Post Office Files For Extra 5.6% Rate Hike

November 8, 2011       Mark Hrywna      

Just days after announcing postal rates would go up an average 2.1 percent, the United States Postal Service (USPS) is asking for 5.6 percent more, or roughly 7.7 percent as of January 22, 2012.

The Postal Rate Commission (PRC) denied the 5.6 percent increase on Sept. 20th, asking the USPS to come back with better evidence showing its dire economic picture was caused by the recession. The USPS filed its new statement with the PRC on Monday, after their request for a “stay” until Dec. 15, 2011 was denied.

“We are very disappointed in what has happened,” said Jerry Cerasale, senior vice president for government affairs at the Direct Marketing Association (DMA). “We think going back to the 2010 record to determine whether the recession is responsible for losses makes no sense. The Postal Service should be looking forward, not backward.”

In its case, the USPS argued the 2008-2009 recession’s impact on the Postal Service “constituted an extraordinary or exceptional circumstance.” However, the PRC found that the evidence did not demonstrate a causal relationship.

The Postal Accountability and Enhancement Act of 2006 (PAEA) caps the increases for mailing services at the rate of inflation as measured by the Consumer Price Index (CPI). The law does allow for increases beyond the CPI if there are exceptional or extraordinary circumstances.

According to the new statement provided by the USPS, it will perform a “source of change” analysis to demonstrate what percentage of each dominant project’s volume losses are due to the recession. Further, the USPS will present testimony explaining this data along with legal analysis to try and present their side.

There is no specific timeline for a case like this but prior precedents have the PRC taking 90 days for the approval of such an increase. And if such an increase were approval, a 45-day waiting period would commence.

New evidence will be presented to the PRC on November 21, 2011, which could lead an exigent rate increase approval as early as April 1, 2012, with new rules taking permanent affect June 14, 2012.

The following is what nonprofits will pay to ship packages with mailing prices as of Jan. 21, 2011 and what prices could be with an approval of an exigent rate increase:

  • Standard mail nonprofit letters will be 16.6 cents and could be 17.5 cents;
  • Standard mail nonprofit flats will cost 35.6 cents and could go up to 37.6 cents;
  • Standard nonprofit machinables are going to cost 1.476 cents, increasing to 1.56 cents;
  • Library mail media will cost $1.22, going up to $1.29; and,
  • Periodicals (including magazines and newspapers) will be 20, could reach 21 cents.

“While legislation continues to be introduced to address critical Postal Service issues, the uncertainty over Congressional action leaves the Postal Services little choice but to proceed with the case for now,” according to a statement from the USPS. “The Postal Service receives no tax dollars for operating expenses and relies on the sale of postage, products and services to fund its operations.”

The USPS has begun looking at other ways to generate revenue or cutback existing services. As of Jan. 22, 2012, a new pricing system will be place that will increase nonprofit mailings 2.1 percent across the board. In addition, a postal reform bill has been introduced that seeks to eliminate Saturday service, a refunded $7 billion for the Office of Personnel Management, reform workers compensation benefits and delivering mail to centralized mailboxes.

“They are losing money because volume is dropping,” said Cerasale. “They have a tremendous infrastructure of services they provide for employers and consumers but their budget is based on mail values of $250 billion a year. Right now we are at $160 billion. That’s a drastic drop.”

If the exigent increase passes, it will affect all nonprofit mail, said Cerasale. The DMA will not remain quiet and has partnered with other associations to find a strategy that will work best.

“Other nonprofit associations feel the same way we do,” said Cerasale. We will fight this case by trying to show this increase is unjustified.”

Meanwhile, members of Congress are trying to pass legislation to lift some of the USPS’s pension benefits burden. This postal reform bill could have an easier passage than other attempts this year thanks to bipartisan support from members of a key Senate committee. Four members of the Senate’s Committee on Homeland Security and Governmental Affairs held a press conference Thursday morning to back The 21st Century Postal Service Act of 2011 (P21): Joseph Lieberman (I-Conn.), Susan Collins (R-Maine), Tom Carper (D-Del.) and Sen. Scott Brown (R-Mass.).

Among the provisions in the legislation:

  • Six-day delivery will remain for at least two more years while the United States Postal Service (USPS) continues to cut costs and develop remedies for customers who might be affected disproportionately by eliminating Saturday service. After two years, the Government Accountability Office (GAO) would review the Postal Service’s financial situation and projections to determine if five-day delivery would still be necessary.
  • Approximately $7 billion would be refunded to USPS through the Office of Personnel Management, as overpayment to the Federal Employee Retirement Health System (FERS) for retiree health benefits. About a quarter of that money would be used as retirement incentive buyouts of up to $25,000 (or credit service years toward retirement annuity) to reduce staff by 100,000, and pay down USPS debt.
  • Reform workers compensation benefits. The bill also would reform workers compensation practices. Some 2,000 beneficiaries who are retirement age still receive workers’ comp benefits even though they likely will never return to work, Collins said, citing one case of a 99-year-old employee. Compensation for new enrollees would be set under the Federal Employees Compensation Act (FECA) at 66 2/3 percent of salary at the time of injury until they reach retirement age.
  • Amortize over 40 years, instead of the original 10 years, the schedule for USPS to fund future retiree health benefits, and reduce the pre-fund goal to 80 percent. A $5.5-billion annual payment due Sept. 30 was extended by Congress until this month. The Postal Service and its unions would have until September to negotiate a separate USPS health insurance plan.
  • Arbitrators deciding a contract dispute between USPS and unions would take into consideration the financial condition of the Postal Service and the requirement in the law that USPS consider wages and benefits comparable to the private sector.
  • Authorizes USPS by 2015 to deliver to curbside, sidewalk or centralized mailboxes, where feasible, rather than door delivery.

“Too many people still rely on the Postal Service for us to sit back and allow it to collapse,” said Lieberman, adding that USPS still delivered 167 billion pieces of mail last year and its 32,000 post offices means it has more domestic retail outlets than Walmart, Starbucks and McDonald’s combined.

“We’re not crying wolf, said Collins, ranking member of the committee, adding that the postal service will not be able to meet its payroll by next summer unless Congress takes action. USPS is projected to lose $10 million this fiscal year.

Carper likened the situation to the ailing auto industry, which government helped to “right-size” several years ago, and is now flourishing. U.S. auto companies faced similar challenges: they had more plants than they needed, more staff than they needed, and there was a mismatch of the wage structure for the big three automakers and their competition.

The reform bill also answers the question of whether Congress can still govern and tackle big problems, he said.

The senators emphasized that it’s not a bailout of the Postal Service but a refund of a $7-billion in payments to the FERS that originally came from ratepayers. Opposition in the House was largely based on whether $55 billion to the Civil Service Retirement System (CSRS) was an overpayment, said Collins. Two independent actuarial studies commissioned by the Senate said that was an overpayment while the administration contended it was not, she said, adding that the administration agreed on the $7-billion overpayment from FERS, even inserting it into the budget. Even USPS has abandoned its request, Collins said.

“We support this bill. It’s in the right direction and has various components we think are good,” said Tony Conway, executive director of the Alliance of Nonprofit Mailers, adding that it also keeps the nonprofit postal discount alive. The discount had been the target of a bill that was amended by a House committee earlier this fall.

There already are at least three primary postal reform bills in the Senate this session, two sponsored by Carper and Collins, and another introduced this fall by Sen. John McCain (R-Ariz.). “They wanted to move one of them, but in reality I think, they realized they couldn’t. They needed to find a bipartisan approach, some common ground amongst those bills,” said Conway.

With four key members of postal-related committee members supporting P21, Conway said, “portends quite positive things for its likely get through committee.” Since the four lead postal senators back the measure, he believes the likelihood of it moving forward is pretty good. McCain’s bill (S. 1625) is a companion H.R. 2309, which would phase out the nonprofit postal discount over a decade and is sponsored by Darrell Issa (R-Calif.), chairman of the House Committee on Oversight and Government Reform.

“In 2006, we did put the Postal Service back on better financial footing for a while,” said Collins. “Unfortunately, what happened, the transition to electronic mail was far more rapid than the Postal Service anticipated, its costs were higher than anticipated, but the situation is so much more dire now than it was in 2006.”