Nonprofit Postal Rates Capped At Inflation Rate

November 19, 2007       Marla Nobles      

Charities dodged another massive postal rate increase that, if comparable to the in some cases 400-percent increase the U.S. Postal Service (USPS) implemented just seven months earlier, could have sent charities into yet another frenzy from skyrocketing costs.

The USPS announced it won’t push forward with a rate case to increase postal fees. Instead, the USPS’s Board of Governors voted to proceed with the new pricing regulations set by the Postal Accountability and Enhancement Act of 2006, which caps future price increases at the rate of inflation.

According to USPS Spokesman David Partenheimer, the USPS will now measure its annual price increases according to the seasonally-adjusted Consumer Price Index (CPI) for all urban consumers. Partenheimer said the USPS is surveying business mailers to determine the best time of year to implement the increase, and will announce its decision in the coming weeks.

The USPS Board of Governors had the option of filing one last rate case under the regulations used since 1971. Postmaster General John E. Potter attributed much of the decision not to file to the speed in which the Postal Regulatory Commission (PRC) completed the new regulations, eight months ahead of the statutory deadline. "The new pricing regulations give the Postal Service added flexibility for shipping services," Potter said in a statement. "We intend to use this new flexibility to grow our competitive business, offering volume discounts and contract pricing."

The USPS on May 14 authorized a rate increase in almost every class of mail. It also announced a change of classification that sent shockwaves throughout the charitable sector with the creation of the new non-flat machinable class of mail. The resulting 100-percent to 400-percent rate increases have been damaging to nonprofit mailers that use front-end premium mailings.

"That put the whole industry, frankly, into quite a tizzy," said Geoffrey W. Peters, president of Creative Direct Response, in Bowie, Md., a direct-mail agency that works exclusively with nonprofits. "The Postal Service didn’t give anybody any lead time to do testing to figure out whether or not there were any solutions to this problem, and they imposed it on very short notice."

Peters, a member on the Advisory Council of the Direct Marketing Association Nonprofit Federation (DMANF), lauded the USPS’s decision to proceed with the new pricing regulations. "We pushed real hard for them not to (do a rate case)," Peters said of the DMANF, "because it meant what was going to be the starting point for the inflation (cap) was going to be higher."

The decision to opt out of a rate case was "a decision from our board of governors that they think is best for the Postal Service and best for our customers," said USPS’s Partenheimer. "It was a question of whether filing the last rate case this year or just moving forward with the pricing regulations under the new law. And under the old regulations, it’s almost a year-long process from the time we announce (the rate case) until prices change."

The price cap, according to Tony Conway, executive director of the Alliance for Nonprofit Mailers and former USPS executive, is a big improvement over the old system and will provide more predictability for mailers. "The old postage rate system was a cost-of-service system. Basically, however much the costs increased they’d just pass it along to the customers, and the process averaged about every three years," explained Conway. "So, you’d have three years worth of cost increases that would be built into that price increase. The result would be a big number that typically blew everybody’s budgets."

The new rate-setting system also provides the USPS with greater incentive to reduce costs and provides greater flexibility. According to Peters, however, greater flexibility for the USPS in the past hasn’t always had a favorable outcome for consumers. "The minute the Postal Service feels like they’re not making enough money, what they’ll do is they’ll take a segment of mail and they’ll reclassify it," said Peters, "thereby exempting themselves from the limits of inflation."

Cost cutting has been a big consideration at the USPS over the last decade, said Partenheimer, during which time the organization reduced its workforce by more than 100,000. "We haven’t done any lay-offs," he said, "just through attrition and better productivity and using the high-tech equipment, we’ve been able to reduce our workforce." It stands at 700,000 career employees.

However, the USPS continues to operate at a loss, and both its overall mail volume and its first-class mail volume, the organization’s bread and butter, are down for fiscal year 2007 (-0.4 percent and -1.6 percent, respectively). The USPS concluded FY’07, which ended Sept. 30, with a $5.1 billion net loss. The organization attributes the net loss to the mandatory funding requirements for retirement benefits in the Postal Act of 2006, and would have otherwise ended the fiscal year with net income of $1.6 billion.

The USPS devotes 80 percent of its revenue to labor costs – compared to about 50 percent at private delivery companies – including salaries and, in particular, health benefits, which tends to increase faster than the rate of inflation.

Robert Schrum, who studies postal reform at the Washington, D.C.-based Lexington Institute, said if the USPS is trying to adjust its fiscal health, the new system is a step in the right direction. But it may not be enough. "Especially in the case of the Postal Service, they need to adjust their overall fiscal health, which should be the goal of any business," he said. "So until the Postal Service actually launches a conservative and effective effort to put those costs under some kind of control, I think they’ll have a difficult time, regardless of the pricing regime, at remaining solvent."

The DMANF’s Executive Director Senny Boone remains cautiously optimistic about the change, and qualified her optimism on two points: how the Postal Service uses this new opportunity to create new products and services, and what "hidden" increases may lie ahead.

"The price cap applies to the class and not to the sub-class," explained Boone. "So, we certainly have to pay attention to what happens at the sub-class level, and certainly we do not know what that may mean for nonprofits at this time.


This article is from NPT Weekly, a publication of The NonProfit Times.

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