PRC Decision Only a Partial Win for Mailers

Postal executives today must feel as if they just lost a round of the old children’s game called "Mother May I?".

Putting it in simplistic terms, The U.S. Postal Service said to the Postal Regulatory Commission, “May we impose exigent (emergency) price increases to make up for the money we lost because of the recession?”

The PRC gave its unanimous answer today: “Well, the recession does qualify as an emergency that justifies special rate increases, but you can’t have the money because you didn’t ask properly.”

Another rate request?
The question now is whether the Postal Service will return to the PRC and ask, “Mother, may we impose emergency price increases to help pay for the recession.” That seems to be a more likely path than appealing the PRC’s decision to a federal appeals court.

After all, the PRC’s ruling was a partial victory for the USPS because the commission decided that “the recession and its impact on the Postal Service constitute an extraordinary or exceptional circumstance” that satisfies the legal requirements for an exigent rate increase.

The problem, however, is that the Postal Service didn’t show “how either the rate increases in general, or the specific rate increases proposed, relate to the extraordinary or exceptional circumstances that purportedly give rise to them,” the commission wrote. “Instead, the proposed rate increases are identified as part of a long-term plan designed to address, among other things, liquidity issues.”

Impending liquidity crisis
The ruling acknowledges that the Postal Service faces “an impending liquidity crisis.” But it said that crisis is caused primarily by the “overly optimistic” prefunding of retiree health benefits that is draining more than $5 billion annually from the Postal Service’s coffers.

“The Postal Service can not resolve severe shortcomings in its business model by resorting to the exigent rate provision,” the ruling states.

The PRC’s analysis of the pre-payments may help efforts to reform the payment structure. That's because the commission probably has more credibility right now than postal executives do with Congress, where some members have inaccurately described reform as a bailout.

As Dead Tree Edition has explained previously (See Postal Relief? How About No More Congressional Thievery? and How USPS Could Bypass Congress on Saturday Delivery), these prepayments are of no benefit to USPS retirees and are actually an accounting game that uses USPS money to make the federal deficit look smaller.

In a concurring opinion, Commissioner Dan G. Blair emphasized the benefits of inflation-based price caps: “Congress adopted a price cap system as a means of forcing the Postal Service to engage in more efficient behavior. Evidence of this more efficient behavior can be found in the Postal Service’s efforts to trim more than $6 billion in costs during 2009. Were it not for the discipline the price cap imposes, I doubt the Service would have achieved such significant cost reductions.”

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U.S. Taxpayers' Black Liquor Tab Surpasses $30 Billion

The cost of "green" energy subsidies involving the pulp and paper industry shot well past $30 billion today -- with not a cent of it doing anything to help the environment.

President Obama today signed the Small Business Jobs Act of 2010, a package of goodies that is supposedly deficit neutral partly because of nearly $1.9 billion in "savings" from closing the non-existent "Grandson of Black Liquor" loophole. The alleged savings come from making crude tall oil, a highly corrosive pulp byproduct, ineligible for Cellulosic Biofuel Producer credits, which are intended for alternative motor fuels.

Because crude tall oil has never qualified for such credits and by all rights never could have, the law's provision is just a Congressional ruse to add to the federal deficit while pretending not to do so.

Regular readers of Dead Tree Edition know too well the sad story of how American taxpayers have been ripped off with black liquor tax credits, Son of Black Liquor, and Grandson of Black Liquor, but the story bears re-telling.

The idea of using pulp byproducts to fleece taxpayers first came to light early last year when some paper companies revealed they had hijacked another biofuel program. Alternative Fuel Mixture Credits were supposed to encourage greater use of biofuels, but the paper companies snagged billions in such credits for burning black liquor as a fuel source, which they had been doing for decades anyway.

Despite howls of protest from Congressional leaders, Congress did nothing to plug this loophole and simply let the law expire at the end of 2009. Aided by friendly rulings from the IRS, publicly traded pulp manufacturers received well over $6 billion in black liquor tax credits, and privately held companies probably received a couple of billion more.

A good whipping boy
But Congress didn't completely ignore the black liquor tax credits. Smart politicians know a good whipping boy when they see one, especially when they can whip up money for pet programs.

Riding public disgust with the original black liquor tax credits, Congressional Democrats proposed closing the "Son of Black Liquor" loophole. That is, they made black liquor ineligible for CBP credits starting this year. Never mind that even pulp makers didn't think black liquor would qualify for the credits.

A compliant Joint Committee on Taxation said that closing the non-existent loophole would save a bit more than $23 billion, and Congress then applied the "savings" toward "paying for" ObamaCare this past spring. The watchdogs of the press mostly chewed on and regurgitated Congressional press releases touting the resulting savings that supposedly helped make ObamaCare deficit-neutral.

The IRS got back into the act this summer with an odd ruling that made black liquor burned prior to this year eligible for CBP credits. It has already approved two pulp manufacturers for the credits, while others that have lined up at the trough are awaiting word on their applications. Preliminary indications are that the net value of the credits to paper companies will be "only" in the hundreds of millions -- unless Congressional bill writers decide to close this latest loophole and use the savings for another new project.

So let's recap the tab -- probably $8 billion-plus for the original black liquor credits (the only money in this story that actually went to the paper industry), $23.6 billion for Son of Black Liquor in ObamaCare, untold millions for pre-2010 Son of Black Liquor, and nearly $1.9 billion for Grandson of Black Liquor.

So when your daughter or granddaughter asks you in a few years why the U.S. didn't do more to wean itself from dirty energy sources and foreign oil imports, just tell her we were too busy adding to the federal deficit while pretending to be fiscally responsible.

For more details on the black liquor saga, please see:

• Blame It On the (Black) Liquor, And Other Tales From A Strange Family of Tax Credits 
• Congress and Paper Companies Covet 'Son of Black Liquor' Funds  
• IRS Ruling Helps Pulp Makers Keep Black Liquor Billions 
• ObamaCare's Black Liquor Tab: $23.6 Billion 

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Don’t Blame ‘Overpaid Postal Workers' for Rising Periodicals Costs

The U.S. Postal Service’s cost to deliver a magazine or newspaper has been rising twice as fast as inflation for more than two decades, but don’t blame employee pay levels. The real culprit is declining productivity, the Postal Service’s own numbers indicate.

“The tendency of Periodicals costs to increase much faster than inflation . . . has continued with few interruptions since FY1986,” postal expert Halstein Stralberg wrote recently. As a result, the Postal Service has repeatedly hit the Periodicals class with rate increases that exceed both inflation and those for most other classes, as it is trying to do again in the exigent rate case being considered by the Postal Regulatory Commission.

Stralberg blames “the ingrained Postal Service culture” for the Periodicals mess. “The machines they use have become more powerful and sophisticated over time; but the way that operational decisions are made, and the lack of awareness of cost attribution issues among those who make the decisions, has changed very little,” Stralberg’s wrote in his testimony on behalf of Time Inc. for the exigent rate case.

Using the Postal Service’s own data, Stralberg’s showed that USPS’s cost of delivering a periodical increased by 200% from 1986 to 2009 even though inflation was a bit less than 100%. (See Stralberg's chart above.) The Postal Service’s wage rate – calculated as total USPS wages and benefits divided by total hours worked – increased 140%.

For most of the period studied, in fact, changes in the USPS wage rate closely tracked the Consumer Price Index. After all, the Postal Service’s labor contracts generally peg cost-of-living increases to CPI (which is a good reason to limit price increases to changes in CPI as well). Only in the past decade, presumably because of benefits costs (including, perhaps, pension and retiree-benefits overpayments) did the wage rate start to diverge from CPI.

Although some mailers have blamed employee compensation levels for rapid cost increases, Stralberg’s analysis shows that the larger problem is productivity: The Postal Service requires more work hours today to deliver a certain number of periodicals than it did in 1986.

The Postal Service, Stralberg wrote, has never really addressed these “unexplained and anomalous Periodicals cost increases” that occurred during a period in which it “deployed several generations of new technology that were supposed to automate and sharply reduce the costs of flats mail and Periodicals in particular.”

The USPS can’t blame publishers, who during that time have implemented a variety of measures that were supposed to reduce Postal Service costs, such as dropshipping, shifting mail from sacks to pallets, and putting a larger proportion of copies into efficient carrier-route bundles.

Here are excerpts from Stralberg’s explanation of the Postal Service’s skyrocketing Periodicals costs:

For more than a decade, various studies have shown that “as processing of other mail classes was automated, Periodicals continued to be processed in a more manual fashion. Employees freed up by the automation of other mailstreams were kept busy handling Periodicals, whose costs therefore skyrocketed. Additionally, portions of indirect costs that previously had been borne by other mail classes were shifted to Periodicals by the Postal Service’s cost attribution system.”

“In recent years, the Postal Service has acquired enough automated flats sorting capacity, particularly with the recent loss of volume, to sort practically all flats to carrier route on high speed automated equipment. However, many facilities, unable or unwilling to change their traditional ways, or perhaps simply to keep employees occupied, have continued to process Periodicals manually.”

“There evidently are postal clerks … whose costs must be attributed to something, and as long as postal managers continue to send them Periodicals flats to be sorted, their costs will be attributed to Periodicals flats.”

For further reading:

• Postal Service Inefficiency Drives Up Periodicals Costs: Stralberg published a report earlier this year showing that USPS has “a great surplus” of flats-sorting machines but still insists on using more expensive manual sortation.
• Do Postal Execs Want To Lose Money on Periodicals? Tough Question #4 For USPS: Another reason the Postal Service's Periodicals costs may be so high: Postal executives may be playing a political game by ensuring the Periodicals class always looks unprofitable.
• A Decade of Postal Mismanagement Is Costing Publishers and Catalogs

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An Affair Between a Printing Lobbyist and Rep. Boehner? Six Reasons Not to Believe It

The claim that a printing-industry lobbyist is having an affair with GOP Congressional leader John Boehner – and that the New York Times is preparing an expose on the supposed scandal – so far isn’t holding up to scrutiny. Here are six reasons to take this non-scandal with more than a grain of salt:

1. Credibility problem: StarkReports, the liberal blog that first reported the alleged affair Thursday, referred to the woman as a lobbyist for the “American Printers Association.” It’s actually Printing Industries of America. If you’re going to write a piece about the nefarious dealings of a lobbyist, it’s kind of basic to get the name of her organization right. (Notice that I’m not using her name because she’s a private citizen against whom no credible allegation has been made.)
2. Double credibility problem: By getting PIA's name wrong, StarkReports missed an opportunity to refer to Boehner as “PIA’s adorer”. That’s a crime against blogging. (“Boehner”, by the way, is supposedly pronounced “Baynor”. No woeh!)
3. No expose: The Times is no-commenting, but a staffer has slipped word to New York magazine that the New York Post story about a Times expose in the works is “utter garbage”. The Post’s hyperventilations about the Times plan to release the expose when it will have maximum impact on Congressional elections looks like something penned by an editorial writer, or maybe someone named Murdoch, rather than a news reporter.
4. Anonymous sources: StarkReports bases its claim solely on reports from “several sources” that started talking last month. Gee, just as it looks as if Boehner might become House Majority Leader or Speaker of the House, some political operatives decide to start spreading a rumor about him. That doesn’t make the rumor true. Nor does the lobbyist’s refusal to comment.
5. The lobbyist’s title: The woman’s title at PIA is Vice President of Government Affairs. If she were really having a “government affair” she were trying to hide, wouldn't she have grown uncomfortable with the title and have it changed to something like “VP of Public Policy”.
6. The printing industry? Come on: It’s not a huge surprise when a powerful Congressman ends up in bed with a lobbyist from the oil or banking industries. But PIA isn’t exactly a powerhouse in Congress whose members are getting big chunks of corporate welfare and handing out huge campaign contributions. Its members' main interest in federal laws these days has to do with the bankruptcy code.

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Quad/Graphics Is Trying to "Fix" Worldcolor's Publication Printing Business

Quad/Graphics bought Worldcolor partly because it thought it could repair the rival printer's "underperforming" catalog and magazine printing business, according to Quad's CEO.

Worldcolor's publication business was the worst performing part of the company, "had been underinvested in and needed fixing," Joel Quadracci said in an interview published Friday by printing-industry site WhatTheyThink. "We felt we could fix the magazine and catalog business with a combination of upgrading plants and closing plants."

Cary Sherburne's entire interview with Quadracci, whose company bought Worldcolor in July, is worth a read. But here are a few highlights:

• The adjustment of former Worldcolor employees: "What is interesting is that Worldcolor as a corporation didn't really have a defined corporate culture. They had a good culture at the plant level, but not across the entire organization. Quad culture is very production-employee-centric. It has been easy for the Worldcolor folks to understand our culture; they were looking for something to tie them together and connect them."
• Industry rightsizing: "When you look at the industry, you have to look at it from the perspective of good capacity and inefficient capacity, and the industry has way too much of the latter."Also: "You can't simply continue down the same path when an industry experiences a 20%-25% reduction in volume because of a deep recession.There has to be a rightsizing."
• Downsized employees: "We have been doing internal recruiting at all of the plants that will be closed . . . because we have transfer opportunities at other Quad/Graphics locations for customer service reps, press operators, finishing operators and more. We have a pretty sizable list of people interested in other geographic locations."
• Becoming a public company: "My family has the largest equity block with 33% of the company and 80% of the voting control. That voting control is important, because we don't want to be pushed to decisions that don't make sense for the company."
• His work uniform: "It is pretty unusual to see a CEO wearing the same uniform as the production staff, which is what happens here at Quad. When I am here, I am wearing a blue uniform just like everyone on the floor."

For other recent articles about Quad/Graphics, please see:

Quad/Graphics’ Joel Quadracci Speaks about Worldcolor Acquisition: The entire WhatTheyThink interview with Quadracci

In Closing 5 Locations, Quad/Graphics Sticks With Its 'Mega-Plant' Strategy: A reminder that Quad's success has come mostly from innovation, not acquisitions

The New Quad/Graphics Still Has The Blues -- and Soul, Too: Quadracci's announcement, wearing a Quad uniform, of the Worldcolor acquisition

Does the Air in Printing Plants Make Employees Sick?: Another recent WhatTheyThink article about Quad -- this one on the printer's environmental innovations -- contained an interesting statement.

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Does the Air in Printing Plants Make Employees Sick?

A profile of Quad/Graphics’ environmental-improvement efforts that was published this week might have raised some eyebrows among Wisconsin’s legal community.

Here’s the statement about Quad’s Sussex, WI printing plant in a WhatTheyThink profile that probably had a few Quad lawyers spilling their coffee – and some local ambulance-chasing trial lawyers licking their chops: “Absenteeism has been halved in three years’ time. Improvements in indoor environmental quality were a significant contributing factor.”

So is Quad suggesting that indoor air pollution at the big heatset web offset plant caused employees’ illnesses?

I suspect the reduced absenteeism was more a matter of economics than environment. As the realization started spreading in the past couple of years that Quad was not immune from layoffs, many workers no doubt were on their best behavior. And when the cuts did come, those with attendance problems were probably among the first to go.

Still, it makes me wonder. Quad is known for its modern plants and stellar environmental record; WhatTheyThink’s profile, after all, focused on why the big printing company won an environmental innovation award. So if Sussex’s air was causing employees to get sick, what does that say about merely average printing plants?

Hmm, I’m due to tour a heatset web plant next week. Do you suppose they’d be willing to issue me a gas mask along with those little foam earplugs?

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