The pricing structure that has brought newspapers predictable postal rates since 2006 has been upended.
Under the Postal Accountability and Enhancement Act (PAEA), products that are under the USPS monopoly, such as Periodicals and Marketing Mail (e.g. Total Market Coverage or TMC products), experienced smaller, more predictable rate increases that did not exceed the inflation-based price cap tied to the Consumer Price Index.
But on November 30, the Postal Regulatory Commission (PRC) approved a rule, establishing a new rate-setting system that eliminates the previously implemented cap on postage rates for these products, which could harm newspapers and ultimately weaken the nation’s postal system.
The new final rule issued by the PRC would allow USPS more pricing flexibility above the inflationary rate cap, so that the Postal Service can recover ever-growing costs to its operations, including:
1) A congressional mandate to pre-fund retiree health benefits;
2) Rising delivery costs from the growing number of delivery points; and
3) Costs involving so-called “underwater” products, such as Periodicals and catalogues, that do not cover their measured costs. (Note: Mailers, including newspapers, have argued that USPS has not adequately measured the costs of processing Periodicals).
Under the final rule, USPS could increase rates sometime in 2021 by as much as 7 percent above the Consumer Price Index (which does not include the approved rate increase effective January 24, 2021), and by similar amounts in each of the next five years. If one assumes that the Consumer Price Index will continue to average 2 percent growth annually, which it has since 2006, newspapers could see their rates go up 30 percent for TMC products and 40 percent for Periodicals over a five-year period.
The Alliance filed comments with the PRC on January 31, 2020 opposing the proposed change, arguing that the objectives in the PAEA include the principle that postal rates should be “fair and reasonable” and that the statutory rate cap has worked well because predictable and nominal rate increases have convinced businesses to keep mail volume in the postal system. USPS’s finances bear this out. From 2006-2018, USPS revenues have only declined by 2.6 percent, which is extraordinary given USPS’s mail volume over the same time period had decreased by 31 percent.
USPS has not been able to reduce its costs the same way as other entities in industries that have been disrupted by the Internet. USPS’s operational costs have increased. Further, it is required by the 2006 postal reform law to pre-fund its retiree healthcare benefits, a total of $114 billion. Through this final rule, the PRC is placing the burden of the Postal Service’s balance sheet problems on newspapers and other mailers through higher postage.
In our comments to the PRC, the Alliance stated that any decision to change the statutory rate cap for Market Dominant Mail is one that Congress must make, not the regulator, as the elimination of the rate cap will have a long-term, damaging impact on USPS’s finances. Newspaper executives around the country know that local newspapers will not be able to absorb a cumulative 30 to 40 percent rate increase over the next five years.
These types of rate changes would undoubtedly force newspapers’ TMC and editorial products out of the postal system for good. Other mailers, particularly direct mailers with digital alternatives, would be forced to take the same action. This is not in the long-term best interest of USPS, or our nation’s postal system.
The final rule will go into effect upon its publication in the Federal Register, expected in the coming days. However, the PRC has indicated that the Postal Service could file a notice as early as December 31, 2020, in which case we could see USPS implementing rate changes under this new system as early as late spring of 2021.
We expect mailers will file a legal challenge claiming the Commission does not have the legal authority to allow the USPS to exceed the time-tested and proven statutory rate cap. In addition, the Alliance and other mailers will be lobbying Congress to act on postal reform legislation that bolsters USPS finances, including the elimination of the requirement to pre-fund retiree health benefits, which is not required of any federal agency or private business.
Here is a detailed summary of the PRC’s final rule.
Please contact Paul Boyle, Senior Vice President/Public Policy with any questions.
Related: Proposed Postal Rate Increases Would be Unsustainable for Newspapers