A state division presenter told the committee that Utah’s state mail and surplus property programs need immediate equipment replacements and process changes to avoid rate increases.

“The inserter...we have to keep it in a super secret place sort of like the KFC recipe,” the presenter said, describing one mail inserter that runs on a single floppy disk and equipment for which parts are now unavailable. The presenter said the state mail operation provides about $2,000,000 a year in postage savings by performing mail sorting and processing in-house for state agencies and nonprofits.

Why it matters: State mail’s ability to generate postage discounts depends on maintaining equipment compatible with U.S. Postal Service technology. The presenter said the main mail sorter is roughly 25 years old and will not support upcoming USPS I.T. requirements. Separately, the surplus property program will move from a roughly 20,000-square-foot warehouse in Draper to about 2,600 square feet at the Taylorsville State Office Building Campus, a shift that requires replacing oversized forklifts and improving handling processes.

Committee members asked whether internal-service fund (ISF) rate structures should include regular equipment replacement allowances to smooth “lumpy” capital needs. Director Dodge, identified in the hearing as a division official, said, “Everything that we do in an ISF has to come from the rates,” and added the federal government restricts retained earnings for compatible uses and to roughly 60 days of operating expenses. He said small items can be built into rates, but large, infrequent purchases are harder to predict.

Division staff said they have not raised state mail rates since at least 2019 despite postage-cost increases (the presenter cited roughly a 45% stamp-cost rise over five years and noted a 40% increase in postage rates the state has worked to offset). To avoid raising rates now, staff proposed using retained earnings accumulated in the cooperative contracts program (which has grown from roughly 700–800 contracts about a decade ago to approximately 1,300 today) to pay for overdue equipment replacement.

The presenter said the cooperative contracts retained earnings are compatible with the mail and surplus uses described. Staff also described work to create an equipment lifecycle calendar to forecast needs better and to analyze which state mail tasks could be contracted out to reduce operating pressure.

Other program changes discussed included sunsetting the state copier-lease program. Staff said the program had declined from about 1,100 copiers to roughly 800 after migrating many agencies to direct contractor agreements or outright purchases and that the program now costs more to operate than the value it adds. The division plans a long sunset for existing leases and is not taking on new customers.

The presenter concluded by saying the internal reallocation request is intended to bring ISF operations back to balance after COVID impacts and postage cost increases.

The committee did not take a formal vote on the proposals during the session. Staff said they will continue work on the equipment lifecycle calendar and on identifying which functions to retain in-house versus contract out.