Nonprofit Mail Rates Capped At CPI

December 18, 2006       Lee Cassidy      

More than a decade in the making, postal reform legislation will be become law after President George W. Bush signs the legislation at a ceremony scheduled for Wednesday. For the first time in a generation, the laws governing the finance and operations of the United States Postal Service (USPS) will be revised, making future rate hikes more predictable for nonprofits and bringing financial stability to the nation’s mail system.

A new Postal Regulatory Commission, with more power than the existing Postal Rate Commission, has 18 months to establish a new rate-setting process. The commission will be allowed to increase rates each year, but no more than the annual increase in the Consumer Price Index (CPI). The USPS could change most rates with 45 days notice while the current process can take a year and has no cap on rate hikes.

The rate case currently before the Postal Rate Commission, expected to raise $3 billion a year, will be unaffected by the new legislation. A decision is likely by March, with implementation of new rates expected by May.

The measure also would separate monopoly postal products, such as First Class Mail, from competitive products such as Parcel Post, for rate-making purposes, and would require the USPS to devise delivery standards for all classes of mail, measure success in meeting those standards, and take corrective action when the standards are not met. For nonprofits, which have long complained of slow delivery of fundraising mail, this is an important new provision.

“With more than 9 million jobs and $90 billion in commerce dependent on a viable postal service, this bill is a win for consumers, business, nonprofit organizations, and the economy alike,” said Direct Marketing Association President & CEO John A. Greco, Jr.

Anthony Conway, president of the Alliance of Nonprofit Mailers, said relieving the ratepayer from some of the financial burdens will help keep the USPS stable in the years to come, which may not have been possible without changes.

Annual escrow payments of more than $3 billion — the reason behind recent rate hikes — will now go to pre-fund the USPS’s health benefits liability for 10 years, and after that, the money is free to be used for other purposes, such as debt repayment or operations, Conway said. That revenue stream, about $78 billion, will shore up future financial woes, in addition to $27 billion in military retirement costs returning to the U.S. Department of the Treasury.

Without this legislation, Conway said the burden of escrow and military payments would have had such a negative impact on the USPS, it might have made it impossible to continue the same way for 10 to 20 years. “That will go a long way to stabilizing the financial situation and ensure we continue having universal mail service in this country,” he said of the measure. “This isn’t a one-shot deal,” Conway said, and “overnight everything’s fine. It does provide the Postal Service and Postal Rate Commission to get together and gives us a lot of tools to address a lot of issues.”

The new process will make future rate increases much more predictable. The average rate hike is 8.5 percent in the pending rate case, but Conway said many mailers are facing much greater increases. That trend, given the current rate system, would have continued into the future. While there will be regular increases with the new system, they will be much more predictable, which will protect all mailers, but particularly nonprofits. Under existing law, nonprofits receive discounts of approximately 40 percent for standard mail, and approximately 5 percent for periodicals.

There also are various studies in the legislation about universal mail service, network realignment, and other issues that need to be explored, Conway said, because the USPS “business model has been at risk. This legislation goes a long way to helping resolve problems.”

Created from the Postal Reorganization Act of 1970, out of the former cabinet-level Post Office Department, the USPS is expected to be much more secure financially as a result of the Postal Accountability and Enhancement Act (H.R. 6407). The bill was introduced in the House of Representatives Thursday and approved early Saturday morning, one of the final acts of the 109th Congress. The Senate had previously passed similar legislation.

The bill is a long time in coming. In 1995, Robert Taub, then a staff member of the U.S. House of Representatives Subcommittee on Postal Operations, started drafting legislation to reform the financial operations of the U.S. Postal Service. Two years later his boss, Rep. John McHugh (R-NY) introduced the first of what turned out to be a succession of bills, all titled H.R. 22, each of which was a newly modified version of postal reform.