Consolidate the Management of State Agencies Mail Operations

The Legislature should give the General Services Commission responsibility for consolidation of key state mail operations to achieve savings and increase efficiency.


Background
During fiscal 1991 and 1992, the state spent $58 million and $65.5 million respectively on postal services. 1~ The volume of state agency mail has risen by an average 10 percent per year; almost half the volume, about 100 million pieces annually, is processed in Travis County. 2~

Because the U.S. Postal Service (USPS) offers substantia l discounts on large volumes of mail and alternatives to USPS can deliver mail at even lower costs, Texas can save millions of dollars on its postal expenditures by centralizing its mail-management functions. At least 19 other states have consolidated thei r mail functions under one agency to maximize postal discounts. 3~ Benefits cited by these states include the ability to achieve economies of scale, eliminate duplication and use the expertise of personnel specializing in mail-equipment technologies and mai l costs. The State of Pennsylvania, for example, has contracted with a private centralized mail-processing center and saved $3.7 million over the past 18 months. Their contract takes advantage of USPS discounts on 100 million pieces of mail for 17 state ag encies. 4~

In Texas, mail services are largely decentralized in each state agency and university. However, the General Services Commission (GSC) operates a facility equipped to handle 2.5 million pieces of outgoing mail annually for 58 state agencies in T ravis County. 5~ GSC also operates an interagency messenger service for unstamped written communications among 138 state agencies in Travis County. 6~

At the Legislature s direction, GSC developed a Mail Management Plan that was completed in March 1991. To develop this plan, GSC surveyed a number of state agencies based in Travis County regarding their 1989 mail volumes, types of mail and methods used to process it. 7~ In addition, GSC developed and distributed a Mail Operations Handbook to all Travis County agencies.

Responses to GSC s survey and a follow-up telephone survey in November 1992 indicated that considerable opportunities exist for additional savings on state mail. 8~ GSC s mail facility currently operates at maximum capacity. However, by upgrading its equipment, GSC could double the volume of mail it processes and realize even greater discounts. GSC s equipment upgrade appears to be feasible and cost-effective, but the capital investment could be substantial, and it may not be the state s most economical investment. For example, Pennsylvania s vendor expended $1 million for sorting and bar coding devices and more than $1 million for other equipment. They also use 70 employees. 9~

Prior to October 1992, no vendors in Travis County had the equipment to pre-sort or pre-bar code mail. However, a new vendor in Austin has spent well over $1 million on a new operation that can provide a full range of pre-sorting and pre-bar coding service s, and they are willing to provide the services to the state as a single entity to ensure the greatest discounts. 1~0 Such a contract would enable small agencies to obtain discounts at the same level as agencies with much higher volumes of mail.

Moreover, a number of larger state agencies in Travis County already own equipment which may be underutilized, so centralized coordination by GSC could result in more efficient use of the state s equipment. It may also be possible to upgrade equipment for pre-bar coding at the larger agencies to qualify their mail for even greater d iscounts. In sum, the current business environment allows the state to realize substantial savings on mail services both by outsourcing and upgrading the state s equipment.



Recommendations
A. The General Services Commission (GSC), as the state s business manager, should be given oversight for evaluating, coordinating and outsourcing all state outgoing mail operations. All state entities should be required to go through GSC for all decisions to purchase, upgrade or sell mail processing equipment, to outsource any outgoing mail processing or to make other major decisions related to outgoing mail operations.

GSC should be given authority to promulgate rules to effect this revised mail process. GSC would be charged with achieving the maximum discounts on postal rates without sacrificing timeliness and quality of service. This would involve coordination with US PS, which offers free evaluation of mail services in any office, as well as training in all aspects of mail processing. In addition, GSC would be requi red to determine the cost of its own outgoing mail operations, prepare a cost-benefit analysis to justify upgrading GSC facility equipment, and demonstrate that it is more cost-effective than outsourcing with private vendors.

Centralization would enable the state to obtain greater volume discounts and lower fees from vendors. The most obvious centralization would occur in Travis County because of its concentration of so many state agencies. However, other centralization opport unities may exist in the larg er cities throughout the state. Centralization should not hinder the timely dispatch of mail, sacrifice quality service, or jeopardize the security of state warrants or confidential information. The state should make exceptions to the centralized process w hen important state interests would be served.

B. GSC s budget should be reduced by the estimated savings. GSC should establish a fee-for-service structure to charge for its services and become self-supporting for the full range of services it would provide as the state s business manager over mail operations.

GSC also would establish standards by which all state mail operations would be measured and analyzed, and take advantage of the free evaluation services offered by USPS.

Each agency s mission influences the volumes, types and requirements of its mail services, which range from bulk mailings of newsletters and business letters, to benefit checks and payments to businesses. Many variables must be considered in every mailing , including such factors as the layout of letterhead and location of addresses on preprinted envelopes and the programming of the mailing lists maintained on computer. The basic foundation for cost savings, therefore, must begin at the agency level.

Other factors external to state entities, such as changes in USPS postal discount rates that may occur within the next two years, would significantly affect state mail operations. Because of the complexity of these issues, it would be even more important over the next biennium to edu cate state agency personnel through standardized, updated guidelines and training. Therefore, GSC should be required to provide updated guidelines and coordinate the training of personnel who handle mail, utilizing free USPS training as much as possible.

GSC should be required to report to the 74th Legislature regarding all significant changes in mail operations in Travis County and the entire state, including savings realized as a result of these changes.


Implications
These recommendations would ensure a coordinated effort to obtain the greatest discounts on outgoing mail services and fully utilize the state s capital investment in mail-processing equipment. As the state s business manager, the GSC would evaluate all outgoing mail operations and make the most cost-effective decisions for the state as a whole.

Smaller state entities would have access to a broader range of services at a lower cost. Larger state entities would receive greater discounts on mail services. GSC s mail operations would become self-supporting through user fees and provide greater accountability over state mail operations. The state would capture all savings generated through GSC s efforts and return them to general revenue.


Fiscal Impact
With an equipment upgrade at a cost of $250,000 and no additional FTEs, GSC could double the volume of mail handled at its current mail processing facility and realize additional discounts ranging from $.009 to $.015 over and above the $.042 per piece of m ail already being realized. Because mail processed with the new equipment can be delivered a day earlier and would allow GSC to reschedule mail pickup and processing time, no additional FTEs would be required.

To carry out this recommendation, GSC would require funding of $250,000 and a mandate that every state entity go through GSC for mail processing, so that the GSC can double its mail volumes before outsourcing with a vendor. It would require about six month s to purchase and install equipment before GSC could become fully operational at the increased volume levels. GSC s budget would be reduced by the current level of mail processing costs for all state entities in Travis County; GSC would in turn charge each state entity to recoup the general revenue funds designated for outgoing mail processing.

GSC also would be required to calculate savings realized and return the total savings to the General Revenue Fund after recouping its capital investment for the upgraded equipment. Payback on this investment would be complete in less than two yea rs assuming an actual start-up date of February 1994. Total savings for the five-year period from 1994 to 1998 are estimated at $743,000.

The state can also realize substantial savings by outsourcing the remaining volume of mail processed by state entities in Travis County because of the presence of vendors who can handle large volumes of mail at greater discounts. Centralizing the managemen t of mail operations in GSC would result in an estimated cost savings of $10 million over a five-year period.

To implement this recommendation in Travis County, GSC would need to put out a request for proposal, but it should not require additional costs. Start-up is projected for September 1993 but would be subject to GSC s current workload. GSC should already have a f ee-for-service structure in place so that state entities would pay actual costs to GSC when using either their services or an outside vendor. GSC savings would be returned to the General Revenue Fund by cutting the agency s budget by the estimated savings, enabling the state to gain the actual savings on mail services statewide.

GSC would not be placed at a disadvantage because it would be able to replace its reduced appropriations with the fee revenue and discount realized by these proposals. Equipment upgrades and additional FTEs, when justified by cost- benefit analyses, should be funded from savings realized.

To implement the mail-services recommendation for entities outside of Travis County and continue statewide coordination over the long term, GSC would be required to develop a strategic plan, provide oversight for evaluating mail operations statewide, set up a fee-for-service structure for their full range of mail services and provide oversight for the training of personnel. These additional duties and responsibilities would require two FTEs one Administrative Technician III and one Auditor IV.

Because the duties and responsibilities of the current manager would increase significantly, GSC s Executive Director should evaluate the possibility of upgrading this position. An upgrade of the manager s position would be funded from the GSC s current budget. GSC also should consider using a consultant rather than hiring two FTEs to implement these recommendations. However, because of the need for ongoing e valuations in a changing business environment, it may not be practical to hire consultants for these services. The net savings to the General Revenue Fund for all recommendations from 1994 to 1998 amount to $10.7 million.

Savings to Costs to Net Savings to
Fiscal the General the General the General Change
Year Revenue Fund 001 Revenue Fund 001 Revenue Fund 001 in FTEs

1994 $1,788,000 $334,000 $1,454,000 +2
1995 2,065,000 77,000 1,988,000 +2
1996 2,271,000 79,000 2,192,000 +2
1997 2,498,000 78,000 2,420,000 +2
1998 2,748,000 78,000 2,670,000 +2


These calculations were prepared for first-class mail only, processed in Travis County. These are conservative estimates since many other options might allow for additional discounts. One such option is bu lk mailing. GSC currently processes bulk mailings for 16 state agencies in Travis County, for which they realized a savings of $26,300 in fiscal 1992. 11 GSC would be empowered to consider all discount options and achieve maximum discounts and savings for the state.



Endnotes
1 Comptroller of Public Accounts, Annual Cash Report, Volume II, Revenue and Expenditures of State Funds for the Year Ended August 31, 1992, Part 1 (Austin, Texas, 1992), p. 68.
2 Comptroller of Public Accounts, Texas Performance Review , Breaking The Mold: New Ways to Govern Texas, vol. I (Austin, Texas, July 1991), p. 97.
3 Comptroller of Public Accounts, Texas Performance Review. Telephone survey of State Departments of Administration, April 1992.
4 Jetsort saves state $1.5 million Reading Eagle (September 5, 1992.)
5 General Services Commission, GSC Presort Summary, Fiscal Year 1992, (Austin, Texas, 1992).
6 Ibid.
7 State Purchasing and General Services Commission, Mail Management Plan (Austin, Texas, March 1991).
8 General Services Commission, Centralized Services Division, Survey of Mail Operations at State Entities in Travis County, Telephone survey, November 1992.
9 Jetsort saves state $1.5 million, Reading Eagle.
10 Interview with Paul Adkins, Support Services Manager, Centralized Services Division, General Services Commission (Austin, Texas, November 30, 1992).