USPS regulator raises ‘alarm bells’ as agency board reins in its budget request

The Postal Service’s regulator is looking to grow its tiny workforce to oversee some of the biggest changes in recent USPS history.

The Postal Regulatory Commission prioritized new hires and tech upgrades in its fiscal 2024 budget request to increase its capacity, after launching a public inquiry into USPS plans to overhaul its network of mail processing and delivery facilities across the country.

But it’s not getting everything it asked for, now that the USPS Board of Governors approves its spending, not Congress.

It’s not unusual for an agency to get less funding than it asks for, but the PRC is getting its funding from USPS at a time when the agency has pushed back against the public inquiry — and when Postmaster General Louis DeJoy has questioned whether USPS even needs a regulator.

Postal Regulatory Commission Chairman Michael Kubayanda said it “set off a few alarm bells” that the USPS Board of Governors reined in the regulator’s budget request, now that they control its purse strings.

“I think one of the things that occurred is that you have two different entities looking at the same issues in slightly different ways. I think both organizations were well-intentioned here, so it’s a matter of getting our heads together and getting on the same page, going forward,” Kubayanda said in a recent interview.

The commission, since 2007, went through Congress to get funding each year. But the Postal Service Reform Act signed into law last year brought the PRC back to a system that had been in place from 1970-2007, where the USPS Board of Governors approves its budget.

Kubayanda said that prior to 2007, the USPS Board of Governors generally did not probe into specific PRC priorities when reviewing its budget requests. But in this budget cycle, he said the board asked a lot of questions about the PRC’s approach to regulating, and why it wanted to invest in certain capabilities or needed certain types of experts.

“It did catch us a little bit by surprise. I think we have to keep in mind, we’re only in the second year of this new system, and so both organizations are kind of learning their way through it, and what we need to do is sit down with them and continue to communicate about the best way to run this process,” Kubayanda said.

“Now, these are perfectly reasonable questions in many contexts, when you’re talking about how funds are going to be used. But it’s a little bit different, when you’re talking about a regulator and an operator, and the operator is trying to determine what you think is appropriate for the regulator to invest in,” he added. “So those are some of the issues that started to set off a few alarm bells regarding independence. And I realized there might be a need to draw a few lines, even if everyone is carrying out their roles in good faith, as I believe they were.”

Senate Homeland Security and Governmental Affairs Committee Chairman Gary Peters (D-Mich.) said during a recent hearing that the Postal Service Reform Act, by moving the PRC’s funding out of the congressional approval process, will allow it to keep operating, even during a government shutdown, “which, hopefully, we won’t have.”

“The PRC is an independent agency, and as a strong regulator must certainly maintain sufficient independence from the Postal Service,” Peters said.

Kubayanda agreed that the commission is better off, now that it’s protected from the looming threat of a government shutdown, which would have forced it to pause much of its oversight responsibilities.

“It raised the risk of the commission shutting down, in case of a governmentwide shutdown. And that would be particularly bad, because the Postal Service keeps operating,” he said. “We really wanted to make sure that there is some alignment between the Postal Service itself and the Postal Regulatory Commission in that regard.”

USPS Board of Governors Chairman Roman Martinez IV said in a statement on Sept. 11 that the board’s members “recognize and respect that Congress has created the PRC as an independent entity with specific regulatory responsibilities over the Postal Service, and that it needs to have the resources to effectively perform those responsibilities.”

“At the same time, the governors also recognize the need for responsible stewardship of the resources in the Postal Service Fund, which ultimately derive from users of the Postal Service,” Martinez said.

PRC unable to ‘halt network changes’

Kubayanda said the commission will keep Congress notified about its funding concerns, but said the agency at this point isn’t looking for any further changes to how it receives its budget.

“We do want to make sure we bring this issue these issues of independence to the attention of the policymakers,” Kubayanda said. “I think we can make it work, maybe there’s some tweaks to how we run the process to make sure that the governors have all the information they need in their decision-making, and the Commission’s independence is respected.”

DeJoy has rebuffed the regulator’s public inquiry into USPS network modernization plans, telling lawmakers that the probe will “put this whole plan in jeopardy.”

But Kubayanda said the PRC doesn’t have the power to stop or change of course of USPS’ 10-year Delivering for America (DFA) reform plan. But it can ask USPS about its plans to build new facilities and consolidate others across the country, and how that will impact its costs and performance.

“At this time, we’re simply trying to find out what’s going on with the processing and delivery design changes. At this stage, we’re more open-ended, where any stakeholder can weigh in and ask questions,” Kubayanda said. “I think an important aspect of our authority is to provide that kind of transparency for these large changes that impact every American, but the Postal Service retains its flexibility and how they want to address those.”

At most, the commission can hand down an advisory opinion to endorse or critique how USPS is handling its network changes — but its advisory opinions are non-binding, and USPS isn’t required to adjust its plans around any PRC feedback.

“The commission’s advisory opinions are advisory, so the commission does not stop or halt network changes,” Kubayanda said.

The PRC, for example, told USPS in July 2021 that its plans to relax on-time mail standards, slowing nearly 40% of first-class mail, wouldn’t result in “much improvement, if any” to its current financial condition, and wouldn’t immediately result in the agency reaching its on-time delivery goals.

USPS, however, implemented the new standards anyway. Since then, the agency says it’s saved about $1 billion a year by drastically cutting the volume of mail and packages it pays contractors to fly across the country. USPS now uses trucks to transport 95% of all its mail and packages.

DeJoy recently said about 99% of the U.S. population is getting mail and packages within three days — and that 50% of first-class mail is getting delivered a day in advance.

‘Absolute need’ to modify USPS network

Robert Taub, President Joe Biden’s nominee to serve a third term at the Postal Regulatory Commission, told the committee last week that the PRC is prepared to oversee the Postal Service’s “most far-reaching plan” in recent history.

“If one listens to some of the Postal Service’s information on this, it may be the most fundamental change to the network since Ben Franklin was postmaster general,” Taub said.

The committee heard this week from former USPS executive Thomas Day, Biden’s other nominee to serve a six-year term at the PRC.

“The role of the regulator is clear — rate regulation, service standards and service performance to ensure fair competition, to enforce the transparency and accountability of the Postal Service,” Day told the committee this Thursday.

Day said he worked at USPS for more than 35 years, and said he held management positions from frontline supervisor to senior officer, “and everything in between.” He retired from USPS in 2019, when he served as its chief sustainability officer.

Day told the committee he agrees “there is a need for modification” at USPS, considering major declines in mail volume in the digital age. USPS is also looking to capture more of a competitive package market.

“Because of this dramatic decrease in traditional mail volumes, combined with the increase in package volume, there’s an absolute need to modify the postal network,” Day said. ” It is essential that the PRC provide the oversight to ensure that the implementation of DFA is accomplished in a manner that provides fair competition, accountability and transparency.”

‘It’s the law’ to oversee USPS

Kubayanda described the PRC as a “technocratic” agency that regulates U.S. mail the same way other agencies regulate public utilities like water or electricity.

USPS needs the approval of the PRC before it raises its prices. The commission also reviews tens of billions of dollars in contracts that USPS signs with mailing industry companies, including Amazon.

The PRC has just over 80 employees to oversee the inner workings of an agency with 635,000 employees that generates about $80 billion in revenue every year.

Kubayanda said about 10% of the PRC’s total staff and resources are focused on reviewing USPS changes under its 10-year reform.

“Now for us, that’s a big deal, because we’re so small,” Kubayanda said. “We are a micro agency, and we’re currently at capacity, so any kind of new undertaking is a bit of a challenge,” he said.

Because the PRC keeps such a low profile, Kubayanda said he was surprised by some recent comments DeJoy made about the regulator.

DeJoy, in an exclusive interview, said in July that USPS decided not to challenge the PRC’s public inquiry in federal court.

“We didn’t want to do it, because I don’t like being involved with nonsense. I’m pretty busy. Everyone here is pretty busy too. But I decided not to appeal it, and to try and work through it. But they’ve got to know that we’re losing money,” DeJoy said.

However, he raised concerns that the probe could interfere with the agency’s “urgent” plans to turn around its long-term financial challenges.

“Who is the Postal Service going after on this whole thing?” DeJoy said. “We’re committed to the service standards, we don’t need to be babysat. What are they going to figure out, with what we do with transportation and all this stuff?”

Kubayanda, however, said the PRC is well within its jurisdiction to oversee the USPS’ far-reaching plans to reshape its delivery network.

“Congress created the Postal Regulatory Commission to oversee the Postal Service, and that’s still the law. And so, it’s not up to me or any other individual to unilaterally change that,” he said.

While USPS is generally self-funded through its own revenue, Kubayanda said the agency still requires oversight, especially because it has a monopoly on delivering mail in the U.S.

“This is the classic case, in our kind of free market system,  where you do need a regulator. And this happens to be a government monopoly. So the case is, I think, even stronger,” Kubayanda said.

Kubayanda said the commission is seeing an increase in calls and complaints about USPS performance, and that he has received several calls from House and Senate staffers looking for answers about constituent mail delays.

“What we can do is provide that transparency and accountability through objective analysis,” Kubayanda said. “However he sees it in particular, I know that role is well-received, and it’s valuable. And I think we’ve seen, more and more acute need for that role, due to changes that are going on in the postal system.”

PRC dipping into its ‘rainy-day fund’

The USPS Board of Governors recently approved a $21.12 million budget for the Postal Regulatory Commission in fiscal 2024. That’s a nearly 10% decrease from its initial FY 2024 budget request and more than a 6% decrease from a revised proposal it submitted a few weeks ago.

USPS said DeJoy and Deputy Postmaster General Doug Tulino were not involved in the board’s vote to approve the PRC’s FY 2024 budget.

USPS said that “combined with the PRC’s other resources,” the commission will have $27.2 million to spend next fiscal year.

However, those other resources include money the PRC received from the Technology Modernization Fund, a loan the agency will use to build up its data analytics and cybersecurity capabilities, as well as a rainy-day fund it relies on to make up any shortfall in its budget.

The USPS Board of Governors gave the commission a $500,000 increase from its FY 2023 budget — but that won’t be enough to cover $2 million in increased costs next year, driven by higher rent and cost-of-living adjustments (COLAs) for its employees.

Kubayanda said the commission will also have to spend down some of its reserve funding to cover some of its rising costs.

“We’re going to have to dig into that rainy-day fund immediately throughout this year. So we’re going to have to spend down the majority of that fund in order to meet our expenses for FY 24,” he said.

The commission grew from 74 to 84 employees this fiscal year — including the creation of a data analytics team staffed by four workers. That data analytics team, Kubayanda said, will play a key role in overseeing USPS performance under its 10-year plan.

“I see a need for continued incremental growth, to continue addressing our infrastructure backlog and solidifying our workforce,” he said.  “This group is taking the lead on analyzing DFA. Obviously, the DFA changes a lot of impacts on network performance and efficiency. And I would really like to see us apply advanced analytical techniques to provide some additional transparency and accountable accountability on that.”

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