Reasonable postal increases could hit a wall

Tonda Rush

Dec 29, 2017

WASHINGTON, D.C. — An abrupt end to a decade of inflation-capped postage increases looms ahead for community newspapers in 2018 if the Postal Regulatory Commission proceeds with a new rate-setting system that could add to newspapers’ postage costs from as much as 60 percent to 75 percent over five years.

Instead of rates adjusted each year, usually in January, by an inflation benchmark, the PRC is considering using the inflation cap as a rate floor, upon which multiple percentages of additional U.S. Postal Service revenue could be stacked.

National Newspaper Association President Susan Rowell called the proposal “devastating” and vowed NNA would oppose it.

In December, the PRC concluded a year-long examination of the rate-setting mechanism in the 2006 Postal Accountability and Enhancement Act, which NNA had been instrumental in passing. PAEA permitted the U.S. Postal Service to increase rates each year for each mail class or product only by the level of inflation tracked by the Department of Labor’s Consumer Price Index for all Urban Consumers. Since the law went into effect in 2007, community newspapers have seen relatively small increases each January, usually 2 percent to 3 percent.

But while rates were capped, USPS expenses continued to grow. Its labor contracts are renewed triennially and have included both inflation-based increases and stepped-up wage levels. Congress depleted USPS funds by requiring payments each year of more than $5 billion into a federal fund intended to support future retirees’ health benefits. And mail volumes have shrunk, shedding more than 60 billion pieces in the decade, while the country adds a little more than 1 million delivery points a year. Standard Mail, which is less profitable to USPS than First-Class Mail, crossed over to become the largest mail class in 2009. Package delivery, which is also less profitable, is growing, but is not providing sufficient revenue to cover much of the USPS overhead costs, which traditionally have been supported by First-Class Mail.

The health care prefunding, however, has been consistently cited by both the PRC and USPS as the primary culprit in USPS losses. The Postal Service had to borrow to make its first payments. It then hit its maximum borrowing authority, strapping the managers for cash sources to make capital improvements. After that, USPS simply added the $5 billion each year to “debt” on its balance sheet. Now, about $54 billion of the debt (owed to the federal government) of a total $59 billion comes from the nonpayment of the prefunded health benefits.

The PRC found this unpaid obligation troubling. Although the PAEA rate system met the Postal Service’s short-term objective of stabilizing rates, the continued build-up of purported red ink puts the institution in jeopardy for the medium and long terms. That is why the PRC now proposes to scrap the rate cap and institute instead the following rate elements:

• An inflation-based “cap,” which would actually provide a floor.

• An additional 2 percent annual increase if the postmaster general believed it was needed.

• A further 2 percent a year for mail classes that have failed to cover their costs, such as Periodicals.

• A 1 percent incentive increase for reaching certain performance goals, of which .25 percent would be earned by meeting service standards.

• Additional increases (or possibly some decreases) as USPS adjusts work-sharing discounts to reflect actual costs avoided by mailers doing the work instead of postal workers.

At present, USPS sometimes passes on discounts in excess of its own savings. In others, it implements a fee that is less than the actual cost, such as the fees for Periodicals sacks, which cover about 40 percent of the actual cost of sack handling. These increases could worsen the situation for newspaper mail.
NNA’s analysis indicates that although the costs could increase about 12 percent in the first year (depending upon the discretionary charges that USPS would control), the cumulative effects over five years could lead to increases for in county postage just under 65 percent.

A rate adjustment of 2.15 percent in the Postal Reform Act of 2017 would cause the five-year outlook to rise to above 75 percent. This outcome caused NNA’s Executive Committee to reassess the association’s support for postal reform, and to consider other steps the association should take to combat alarming postal rates.

“The Postal Reform bill could actually save us from much of this tsunami of red ink flowing from the Postal Service,” NNA President Susan Rowell, publisher of the Lancaster (SC) News, said. “It would erase much of that $59 billion in ‘debt’ and then the PRC would be looking at a much rosier financial picture for the Postal Service.”

The retiree health care payment rankles postal experts, such as NNA’s Postal Committee Chair Max Heath.

“This obligation placed upon the Postal Service in the last few days of our work on PAEA has absolutely crippled the system,” he said. “It has caused this appearance of ‘debt’ on the Postal Service’s balance sheet. To start with, it is absurd to many of us that the Postal Service even has a balance sheet, but it is an outrage that USPS is expected to pre-fund a benefit that every other agency in the government pays for as it goes. This obligation added confusion to a Postal Service that had enough trouble just dealing with declining mail volume. Now the unfair appearance that it is failing to meet its federal obligations has led the PRC to this very troubling decision.”

The new rates are not a done deal and are not likely to go into effect until late 2018, or possibly 2019. The PRC is seeking comments from mailer organizations on March 1.

Rowell said NNA was prepared to fight.

“We disagree with the premise. We disagree with the conclusion. We disagree with most of the outcome of this opinion. We agree that USPS needs help, and we have fought hard to provide that help by supporting the Postal Reform Act. I will admit we took a long look at our support for this bill after the PRC’s decision. In the end, we concluded the bill is the right thing for the Postal Service, and our newspapers need a strong universal service mandate in order to reach our subscribers. But it has to be at a reasonable cost.

“This won’t be the first time NNA has had to roll up its sleeves to preserve our right to affordable and reliable mail service. We are preparing for a busy 2018, as once again we speak up for newspapers in the mail. Stay tuned. We’ll have more to say about this topic as the year proceeds.”