Mailers brace for January postage rate increase

Sep 10, 2013

By Tonda F. Rush
NNA | CEO and General Counsel

WASHINGTON—As Congress continues to deliberate over new legislation to help the troubled U.S. Postal Service, national organizations representing users of the mail began to brace themselves for an anticipated September announcement about higher postage rates.

The USPS Board of Governors has scheduled a meeting for Sept. 5. Although no public announcements of its plans have yet been aired, Postmaster General Patrick Donahoe has declined to rule out the possibility of steeply higher rates. Meeting with mailers groups around Washington in August, he reportedly has said that the governors’ principal responsibility is to keep the lights on. A postage increase of some magnitude is expected to take effect in January. The governors September decision will determine how much it will be.

USPS expects to have fewer than five days of operating cash by the end of the fiscal year, Sept. 30. Even though its finances are gradually improving with the economy, the burden of a more than $5 billion annual payment to prefund employee health care—which Congress began to require in 2007 and which USPS has booked but not paid for the past three years—is weighing down its balance sheet.

The current law prohibits USPS from increasing postage rates above the annual average of the urban Consumer Price Index, which has fallen below a 2 percent monthly growth rate since January and was 1.7 percent in July. But the law also permits USPS to increase rates above the index under exigent circumstances if its regulator approves. The Postal Service has attempted to do so only once but failed to persuade the Postal Regulatory Commission that it was addressing exigent circumstances. Now, however, the persistent losses on the bottom line, coupled with a $15 billion debt and continued failure to pay its retiree health benefit requirement may cause the PRC to look at the matter differently. In addition, some mailing classes, including catalogs and Periodicals, have not contributed sufficient revenue to USPS to cover their costs for the past several years, which may provoke the PRC to look more favorably upon passing along larger increases to that mail.

The difficulty of forestalling rate increases through new legislation increased in August when the American Postal Workers Union, USPS’ largest, trained its grassroots protests on the Postal Service’s desire to move out of the federal workforce health benefit plan and create a USPS plan. The Postal Service wants retirees to shift to Medicare upon retirement and have only a wraparound plan, as most citizens do. Both Medicare contributions and the federal workers plan are funded for USPS employees through postage revenue, but most workers prefer the more generous USPS benefits. Though Donahoe claims all he seeks is the ability to have his workforce claim the Medicare benefits that USPS is already paying for, the union sees it differently.

A Government Accountability Office report stating that 63 percent of postal workers would save money under a new USPS plan, but that some might have to shift to different providers and might have somewhat different benefits. And Medicare would have to pay out benefits for which it has been collecting money but not remitting to claimants. But the postal workers union’s spin was all negative: GAO: “USPS Healthcare Plan Would Hurt Medicare, Postal Workers” its website headline said.

Donahoe, who continues to seek the end of Saturday mail delivery, has said that the savings from a new health plan would be far in excess of the five-day mail plan savings. But the major postal reform legislation in neither the House nor the Senate mandates that USPS adopt such a plan. Rather, congressional leaders seem to hope the unions and management can come to some agreement that would avoid political pain.

The National Newspaper Association has expressed concern that a large rate increase would not only cause USPS to lose more mail volume, but it would blunt the incentive for members of Congress to make hard choices about the organization’s future. NNA has urged the USPS Board of Governors not to consider major rate hikes. In a joint letter with other organizations representing mailers, NNA told the governors:

“An exigent rate increase is not a solution to the agency’s financial issues or the profitability of certain classes of mail, and it could potentially alter the current level of focus on improving operations and infrastructure.”