GAO questions USPS cost savings on POStPlan, USPS questions GAO’s tone

SteveStory

The Government Accountability Office has just issued a report about the cost savings the Postal Service may have achieved with POStPlan, the initiative that reduced hours at 13,000 small post offices and eliminated their postmaster positions.  As the report makes clear, the plan has not saved the $500 million a year that the Postal Service had projected.  It’s hard to say, however, exactly how much POStPlan has saved — and that’s the GAO’s main issue with the Postal Service’s accounting.

The GAO prepared the report in response to a request from Congressmen Jason Chaffetz and Mark Meadows, who chair the House committee and subcommittee that oversee the Postal Service.  They wanted to know how the arbitration decision on the dispute with the APWU were effecting POStPlan staffing and estimated cost savings.

The report was originally entitled “U.S. Postal Service: Improved Guidance, Data, and Analysis Are Needed to Inform Future Efforts to Achieve Savings.”  It criticized the Postal Service for failing to do a more rigorous analysis of the cost savings, before and after implementation of the 13,000 downsizings.

As is customary, the GAO shared a draft of its report with the Postal Service.  Edward F. Phelan, Jr., Vice President of Delivery Operations, responded with a letter saying that the Postal Service “disagreed with the title, tenor, and tone of the document.”

For the final report, the GAO softened the title a bit. It’s now called  “Post Office Changes Suggest Cost Savings, but Improved Guidance, Data, and Analysis Can Inform Future Savings Efforts.”  The report also incorporated the Postal Service’s refutations of the GAO’s criticisms.

The report remains very critical of how the Postal Service has dealt with the cost-savings issue.  That is itself noteworthy, since the GAO has historically been very favorable toward post office closings and other cost reduction efforts.  One would expect the GAO to support POStPlan with few if any reservations.  But even the GAO questions the financial effects of POStPlan, and it makes several recommendations about how the Postal Service should proceed if and when POStPlan expands to more post offices.  

 

Revising the cost savings

In many respects, the GAO report is nothing new.  The lack of precision in the Postal Service’s cost-savings estimate was identified as a problem by the Postal Regulatory Commission in its August 2012 advisory opinion on POStPlan, before implantation began.   But the GAO report shows that more than three years into POStPlan, the Postal Service still hasn’t done a very rigorous cost-savings analysis.

The Postal Service has explained that POStPlan did not aim for a specific cost-savings goal, so a “quick and dirty” approach was good enough.  To come up with an estimate for the PRC, the Postal Service simply figured the pre-POStPlan cost of labor (by multiplying the number of impacted offices by the average postmaster salary with benefits), and then subtracted the cost of labor after POStPlan, when the 13,000 offices would be staffed by workers earning a relatively low hourly wage.  That yielded a savings of $516 million a year.

The PRC pointed out several flaws in the methodology — the actual salaries were probably higher than the average, over 3,000 offices were already staffed by part-time workers, and so on.  The GAO report makes the same points, as well as noting several other sources of “imprecision” in the more recent set of calculations prepared by the Postal Service.

After the PRC advisory opinion was issued, a labor arbitration decision in 2014 determined that Level 4 and 6 POStPlan post offices would need to be staffed by bargaining-unit employees, such as clerks, rather than the less costly part-time employees the Postal Service had planned to use.  That decision had a serious impact on the cost savings.  The Postal Service estimates that labor costs are now  $181 million more than originally estimated.  That brings the total savings down from $518 million a year to about $337 million — roughly a third less than projected.

The GAO also found many inaccuracies and errors in the Postal Service’s data on labor costs, which cast doubt on the reliability of the savings estimate.  Then there are all the other costs associated with the plan that are not figured in to this estimate — like the cost of giving thousands of postmasters a retirement incentive ($69 million), the cost for modifying lobbies so they can be open 24 hours a day ($8 million for 2,200 offices, plus an unknown amount for another 2,200 offices), the cost for administering 13,000 community meetings and doing all the surveys ($389,200), as well as various other largely unknown or hard-to-figure administrative costs.

 

Estimating lost revenue

In its advisory opinion, the PRC expressed concerned about how reducing hours might impact revenues, so it recommended that the Postal Service keep close track of the changes in revenues at POStPlan offices and the nearby offices where business would presumably migrate.  Now that the GAO has had an opportunity to compare actual revenues from before POStPlan with after, it’s clear that reducing hours has had a significant impact on revenues at the 13,000 post offices.

The POStPlan post offices brought in about $565 million in FY 2011, before the changes began, compared to $401 million in FY 2015 — a drop of nearly 30 percent.  During that same period, revenues at all post offices declined by about 14.6 percent (about 4 percent a year).

Cutting hours therefore caused POStPlan offices to suffer a decline in revenues that was about twice as large as the average post office.  This not only shows the effect of cutting hours.  It also makes it likely that more offices will be downgraded after further review, which will lead to yet further revenue declines.

In its defense, the Postal Service told the GAO that the revenue was not lost.  It had simply migrated to other sources, like the Administrative Post Office for each POStPlan office, other alternative access points (like Village Post Offices), and online with USPS.com.

The Postal Service also noted that total revenues for all POStPlan offices, including the APOs, remained the same — percentage-wise in terms of total walk-in revenues — which provides some evidence that the revenues did migrate to other post offices.

“Overall,” the Postal Service told the GAO, “customers who are served by POStPlan offices appear to be using the Postal Service’s products and services at roughly the same rate as those served by non-POStPlan offices.”

The GAO did not seem very convinced by the Postal Service’s responses.  It instead concluded that the Postal Service had embarked on POStPlan with an “incomplete picture” of the impacts on revenue the plan would have.

The GAO has recommended that the Postal Service be more rigorous in its analysis of costs and lost revenue if it is going to expand POStPlan to more offices.

“Improving the quality of future POStPlan revenue analyses, especially as the program potentially expands to additional offices,” states the GAO, “could help USPS better understand the implications of POStPlan and inform future decision-making as USPS conducts workload re-evaluations of post offices.”

 

Was it worth the costs?

Given the defensiveness in the Postal Service’s response to the GAO report, one wonders if the Postal Service will follow any of the GAO’s recommendations before proceeding with further downgrades.

Not that it may matter much.  Most of the damage has already been done.

The bond between postmaster and community has been severed in 13,000 small towns.  Thousands of experienced postmasters retired from the Postal Service, many before they would have chosen to, and thousands of others transferred to a new position, often far from home.  In the end, about 450 postmasters were involuntarily separated by a Reduction in Force (RIF).  Millions of people are living with the inconveniences of a post office that’s open only part of the day.

And what did the Postal Serve gain in the end? It’s saving about $300 million a year, minus various hard-to-figure costs and whatever revenues that POStPlan has driven away.  The plan is maybe saving $200 or $250 million a year, about half what the Postal Service originally estimated.

That may still seem like a sizable savings, and in its letter to the GAO, the Postal Service maintains that the savings are “large” and ““significant.”  To help make the point, the Postal Service notes that the plan will save $3 billion over ten years.

But this $250 million, or whatever the actual savings, represents a tiny percent of the Postal Service annual revenues of $69 billion — about 0.2 percent.  Relatively speaking, it’s not really very “large” or “significant” at all.

In another way, though, it is a significant amount — it’s probably about how much the people served by POStPlan post offices are spending on time and gas to travel to another post office when the one in their town is closed.  In the PRC’s advisory opinion on the 2011 plan to close 3700 post offices, which was supposed to save $200 million, one expert witness estimated it would cost 16 million customers $232 million in additional fuel costs — more than the Postal Service would be saving.

In the same way, POStPlan has just shifted the Postal Service’s costs to postal customers, which in this case are the millions of people who live in rural America and have a POStPlan post office.

Given the problems the plan has caused and the relatively small cost savings it has produced, one has to ask, was POStPlan really worth the trouble?  Is the Postal Service really going to proceed with downsizing thousands more post office and displacing their postmasters too?  Will the savings be worth the cost?


Read the full GAO report.  There’s more on POStPlan here.

Photo credit: Sign on post office door in Craftsbury Commons, VT

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