GAO Suggests Plant Closings, Two-Tiered Wage Structure for USPS

The U.S. Postal Service should look into closing more than half of its mail-processing facilities, be wary of "exigent" rate increases, and consider getting postal unions to "eat their young," the Government Accountability Office recommended today.

The news media are focusing on other aspects of the GAO's report, such as its support for giving the USPS the power to eliminate Saturday delivery, close post offices, and reduce its workforce. But three other significant recommendations in the report are escaping the headlines:

Two-tiered pay system
To rein in wages and benefits, which make up about 80% of its costs, the Postal Service should consider "a two-tier pay system that would pay new hires lower wages, while 'grandfathering' current employees under the current pay structure," the report says. In the labor movement, that is often called "eating your young" -- trading away future employees' pay in return for protecting the compensation and job security of current union members.

Close mail-processing facilities
The GAO urges the Postal Service to move faster in the closing of its 270 processing and distribution centers, stating that only two have been closed since 2005. (It apparently overlooked some recent closures and others that have been approved but not yet implemented).

"Some stakeholders have estimated that roughly over one-half of these facilities are not needed," the report says. "One senior USPS official estimated that about 70 processing facilities could be eliminated if local First Class mail were to be delivered in two days instead of overnight."

Postal officials acknowledge they have excess capacity in the mail-processing network, according to the GAO. Mailers complain that having too many P&DCs is a lose-lose proposition -- wasting the Postal Service's money while also making it harder for customers to get dropship discounts.

A caution on exigent rate increases
The report questions whether the Postal Service can implement exigent (higher than inflation) rate increases, as it plans to do early next year, because such rate hikes are "limited by law to extraordinary or exceptional circumstances." Some have questioned whether a financial crisis is the sort of circumstance Congress had in mind when allowing for exceptions to the inflation-based price cap.

"An exigent rate increase over the price cap may produce a large short-term revenue boost. However, a very large rate increase could be self-defeating by increasing incentives for mailers to accelerate diversion to electronic alternatives, thereby lowering revenues in the long run and adding to USPS excess capacity," the report says.

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