When Congress passed the Postal Accountability and Enhancement Act in 2006, it provided the U.S. Postal Service (USPS) with the ability to adjust postal rates more frequently and without having to engage in a litigious process that led to sharp postal rate increases every few years. Under the current law, USPS can raise or lower rates for competitive products (e.g. parcels) without any restrictions, putting it on a more level playing field with other mail delivery providers such as UPS and Federal Express. For other products that are under the USPS monopoly, such as Periodicals and Marketing Mail (e.g. Total Market Coverage or TMC products), USPS can raise or lower rates on an annual basis, but rate increases are smaller, predictable and do not exceed the inflation-based price cap tied to the Consumer Price Index.
This was the trade-off that newspapers and mailers agreed to, after roughly 10 years of lobbying on postal reform legislation. But now, this pricing structure that brought newspapers predictable pricing could be in jeopardy if a new rate-setting system is approved.
Directed by Congress to conduct a review of the current rate-setting structure, the Postal Regulatory Commission (PRC) is proposing a new system that would allow USPS to exceed the inflationary rate cap. In doing so, USPS could 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 households; and 3) products, such as Periodicals and catalogues, that do not cover their costs. Under the proposal, USPS could increase rates by 2-5 percent above the Consumer Price Index for the next five years. Assuming that the Consumer Price Index will continue to average 2 percent growth annually, which it has done 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 change, arguing that the statutory rate cap for monopoly products (e.g. First Class, Periodicals and Marketing Mail) has worked well, as rate increases averaging 2 percent annually has provided mailers with predictability and has kept mail volume in the 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 period has decreased by 31 percent.
A major problem with our nation’s postal system today is that USPS has not been able to reduce its costs the same way as other entities in industries that have been disrupted by the Internet. From 2006-2018, USPS’s operational costs have increased by 3.7 percent. Further, USPS is required by the 2006 postal reform law to pre-fund its retiree healthcare benefits. On this score, USPS has only funded $45 billion out of a total $114 billion obligation. Several years ago, USPS stopped making these forced payments, instead opting to use available cash for existing operations and to pay down debt. This pre-funding mandate was put in place by Congress before the Great Recession and subsequent disruption in print communications.
Now, through this proposal, the PRC is proposing to saddle newspapers and other mailers with high postage rates in order to solve a USPS balance sheet problem.
In its comments to the PRC, the Alliance reiterated that Congress needs to eliminate the requirement for USPS to pre-fund its retiree healthcare costs and firmly stated that any decision to change the statutory rate cap for Market Dominant Mail is Congress’s decision to make, not the regulator’s, as the elimination of the rate cap will have a long-term, damaging impact on USPS’s finances. Newspaper executives know that their newspapers will not be able to absorb a cumulative 30 to 40 percent rate increase over the next five years, a change that would 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.
The PRC should withdraw its proposal and politely explain to Congress that USPS’s balance sheet problems can be fixed by Congress eliminating the retiree health benefit pre-funding mandate – and that the existing rate cap has worked relatively well in maintaining a strong base of USPS revenues without forcing mailers to explore alternative distribution mechanisms. Since the PRC is comprised of political appointees – albeit highly respected and experienced ones – it is unlikely that they are going to throw it back to Congress and say it is their decision.
If the PRC moves forward and approves this proposal, it is expected that mailers will file a legal challenge claiming USPS does not have the authority to exceed the time-tested and proven statutory rate cap. It will likely take several years before all of this plays out. A PRC decision in this proceeding could come in late summer or early fall 2020.
Please contact Paul Boyle, Senior Vice President/Public Policy with any questions.