Section 3622(d)(1)(E) offers an escape valve from the CPI cap for exigent circumstances, when the Postal Service could not continue operating without overall price increases above the CPI. But the exception is narrow. The authors of PAEA recognized that exigency clauses are the potential Achilles heel of incentive regulation. If failure to recover actual costs led to relaxed enforcement of the index-based price cap, the incentive mechanism would lose its credibility as a control on costs. Hence, Section 3622(d)(1)(E) allows the Postal Service to breach the CPI cap only in "extraordinary or exceptional circumstances" that would otherwise leave the Postal Service short of the funds needed to provide necessary services despite the "best practices of honest, efficient and economical management."

The present circumstances do not begin to satisfy these requirements. The Postal Service claims that it needs more money for a variety of reasons, including the recession that began in December 2007, which has accelerated the long-term diversion of communications from mail to the Internet. But the Postal Service's most fundamental problem is not the Internet, or the recession, but a lack of effective cost control.

The Postal Service has long had great difficulty in managing its costs-particularly the costs of its mail processing network and its workforce. Until recently, the long-term growth of mail volume and revenue allowed the Postal Service to live with this problem. Over the past 15 years, however, the likelihood that the rise of the Internet would slow and eventually reverse the growth of mail volume has become increasingly obvious.

Despite ample notice of this threat, the Postal Service took only limited steps to get its house in order by reducing its plant capacity and labor costs and improving its flexibility to shed further costs quickly if the decline in volume and workload accelerated. In FY 2007, the last complete fiscal year before the start of the current recession, the Postal Service still carried an infrastructure and workforce designed to handle 300 billion pieces of mail annually-almost 50 percent more than actual mail volume in the same year, and twice the mail volume that the Postal Service projects for the year 2020.
With the recession came the day of reckoning. The Postal Service was hardly the only enterprise to suffer sharp declines in volume and revenue from the downturn. Most large American companies-including competitors of the Postal Service such as FedEx and UPS-experienced comparable or even greater declines. Indeed, many of the Postal Service's customers saw their own revenue fall by 20 percent or more. Efficiently run private companies, however, responded to the recession by making aggressive (and often painful) cuts in capacity and employment, and freezing or cutting wages and compensation. As a result, FedEx, UPS and other well-run private companies achieved large enough productivity gains to return to profitability within a quarter or two after the recession bottomed out in early 2009. Efficiently managed nonprofit organizations and municipal governments survived with similar austerity measures.

The Postal Service's countermeasures have been far less effective. It has done little since December 2007 to shrink or consolidate its oversized and inefficient mail processing network. It also has implemented virtually no layoffs or furloughs, and has relied almost entirely on attrition and other voluntary measures to reduce the size of the workforce. While these measures have reduced work hours, the downsizing has not come close to offsetting the drop-off in revenue and work load. As a result, while private sector productivity has increased, Postal Service productivity has fallen. Further, while most other American workers have endured pay freezes or cutbacks, the Postal Service has increased compensation rates that were already above market.

The result has been devastating. In Fiscal Year 2009, when prices in the overall economy actually declined, the Postal Service costs per unit of output increased by more than six percent. Had the Postal Service merely held its costs to the level of inflation in the general economy, the Postal Service would have made a profit in 2009.

The Postal Service's actual performance does not begin to approach the "best practices of honest, efficient, and economical management" required by 39 U.S.C. § 3622(d)(1)(E) as a condition for any exigent rate increase. Nor has the Postal Service satisfied the other two standards of Section 3622(d)(1)(E): that the circumstances causing the Postal Service's financial woes be extraordinary or exceptional, and that the projected shortage of funds would jeopardize the ability of the Postal Service to continue providing service.

This case should be recognized for what it is: less than four years after PAEA became law, the proposed rate increases would nullify the primary line of defense established by Congress to protect mailers and the American public from abuse of the Postal Service's market power. If the increases are approved, the central regulatory constraint of PAEA will be dead. With traditional cost-of-service regulation of class-wide rate increases having been repealed in 2006, allowing the Postal Service to breach the CPI cap whenever the Postal Service expects to lose money would eliminate any regulatory discipline on the Postal Service to control its costs.

The Postal Service's continuing failure to control its costs is a fundamental structural problem, and a long-run threat to the survival of the institution that can no longer be finessed by rising volume or price increases. Failure to confront this reality serves the interests of no one-least of all the Postal Service, its employees, and its customers. As Senator Carper commented a month ago:

Based on the work I've seen over the years from GAO, the Postal Service's Inspector General and others, we likely have some overcapacity and too large of a workforce. This must be confronted head on. Postal customers . . . still depend on the Postal Service. But at a time when the pace of electronic diversion is likely picking up, we probably can't rely for very much longer on customers' willingness to continue paying for a postal system that seems in many ways to be much larger than we need.
Without effective cost control, trying to make the Postal Service solvent through financial infusions will be like trying to fill a bucket with a hole in its bottom. The Postal Service will lurch from one financial crisis to the next.

 

Senator Collins Agrees Rate Increase Not Lawful
Senator Susan Collins (R-ME) released the following statement to the press in reaction to the Affordable Mail Alliance's filing seeking dismissal of the Postal Service's exigent rate increase proposal.

WASHINGTON, D.C. - U.S. Senator Susan Collins, Ranking Member of the Senate Homeland Security and Governmental Affairs Committee and author of the landmark postal reform law, the Postal Accountability and Enhancement Act of 2006, issued a statement today in support of the Affordable Mail Alliance's Motion to Dismiss the U.S. Postal Service's proposed rate increases.

The Alliance filed its motion with the Postal Regulatory Commission, arguing that the Postal Service's rationale for its proposed rate hikes does not meet the required criteria to use an exigent rate case - which would allow postal rates to exceed the annual price increase cap.

Senator Collins' statement follows:
"As the author of the 2006 postal reform law, I completely agree with the Affordable Mail Alliance that the Postal Service's proposed exigent rate increases are not justified under law. "Let me be clear. The authority to increase rates under an exigent case can only be used in extreme and unforeseen instances - such as terrorist attacks, natural disasters, and other events that would cause significant and substantial disruptions in service. The law was not meant to be used to remedy poor economic performance or to offset an ongoing marketplace trend, such as the increased use of electronic over traditional mail.

"In addition to not meeting the criteria set forth in the law, the exigent rate case is simply a bad business decision. Rather than help restore postal solvency, an exigent rate increase will worsen the Postal Service's crisis by further driving down mail volumes and thus revenues. Such action will erode further the Postal Service's already declining customer base. The Postal Service should be looking at initiatives that will increase volume and attract more consumers. These rate increases will do just the opposite."

Survey: Nonprofits Stretched to Breaking Point
The Johns Hopkins University Center for Civil Society Studies released the results of a national survey on July 14 that shows nonprofit organizations continue to struggle with the effects of the recession. Following the many tough business decisions to cut staff, freeze salaries and cut benefits, and assign responsibilities of laid-off workers to remaining employees, many nonprofits now lack adequate staff to deliver their programs and services to the American people. A press release on the survey findings follows.

RECESSION TAKING A TOLL ON NONPROFIT WORKERS AND PROGRAMS
From The Johns Hopkins University Office of News and Information

Nearly 40 percent of nonprofit organizations currently lack adequate staff to deliver their programs and services, according to results of a national survey released today by the Johns Hopkins University Center for Civil Society Studies. Almost a third of organizations reported net reductions in their workforces over the six months preceding the survey (October 2009-March 2010). In contrast, 23 percent reported employment gains during the same period and another 46 percent reported no change despite facing expanded needs.

This comes on the heels of earlier cutbacks. In a previous Johns Hopkins survey, 34 percent of organizations reported eliminating staff positions and 41 percent postponed filling new positions during the six months between September 2008 and March 2009.

"The pressures on nonprofits have accelerated and are clearly taking their toll," noted Lester Salamon, report author and director of the Johns Hopkins Center for Civil Society Studies, which conducted this survey as part of its Listening Post Project. "Organizations have shown enormous resilience and commitment to their critical missions, but this has come at a price."

Workforce reductions are only part of the story. Nonprofits have been forced to take additional actions that impact workers and the ability to deliver critical programs and services. Among responding organizations, over the recent six-month period covered by this survey:

49 percent "refined job descriptions," often a euphemism for increasing employee workloads and assigning the responsibilities of laid-off staff to remaining employees.

39 percent implemented a salary freeze, and 36 percent postponed filling new positions.

Other actions included increasing staff hours (23 percent), cutting or reducing benefits (23 percent), increasing non-program work for program staff (12 percent), and reducing wages (12 percent).

Changes in employment varied significantly by field. Organizations in two of the six fields covered in the survey (elderly services and community and economic development) reported overall employment growth, the former by 0.6 percent and the latter by 5 percent. This was likely a result of continued economic recovery program spending. In contrast, theaters reported job reductions of 6 percent. The remaining three fields also recorded reductions including orchestras (-3 percent), museums (-1 percent), and children and family service organizations (-0.7 percent).

Arts and culture organizations have been particularly hard hit with 56 percent of the theaters and 53 percent of museums reporting inadequate staff to maintain their existing activities.

Survey respondents were also asked about the impact of the recently enacted Federal HIRE Act, which provides exemptions from the employers' portion of payroll taxes (amounting to 6.2 percent of salaries). Just 15 percent of respondents agreed that the Act would encourage their organization to hire new workers in 2010, while 42 percent doubted that it would encourage their organizations to do so. Many of these felt that the Act simply did not provide enough relief over enough time to affect their ability to take on new workers.

"Nonprofits have been stretched to the breaking point," noted Peter Goldberg, chair of the Listening Post Project Steering Committee and president and CEO of the Alliance for Children and Families. "It is crucial to take steps now to help sustain the vital work of America's nonprofit organizations."

The 526 nonprofit organizations responding to the Listening Post survey included children and family service agencies, elderly housing and service organizations, community and economic development organizations, museums, theaters, and orchestras.

The full report "Recession Pressures on Nonprofit Jobs" is available online at http://ccss.jhu.edu .