July 9, 2024

Alliance Members & Sponsors:

The regulatory review of the current rules for postal rate increases is finally underway! And your Alliance went all-out in filing our opening comments. We urge the Postal Regulatory Commission to return to the inflation-capped annual rate hikes that preceded its experiment over the last three years with several unconditional add-ons to the Consumer Price Index (CPI). As we describe in documented detail in our comments, the experiment has proved that the U.S. Postal Service cannot be counted upon to regulate itself with the pursuit of efficiency, great service, and cost control in the context of unconditional pricing authority well above general inflation. Moreover, several years of data and results demonstrate that the current rate system is not fulfilling most of the objectives and factors required by postal law.

Our Board of Directors has been involved in preparing our comments including signed declarations by three of our Board Members. Our comments and the declarations can be read at the PRC website here: https://prc.arkcase.com/portal/docket-search/daily-listings/filing-details/129605

Below we provide the introduction and summary of the comments.

The next step in the process is reply comments that are due on August 13. They will be followed by private deliberation by the PRC leading to a new proposed rule if the Commissioners decide that change is necessary. The regulator then will invite comments and reply comments before ordering a final rule for postal rate setting. Because of the urgency of the situation, we urged the PRC to issue a final rule in 2025. (The previous “10-year” rate review stretched from 2016 to 2020.) Having three years and six rate increases of experience and data should aid the Commissioners in reaching an expedited decision.

COMMENTS OF ALLIANCE OF NONPROFIT MAILERS

(July 9, 2024)

“…the Commission remains concerned about the substantial declines in Market Dominant volumes, overall service performance for Market Dominant products, and the Postal Service’s overall financial situation, issues that have all remained significant, if not worsened, since the current Market Dominant ratemaking system went into effect.”

1. Introduction and Summary

The Alliance of Nonprofit Mailers (the “Alliance”) applauds the Commission for initiating this review of the current market dominant ratemaking system two years earlier than anticipated.  That reflects good, adaptive regulatory oversight of an agency sorely in need of a course correction.  Because monopolists rarely, if ever, restrain their own pricing behavior, that task must fall to the regulator.

The Alliance has for nearly 45 years represented hundreds of nonprofit organizations that use the Postal Service to raise funds, distribute publications, build membership, and communicate with members, donors, constituents, and lawmakers.  We are among the most active participants in Commission proceedings, reflecting the fact that nonprofit organizations mail 10 percent of all mail volume and purchase significant volumes of First-Class Mail, Marketing Mail, and Periodicals Mail to support their charitable purposes.  Our comments are supported by the declarations of Tracey Burgoon (Chief Development Officer, Disabled American Veterans), Steven Schiavone  (Director, Print Supply Chain at Consumer Reports), and John Hamre (Executive Vice President, Direct Response, Wounded Warrior Project).

This docket represents a major inflection point in postal rate regulation.  The Commission now has more than three years’ worth of data showing the impact of its modifications to the ratemaking system that became effective in January 2021.  Those data are clear: the current system is not achieving the statutory objectives, while taking into account the statutory factors, that Congress set forth.

Congress required the system to “maximize incentives to reduce costs and increase efficiency.”   Yet under the current system, “the Postal Service is struggling to adjust its cost base and resource usage in line with declining mail volumes,” as evidenced by the worst one-year decline in Total Factor Productivity (“TFP”) since it was first calculated in 1965 (4.0 percent), and a labor productivity decline of 2.9 percent.          Congress required the system to “maintain high quality service standards.”   Yet under the current system, the majority of market dominant products failed to meet on-time delivery performance targets, despite degrading service standards.   Congress required the system to “assure adequate revenues” for the Postal Service, and to maintain its financial stability.   Yet under the current system, the “Postal Service’s financial position worsened in FY 2023” with a net operating loss of $2.3 billion and a total net loss of $6.5 billion.   Through May 2024, two-thirds of the way through the current fiscal year, the Postal Service has lost $4.9 billion and is on pace to lose more than $7 billion this year.

Congress required the Commission to consider “the importance of pricing flexibility to encourage increased mail volume and operational efficiency.”   Yet under the current system, mail volume fell by nine percent in FY 2023 – the largest percentage drop in over 15 years, excepting the Great Recession (2009) and the COVID-19 pandemic (2020), with a similarly large drop expected this year.   Through May 2024, total mail volume fell by 4.5 percent while the Postal Service reduced total workhours by only 0.8 percent.   Congress required the system to “create predictability and stability in rates” and “just and reasonable” rates.   Yet under the current system, mailers have been subject to six rate increases in three years, with four of those six increases being far above inflation.  The compounded price increases from January 2021 – July 2024 at the product level reach as high as 83 percent.

The current system is not adhering to Congress’ requirements, and members of Congress say so.  Representatives of the House Committee on Oversight and Accountability, which has legislative jurisdiction over the Postal Service, have commented in this very proceeding that “[t]he trend of increasing postal prices multiple times per year, along with the decline in postal delivery performance that followed the implementation of [the] Delivering for America plan, are clearly at odds with the statutory objectives and factors for regulating the mail, as established in 39 U.S.C. § 3622(b) and 39 U.S.C. § 3622(c), respectively.” 

The Commission recognizes that the current system is failing, too.  Chairman Kubayanda recently testified before Congress that the Postal Service’s FY 2023 results “are alarming: based on the numbers reported by USPS, service performance, financial results, mail volume, and efficiency are moving in the wrong direction.  I do think USPS can make improvements, but its leadership must acknowledge these problems and be transparent with stakeholders, Congress, and oversight bodies while trying to address them.”   Postal Service leadership, unfortunately, does not acknowledge these problems.  Board of Governors Chairman Martinez, in his own testimony, insisted that “the DFA Plan is the only viable path for the Postal Service to become financially self-sufficient over the long term” and claimed that “[s]imply put, the Delivering for America Plan is working.”

The Commission, mailers, and members of Congress all realize that the current ratemaking system and the Postal Service’s Delivering for America Plan (“DFA”) are not working consistent with the statutory objectives and factors.  The Postal Service remains on an island, oftentimes chafing against any regulatory or Congressional oversight while shouting the imagined merits of its strategic plan into an echo chamber.  So long as the ratemaking system permits the Postal Service to charge captive mailers above-inflation price increases, the Postal Service will do so.  The Commission cannot leave to the Postal Service’s discretion how best to achieve Congress’ goals.   It cannot trust the Postal Service to act prudently and in the best interests of all stakeholders, or to refrain from increasing rates – each and every time – by the full amount permitted by the current regulations.  The only solution is to change the regulations.

The Alliance urges the Commission to rescind the above-CPI rate authority that the Commission created in Order. No. 5763 of Docket No. RM2017-3 (the “ten-year review”).  The Commission should remove the regulations creating density rate authority (39 C.F.R. §§ 3030.160 – 3030.162), retirement obligation authority (39 C.F.R. §§ 3030.180 – 3030.185), and noncompensatory authority (39 C.F.R. §§ 3030.220 – 3030.222).  During the ten-year review, the Alliance and other mailer associations warned the Commission of the likely impacts of those proposed rate authorities:

The proposals will not work.  They will not strengthen the Postal Service’s financial condition. They will not incentivize the Postal Service to behave more efficiently or become more productive.  They will move the “system” farther away from achieving several important statutory objectives, such as maximizing incentives to reduce Postal Service costs (Objective 1), creating predictable and stable rates (Objective 2), and maintaining just and reasonable rates (Objective 8).  What’s more, the proposals will so badly exacerbate market-dominant volume losses that they will eventually deprive the Postal Service of the very revenue that the Commission hopes to provide (Objective 5).

Our predictions were accurate.  But we are not asking the Commission to take action in the present docket in order to validate our past predictions.  Instead, we ask the Commission to act based on the data before it.  The Commission must modify its regulations so that the system reverts to the pre-2021 price cap design that Congress intended – not based on speculation, but on evidence.

In addition, the Alliance requests that the Commission modify 39 C.F.R. § 3030.102 – which requires the Postal Service to develop a schedule for regular and predictable rate adjustments – to explicitly limit the frequency of rate adjustments of general applicability to one per year.  The current regulation merely compels the Postal Service to schedule rate adjustments “at specific regular intervals of time.”  The nonspecific nature of the current system leaves to the Postal Service’s discretion the frequency of rate increases.  Under the current system, the Postal Service has opted for twice-yearly rate increases that have reduced predictability and stability in rates and have increased the administrative burden of the ratemaking process.  If it so desired, the Postal Service could schedule even more frequent rate increases under the current system.  Revising the system to allow once-yearly rate adjustments would codify the Commission’s expectations and would better achieve Objectives 2 and 6.

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The Alliance understands that the scope of this proceeding is bounded by the Commission’s review of the ratemaking system.  Our comments will focus on why the current system is not achieving the statutory objectives, accounting for the statutory factors, and how the Commission can move the system closer to meeting them.

We would be remiss, though, if we did not place our comments in their proper context.  The Alliance knows that there are limits on the ratemaking system’s ability, by itself, to fully achieve all of the statutory objectives because of the Postal Service’s universal service obligation.  We believe that the key to ensuring the Postal Service’s long-term financial future lies in changing the ratemaking system and fixing the Postal Service’s funding model.  For years, the Alliance has advocated for a dual revenue source comprised of Congressional appropriations (reflecting the Postal Service’s public sector role) and mailer fees (reflecting its commercial identity).

The Commission appears to be warming up to the idea.   The Postal Service, on the other hand, is resistant to this sensible solution – one that sustained it for nearly 200 years.  Postmaster General DeJoy testified in April that relying on the appropriations process is “precisely the outcome[] that we hope to avoid,”  and more recently explained that “I have nice suits and I don’t want to beg.”   But vanity cannot take precedence over policy.

In considering modifications to the ratemaking system, the Commission should seek to retain as much mail volume as possible until Congress fixes the Postal Service’s funding model.  Stronger mail volume correlates well with better financial performance, and would help ensure that the Postal Service remains an agency worth saving.

The Alliance also urges the Commission to act quickly.  In the ten-year review, four years elapsed between the Commission’s issuance of an ANOPR in December 2016 and its issuance of a final order on November 30, 2020.  The current system cannot remain unchanged for nearly that long.  The Commission can satisfy APA procedural due process requirements and still issue a final rule in 2025, before the Postal Service implements several more maximum-authority rate increases.  Any delay in the issuance of a final rule that reins in the Postal Service will be a pyrrhic victory.