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Postal Regulatory Commission:

USPS Could Lose Millions in Proposed Deal

Web News Article #: 
99-2007

10/29/2007 - The Postal Service could lose more than $45 million if a proposed agreement with the Bank of America Corporation is implemented, the Postal Regulatory Commission (PRC) concluded in early October, but the commission decided nonetheless that the agreement could be justified under the Postal Accountability and Enhancement Act.

The APWU opposed the agreement, arguing that USPS predictions of savings were based on obsolete data. Although the commission did not reject the Negotiated Service Agreement (NSA) as the APWU requested, its conclusion echoed arguments and analysis made by the APWU.

In a brief filed before the commission, the APWU asserted that, “If adopted, it would cause the Postal Service financial harm; … it would not be fair and equitable; and it would constitute an unreasonable preference between mailers.”

The PRC ruling concluded, “The Postal Service has been given broad rate and classification authority….” but it strongly cautioned the USPS Board of Governors that “several significant financial concerns related to this Agreement have come to light. This independent evaluation should be used by the Governors to inform their decision on whether or not to proceed with this Agreement.”

In a dissent from the majority opinion, PRC Vice Chairman Dawn Tisdale wrote that while he supports Negotiated Service Agreements in principle, “the Postal Service has information showing that this is a bad deal financially that is likely to be viewed by other mailers as discriminatory. It is too certain that the Postal Service will lose money, and certain that the losses will be too substantial, between $25 million and $45 million, for me to recommend this agreement.”

Commissioner Ruth Y. Goldway agreed in part with Tisdale’s dissent: “First and foremost, through this NSA, the Postal Service will lose between $25 and $45 million and opens itself — if it is to be fair to other similarly situated mailers — to lose much more.” But Goldway ultimately decided to “go along with the majority” and voted to approve the NSA with the Bank of America.

The essence of the NSA is a proposal to compare current “read and acceptance rates” for Bank of America mail to the average read and acceptance rates throughout the USPS in 1999, and to reward Bank of America for exceeding those rates, the APWU noted. Read and acceptance rates have improved significantly in the intervening years, the union contended, so the 1999 rates cannot provide a valid baseline for the NSA.

In its decision, the PRC notes, “Read/accept rates have improved steadily since 1999. Through the diligent discovery efforts of an employee organization, recent, reliable Postal Service read/accept data from 2006 and 2007 surfaced. The Commission concludes that read/accept rates have improved to such an extent that Bank of America will not have to make any improvements in barcode readability to receive all available mail processing performance discounts.”

The Postal Service had estimated that the NSA and Bank of America’s commitment to the Intelligent Mail Barcode (IMB) system would produce a cost savings of $5.5 million

Commissioner Goldway sharply criticized the Postal Service: The NSA “demonstrates that the Postal Service is not yet capable of negotiating a good bargain within the framework of the PAEA,” she wrote. “The record of the case indicates that the Postal Service negotiators did not prepare themselves with all the necessary financial information and costing data when conducting the bargaining process with Bank of America”

The PRC report also noted that because the Postal Service will require “the use of IMB for all automation discount mail in the near future, incentives under this Agreement would be paid to Bank of America while other mailers may be required to adopt the same mailing practices without similar incentives.”

Negotiated Service Agreements are special rate and service arrangements between the USPS and a mailer. The USPS-Bank of America proposal was the first NSA considered by the PRC since the Postal Accountability and Enhancement Act became law on Dec. 20, 2006.