law. It also will remove the otherwise pressing need to pursue deep cuts in service, including realignment of the current six-day delivery schedule. (That is why we regard the proposed move to five-day delivery as a last resort, not the first.) In light of these profound accounting and payment errors and the Postal Service’s perilous financial condition, common sense suggests the Office of Personnel Management recalculate and identify how much the Postal Service overpaid to the Civil Service Retirement System and the Federal Employees Retirement System, and those amounts be credited to the Postal Service for use in satisfying its future retiree health benefit obligations. These overpayments will be more than enough to cover the liabilities the Postal Service faces for its future retiree health benefits.

Recommended Action
NAPS urges Congress to enact corrective legislation that, once and for all, corrects the massive financial mistakes that have been inflicted on the Postal Service. NAPS urges Congress to enact legislation that mandates: • The recalculation of the Postal Service’s pension obligation to the Civil Service Retirement System and Federal Employees Retirement System pension funds, using more equitable, reasonable and financially stable calculation methods and assumptions; and • A credit to the Postal Service for an overcharge in its payments into the CSRS and FERS pension funds and use of that credit to satisfy the Postal Service’s obligation to the Postal Retiree Health Benefit Fund, fully funding all mandated payments through 2016. These steps will generate substantial savings to the Postal Service. They will assign a fairer share of pension liabilities to postal ratepayers, free the Postal Service from unjustified legacy costs and return it to a more secure financial footing for the short term.

Congress Needs to Take Corrective Action
The colossal and continuing accounting mistakes carried out by executive branch authorities beckon immediate correction by Congress.9 Resolution of this error through the restoration and transfer of the correct amount of funds back to the Postal Service will provide sufficient assets to return the Postal Service to financial stability. It will satisfy the Postal Service’s greatest financial obligation, the prefunding of its future retiree health benefits through 2016, as required by the 2006 postal

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Incremental relief, such as that proposed by the Obama Administration, would provide the Postal Service breathing space in the current fiscal year. In its Fiscal Year 2012 budget, the Administration proposed deferring $4 billion of the $5.5 billion retiree health prefunding payment due on Sept. 30 and amortizing that remainder into future payments. The Administration also proposed gradually repaying the Postal Service for its FERS overpayments over the next 30 years. NAPS believes incremental relief is helpful, but is not the best option.

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Reinvent the Postal Service: Make the USPS Responsive to America’s Needs, Including Preserving Six-Day Delivery
Summary
NAPS encourages Congress to confer greater authority to the Postal Service to introduce and sell new products and services that expand the definition of “mail,” as well as provide wider pricing flexibility. This involves a re-examination of the Postal Service business model and its underlying legal and regulatory framework. The Postal Service also needs to continue to cut costs, reduce infrastructure capacity and eliminate wasteful programs. However, moving to fiveday delivery should be the last resort, not the first. During the past several years, NAPS has collaborated with the Postal Service on organizational changes to cut costs and find efficiencies; these are continuing. Cost management has been critical to keeping the Postal Service financially afloat. The Postal Service has reduced its work force by 230,000 jobs since 2000—a nearly 30 percent cut. No other federal government entity has downsized at such a breathtaking rate. Many of those job cuts occurred in the management and supervisory ranks, especially in mail processing centers. Large downward adjustments in the work hours of rank-and-file employees have increasingly shifted the burden of processing and delivery demands to postal supervisors and postmasters (see sidebar). NAPS supports changes in the law, infrastructure and operations of the Postal Service that make sense and will modernize and sustain Postal Service operations, products and services.

The Postal Service Needs to Adapt to America’s Needs
The Postal Service is the linchpin of a $1 trillion mailing industry that employs approximately 7.5 million Americans in fields as diverse as direct mail, printing, catalog production, paper manufacturing and financial services.1 Huge numbers of jobs rely on the mail. It is estimated that more than 7.5 million people derive their livelihood directly from the mail—from paper companies, printers, publishers and graphics designers to mailing preparation houses, software designers, clerks, carriers and postal personnel. The Postal Service needs to adapt to meet the changing needs of the American people. For more than 225 years, the Postal Service has served the communication needs of America. As America changes how it communicates, the Postal Service needs to change. Postal supervisors are doing their share to help the Postal Service modernize and change. NAPS takes seriously its responsibility to work with the Postal Service to preserve the health and vitality of the nation’s postal system. There is no other responsible option.

What Congress Needs to Do
NAPS urges Congress to confer greater authority to the Postal Service to introduce and sell new products and services that expand the definition of “mail,” as well as provide wider pricing flexibility. This will require a thorough re-examination of the Postal Service business model and its underlying legal and regulatory framework. The Postal Service also needs to continue to cut costs, reduce excess postal facility capacity and eliminate wasteful programs. However, moving to five-day delivery should be the last resort, not the first. Since March 2010, the Postal Service has promoted several cost-saving measures, including reducing the

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Sen. Susan Collins, press release dated Dec. 2, 2010.

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number of delivery days from the current six days per week to a five-day delivery structure. NAPS believes the Postal Service must develop new ways to become more profitable, but a reduction in delivery days is not the appropriate answer to the Postal Service’s problems. Better options are available.

Increasing Workloads Placed on Supervisors and Postmasters
As a result of the Postal Service reducing its work force by almost 30 percent since 2000, more pressure is on the management side— especially on supervisors. For example, a supervisor of 25 delivery routes now is expected to assure delivery with 20 carriers. NAPS members who work in processing facilities are expected to cover vacancies and persons on vacation or out sick with the remaining employees scheduled for work. Operational targets must be met—despite the shortages of manpower. When carrier routes are not covered, the supervisor is expected to get the remaining carriers to sort and deliver mail from open routes. These continuing challenges are increasing and straining the system’s human capacity. Ultimately, it will be necessary to re-examine the reasonableness of current Postal Service standards.

Five-Day Delivery: The Last Resort, Not the First
The start of five-day delivery for the Postal Service should be the last resort, not the first. Five-day delivery is rife with devastating outcomes for postal customers and the Postal Service itself. The better course lies in congressional action that restructures the Postal Service’s pension and health benefits payment obligations. Such actions will restore the Postal Service’s financial stability and remove the current need for five-day delivery. Congress has annually mandated a six-day delivery schedule since 1983. At first glance, one would conclude that reducing a postal delivery day is a promising way to cut costs. According to former Postmaster General John E. Potter, in testimony before a House subcommittee in 2010, it could save the Postal Service at least $3 billion a year.2 Those savings are tempting in light of the Postal Service’s financial situation. In September 2010, the Postal Service ended the fiscal year with an $8.5 billion net loss.3 It faces continued losses in the current year, along with serious questions over its liquidity, including whether it will have enough cash to meet current obligations by the end of this fiscal year, in September 2011. But as NAPS and others have continued to point out, the requirement imposed by the 2006 postal reform law on the Postal Service to prefund its future retiree health costs has been the chief culprit in forcing the service into the red. And chief among those obligations is the requirement imposed by the Postal Accountability and Enhancement Act of 2006 to prefund retiree health benefits with payments of approx-

imately $5.6 billion each year through 2016.4 Moreover, NAPS sees—for a host of reasons—perilous problems for the Postal Service should five-day delivery become a reality. These problems involve the precedent that would be set by the potential loss of exclusive access by the Postal Service to mailboxes, the disastrous consequences of delay to mailers and customers in the delivery of time-sensitive parcels and mail and the vicious downward spiral in mail volume that likely would result as users of the mail begin to resort to other means of delivery. NAPS believes the elimination of six-day delivery will be counterproductive to the Postal Service. It will pose problems for some business mailers who depend on Saturday delivery and will accelerate the migration of business mail to the Internet. It also will damage

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Statement of PMG/CEO John E. Potter before the Committee on Oversight and Government Reform, U.S. House of Representatives, April 15, 2010. 3 U.S. Postal Service, media release dated Nov. 12, 2010. 4 Postal Accountability and Enhancement Act, Public Law 109-435, Dec. 20, 2006.

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the competitive position of the Postal Service and cyclically draw volume down faster. Postal Service competitors will fill the vacuum and offer Saturday delivery at premium prices, gaining overall market share. Until the Postal Service presents a more compelling case for five-day delivery, Congress should refrain from giving approval to fiveday delivery. Five-day delivery should be the last resort, not the first.

These enterprise initiatives should be accompanied by efforts that assist the Postal Service to more rapidly replace or convert its gas-powered delivery vehicles with plugin electric vehicles. The Postal Service operates the largest civil“Partnerships with ian fleet of vehicles in the world, the private sector with about 220,000 vehicles.

On March 2, 2011, Rep. Sam Graves (R-MO) introduced a resolution (H. Res. 137) calling on the Postal Service to “take all appropriate measures to ensure the continuation of its six-day mail delivery.” NAPS supports this resolution.

are key to assuring the Postal Service leverages new technology.”

Also, Congress should provide sufficient funding and resources to empower the Postal Service and its carrier network to quickly deliver reliable and affordable antidotes during any national public health emergency. This should include the capacity to deliver emergency medical countermeasures to supplement state and local responses after a biological attack. President Obama, in an executive order in December 2009, called on the Postal Service to serve as such a countermeasure dispensing model. This is an urgent need. The congressionally appointed Commission on the Prevention of Weapons of Mass Destruction, Proliferation and Terrorism recently criticized the White House and Congress for not building a rapidresponse capability for dealing with disease outbreaks from bioterrorism.

Generating Greater Postal Revenue
Congress should provide the Postal Service with wider flexibility to introduce new products that reflect changing customer needs, generate needed revenue and allow the Postal Service to compete more aggressively and fairly in the marketplace. This involves introducing products and services that expand the definition of “mail,” as well as wider commercial use of postal facilities in partnership with government and the private sector. This includes: • Government-wide use of the Postal Service as the preferred provider of Parcel and Express Mail services • Partnerships with for-profit enterprises to generate “hybrid mail,” involving the transfer of hardcopy mail to electronic format, and vice versa • Expansion of USPS partnerships with UPS and FedEx to use post offices as the retail entry portal for their shipping services • Commercial partnerships with the private sector to expand the use of “last mile” delivery services • The co-location of government services, where practicable, within post offices • Making post offices one-stop shops for transactional local and state governmental services, including bill, fee and permit payments.

Cutting Unnecessary Costs
NAPS continually has sought to provide innovative and practical ideas to Postal Service top-management to cut costs and drive efficiencies. Some of these suggestions have been adopted, but many have not. These ideas have called for eliminating a number of wasteful Postal Service programs and practices, including the Mystery Shopper Program, contract employees, details to unauthorized positions, the VOE survey, the MHTS program, Priority Recovery Program, Spot Awards for all employees and many of the “perks” received by USPS officers and executives, including bonuses, non-contributory health and life insurance and relocation assistance at retirement. NAPS also favors the creation of flexible work rules covering craft employees to match the ebb and flow of mail.

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In addition, the Postal Service could capture significant savings through a reorganization of its operating structure. Its nationwide management framework, currently built around 74 district offices and seven geographic areas, is too large, bureaucratic and costly. The Postal Service should return to an organizational structure based on a smaller number of geographic regions. (The Postal Service was expected to announce a reorganization of its management structure on March 25, 2011.) The Government Accountability Office has noted that, by consolidating its field structure, the Postal Service would eliminate needless bureaucracy, save costs and operate more efficiently. The Postal Service needs to apply the same rigorous cost-cutting scrutiny to its upper-management ranks as it applies to middleand lower-management.

vices that expand the definition of “mail.” The Postal Service requires the vision, resources and know-how to develop these products. Partnerships with the private sector are key to assuring that the Postal Service leverages new technology to create cutting-edge electronic mail products. The parallel experience of the U.S. intelligence community in tapping new technologies is instructive. In 1999, Congress created a not-for-profit investment firm to identify, adapt and deliver innovative technology solutions to support the missions of the U.S. intelligence community. That technology development arm, called “In-Q-Tel,” has engaged over the past decade with entrepreneurs, growth companies, researchers and investors to deliver technologies that provide superior capabilities for government and the intelligence community. To date, In-Q-Tel has engaged with more than 175 companies and delivered more than 260 technology solutions to the intelligence community.

The Postal Service Clearly Needs to Modernize
For the foreseeable future, Americans will continue to demand services that ship and deliver hard-copy communications and packages to businesses and households. But demand for hard-copy communications also will continue to decline, as more and more Americans turn to the Internet.

American businesses will continue to “The find value in hard-copy advertising mail that is delivered to homes across will need to generAmerica. Priority Mail and package ate additional revservices—in competition with the Conclusion private sector—will remain an The current business model of the enues in innovative important part of the Postal Service’s Postal Service is outdated and out of ways.” product offerings. But the revenues touch with the future needs of these products alone will generate America. Today’s United States likely will not be enough to sustain Postal Service needs to become the infrastructure needed to sustain universal postal tomorrow’s United States Communications Service. services across America. Without a larger electronic footprint that bridges the tangible and virtual worlds of logistics and communiThus, the Postal Service will need to generate addications, the future of the Postal Service is narrowed to tional revenues in innovative ways. Congress should unattractive alternatives. provide the Postal Service with wider flexibility to enter new markets and introduce new products that reflect changing customer needs and tastes. This should involve the introduction of products and ser-

The Postal Service needs its own In-Q-Tel to achieve leverage that connects technology advances to improvements in communications, including and going beyond hard-copy mail itself. Congress should be the catalyst for creating such a non-profit investment firm for the Postal Service to better help it truly Postal Service modernize.

NAPS LEGISLATIVE ISSUES BRIEF

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Pursue Balanced Deficit Reduction and Preserve America’s Commitments to the Postal Service and Its Employees
Summary
Increasing public concern over the size of the federal budget deficit and ballooning debt is drawing attention to federal mandatory and discretionary spending and taxes. NAPS believes the nation must restore fiscal order through a combination of cuts in mandatory and discretionary spending, as well as restoring fairness in our nation’s tax code. No taxpayer dollars are used to run the Postal Service operations or compensate its employees. Cuts in the pay or retirement benefits of postal employees will not reduce the federal deficit. The key to successful deficit and debt reduction lies in shared sacrifice by all Americans. are falling short, requiring increasing borrowing to make up the difference, spawning greater and greater budget deficits. Over the long run, as the baby boomers retire and health-care costs continue to grow, the situation will become far worse. The President’s debt commission has estimated that, by 2025, federal revenues will be too small to finance spending and debt requirements. In fact, revenues will be so relatively small they will be able to finance only interest payments, Medicare, Medicaid and Social Security. That will mean that every other federal government activity, from national defense and homeland security to transportation and energy, will have to be paid for with borrowed money. At current rates, public debt will outstrip the entire American economy, growing to as much as 185 percent of GDP by 2035. Significant debt also will put America at risk by exposure to foreign creditors, especially China, who currently own more than half our public debt. Ironically, the interest we pay foreign creditors increases their standard of living and reduces our own. The non-security and non-entitlement spending portions of the federal budget constitute only 12 percent of the budget. To tackle budget imbalances, Congress needs to take aim at the largest and fastest-growing areas of the federal budget: Medicare, Medicaid and Social Security.

Deficit Reduction Is Necessary and Inevitable
Heightened public concern over the size of the federal budget deficit and expanding public debt is focusing attention on federal mandatory and discretionary spending and taxes. NAPS believes the nation must restore fiscal order to its financial health through a combination of cuts in mandatory and discretionary spending, as well as restoring fairness in our nation’s tax code. Budget cutting is never easy. Just as the Postal Service has cut costs and reduced the size of its work force—at a rate greater than any other component in the federal government—so Congress must make tough choices about what it wants to preserve and what the nation can learn to live without. We need to reduce our federal budget deficits to help ensure our children and grandchildren can look forward to a brighter future. The President’s debt commission spotlighted the truth that our nation is on an unsustainable fiscal path.1 Federal spending is continually rising and revenues

Deficit Reduction Should Not Take Aim at the Postal Service
The Postal Service was established by Congress in 1970 as an independent entity within the executive branch of the federal government with a unique charter

1

“The Moment of Truth: Report of the National Commission on Fiscal Responsibility and Reform,” Dec. 1, 2010.

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NAPS LEGISLATIVE ISSUES BRIEF

to operate as a self-sustaining commercial enterprise. No taxpayer dollars are used to finance the operations of the Postal Service or the compensation and benefits of its employees. The Postal Service is entirely selfsupported by the postage it receives from its customers for delivering mail, parcels and other products. Responsibility for assuring the Postal Service lives within its means lies with postal management. Cuts in the pay or retirement benefits of postal employees will not reduce the federal deficit.

federal agency, all postal employees and retirees participate in the same pension programs (Civil Service Retirement System and Federal Employees Retirement System) and the same federal health insurance programs as all federal employees, with important differences in health insurance overage. Health insurance coverage for postal employees and retirees is maintained through the participation of the Postal Service in the Federal Employees Health Benefits Program, the same program that covers federal employees and retirees (and members of Congress and congressional staff). However, no taxpayer dollars contribute to health insurance coverage provided by the Postal Service to its employees.

How Postal Employee Compensation is Determined

Postal Service officials negotiate with the postal The federal government pays 72 percent of the cost of employee unions over wages, health benefits and workhealth insurance premium coverage for civil servants. ing conditions. Federal law requires that compensation The Postal Service currently pays 78 percent of the cost and benefits for rank-and-file postal employees be of health insurance of its rank-and-file employees, as determined by collective bargaining between postal well as postal supervisors and postmasters. The differmanagement and the four unions representing the ence in premium payments between civil servants and postal work force. The law provides that compensation postal employees is due to collective and benefits for Postal Service officers bargaining between the postal unions and employees shall be “comparable” and management, in which greater to the rates and types of compensation bargaining emphasis by the postal paid in the private sector, such as “Cuts in the pay or unions has been placed historically delivery companies like Federal retirement benefits 2 on preserving health insurance coverExpress and United Parcel Service. of postal employees age than on pay demands. Collective bargaining, however, is gradually narPay for supervisors, postmasters and will not reduce the rowing the difference between civil other management employees is federal deficit.” service and Postal Service premium determined through a “consultation coverage over time. process” involving NAPS and the two other management associations and the Postal Service. The aim is to reach an adeConclusion quate and reasonable “differential” between first-line The key to successful deficit and debt reduction is supervisors and bargaining-unit employees that meets shared sacrifice by all Americans. No one will be or exceeds comparability standards.3 Within these enamored with all parts of a fair, comprehensive plan statutory salary limitations, the Postal Service continthat puts America’s fiscal house in order. The federal ues to provide performance-driven pay actions in supbudget cannot and should not be balanced on the port of enhancing a performance-based culture. backs of its postal workers and retirees. Meaningful deficit reduction should not violate the commitments Although the Postal Service is a quasi-independent made to current employees and retirees.

39 U.S.C. 1003(a) provides: “... It shall be the policy of the Postal Service to maintain compensation and benefits for all officers and employees on a standard of comparability to the compensation and benefits paid for comparable levels of work in the private sector of the economy.” 3 The law governing the Postal Service also provides that executives should be compensated at a level comparable to the private sector. However, the Postal Reorganization Act precludes the ability to achieve a comparable standard due to legislated compensation caps.

2

NAPS LEGISLATIVE ISSUES BRIEF

13

Frequently Asked Questions About NAPS and Postal Supervisors
What is NAPS?
The National Association of Postal Supervisors (NAPS) is a management association representing more than 33,000 active and retired postal supervisors and managers employed by the U.S. Postal Service. Organized in 1908, NAPS exists to improve the Postal Service and the pay, benefits and working conditions of its members. NAPS is a management association, not a union.

How are the wages of postal supervisors set?
While the pay of rank-and-file postal employees is negotiated through collective bargaining involving their unions, the pay of postal supervisors and postmasters is determined through a “consultation process” involving NAPS and the two other management associations and the Postal Service. Postal supervisors and postmasters do not receive annual wage cost-of-living adjustments, as do rank-and-file employees. Salary increases for management employees are determined through a rigorous pay-for-performance system.

Who are typical NAPS members?
Most are first-line supervisors and managers working in either mail processing or mail delivery—what’s called “operations.” But NAPS also represents men and women working in virtually every functional unit in the Postal Service, including marketing, human resources, training, corporate relations, law enforcement and health and safety.

How do NAPS members participate in legislative activities?
Approximately 600 NAPS members gather in Washington, DC, every spring for a three-day legislative conference. Much of that time is spent on Capitol Hill visiting members of Congress. Throughout the year, postal supervisors remain in touch with every representative’s district office and every senator’s state office, providing helpful information about the Postal Service and its operations.

Where do NAPS members live?
NAPS members live in all 50 states (and virtually every congressional district), as well as in Puerto Rico, the Virgin Islands and Guam.

How can I reach a postal supervisor? What legislative issues generally concern NAPS?
NAPS devotes its greatest attention to legislation that promotes the vitality and stability of the Postal Service. It also supports legislation that assures fairness in the treatment of federal and postal employees and retirees. Begin by calling NAPS Headquarters at 703-836-9660. Ask for Executive Vice President Jay Killackey or another resident officer. NAPS also can provide you with the name of either its legislative chair for the state you represent (for Senate offices) or with the name of a local or branch legislative representative who votes in your congressional district (for House offices).

How have changes in the Postal Service impacted postal supervisors?
Work-force downsizing and other challenges and changes have dramatically impacted postal supervisors. Nearly 3,600 management positions were eliminated in 2009 alone. Nonetheless, NAPS supports changes in the law, infrastructure and operations of the Postal Service that will modernize and sustain the operations and products of the Postal Service.

How can I get information about NAPS quickly?
For general information, visit NAPS' website: www.naps.org

For more detailed information, contact us by mail, phone or fax:
NAPS Headquarters 1727 King Street, Suite 400 Alexandria, VA 22314-2753 Phone: 703-836-9660 Fax: 703-836-9665

Why is a postal organization concerned about federal employee retirement and health benefits?
Although the Postal Service is a quasi-independent federal agency, postal employees and retirees participate in the same pension programs (CSRS and FERS) and the same federal health insurance programs as all federal employees.

National Association of Postal Supervisors 1727 King Street, Suite 400 Alexandria, VA 22314-2753 Phone: 703-836-9660 Fax: 703-836-9665 Website: www.naps.org

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