January 20, 2016

Not since the July 1, 1885 two cent postage reduction, and the July 1, 1919 removal of the World War I one cent “exigent” surcharge, have we seen a general reduction in postage rates. We should experience one in April 2016, but only after postal customers will have paid $4.6 billion more than inflation. Through September 30, 2015, the Postal Service (USPS) reported collecting $3.52 billion in surplus revenue from customers since implementation of the exigent surcharge based on the 2007-2009 recession.

There are no “winners and losers” in this episode, just customers being required to help out a necessary government agency in a time of crisis. The crisis is over, and now it is time to move on.

At the Postmaster General’s (PMG’s) Mailers Technical Advisory Committee (MTAC) meeting on January 12, PMG Megan Brennan assured the customers and mailing industry participants that the USPS will give at least 45 days’ advance notice prior to reducing monopoly mailing service prices by 4.3 percent. Both the advance notice and the price reduction were ordered by the Postal Regulatory Commission (PRC). The PRC order to keep the emergency surcharge temporary was affirmed by the D.C. Circuit of the U.S. Court of Appeals in Alliance of Nonprofit Mailers et al. v. PRC.

PMG Brennan also said she expects the notice to come in early February for a pullback in early April. That is when most project the USPS to reach the target amount of surcharge revenue allowed by the regulator and court. Soon after the MTAC meeting, the PRC further clarified its original advance notice order by stating that the USPS must begin issuing bi-weekly reports on how much emergency revenue it has collected beginning on February 1. It also reiterated that USPS must give at least 45 days advance notice of the date that rates will come down.

The USPS notice of a general postage reduction could come as early as February 1, but is more likely to happen around February 15. In the less likely event that emergency revenue lags its recent pace, the announcement might come as late as February 29.

While it may seem as though the upcoming pricing reduction is a “victory” for mailers, there are three reasons that most members of the Alliance do not feel as though they have “won” much.

1. Damage already has been done to many nonprofit mailers

In the five years since the 2007-2009 recession nonprofit mailers have endured a lot. First, they have cut costs and downsized, as most businesses have in response to lower revenues. Many of our members have had layoffs, salary reductions, changes in leadership, closing of publications, and reductions in fundraising programs.

Layered on top of the general reaction to lower revenue has been a five year period of uncertainty and, in some cases, wild swings in postage costs. Since 2010, the USPS has periodically mounted efforts at the regulator, in federal courts, and in Congress to raise postage rates higher than the general rate of inflation that was mandated in the 2006 postal law.

One of the main goals of that law—predictability—seemingly has been abandoned by the USPS. Some nonprofit magazines and newsletters, that can be essential to the organization’s fundraising, have been hit with postage increases of 10 to 25 percent or more over the last three years. Some have closed. And last year’s postal rate case, that took three tries to gain regulatory approval, had damaging, unexpected pricing and rules changes that continue to dog the mailing industry and customers.

Finally, many nonprofits have up and coming digital-focused new leadership. These “digital natives” come in with a bias against hard copy. Unpredictable, high, and volatile postage costs add to their argument that the organization should move away from the mail. Alliance of Nonprofit Mailers members are the main internal advocates in their organizations to continue and grow the use of hard copy mail for fundraising and publications.

2. USPS continues to ask Congress for forever surcharge

As clear and straightforward as PMG Brennan’s promise at last week’s MTAC seemed, it is not that simple. MTAC participants were jolted back to reality when Deputy Postmaster General (DPMG) and Chief Government Relations Officer Ron Stroman remarked that USPS continues to ask Congress to overrule the PRC and the D.C Circuit by passing legislation to make the emergency surcharge permanent. In response to a question, the DPMG said that he would likely try to get the surcharge reinstated if the legislation does not pass prior to its regulatory removal in April.

DPMG Stroman cited a hearing to be held this Thursday, January 21, by the Senate Committee on Homeland Security and Governmental Affairs, titled “Laying out the Reality of the United States Postal Service,” as an opportunity to advance the USPS legislative agenda. He also stated that postal reform is one of two top priorities for Congressman Jason Chaffetz (R-UT), chairman of the House oversight committee.

One thing that DPMG Stroman stressed is that all parties need to compromise to enable new postal legislation. An audience member asked Stroman what compromises the USPS has made. He answered that they have agreed not to include elements that previously were on their legislative wish list, the chief one being moving from six to five day delivery of mail.

Mailers surely feel as though they have compromised, or been compromised, by the unpredictable and above-inflation pricing they have experienced since the 2006 law ostensibly made things more predictable. Many customers believe that the USPS effort to pursue higher prices at any cost is actually hurting the postal system in the longer run.

3. USPS is again appealing for the court to overrule the regulator

The third reason mailers are not feeling “victory” is the continuing appeal of the PRC ruling at the D.C Circuit by the USPS. As we reported recently, we do not believe the USPS has a serious chance of overturning a PRC order that carried out exactly what the D.C. Circuit told it to do.  As unlikely to succeed as the legal appeal is, it still is a potential spoiler that increases uncertainty for mailers.

It is a near certainty that the court will not rule on the latest USPS appeal before the April rollback. On January 7, the Department of Justice (DoJ) on behalf of the PRC requested a three-week extension of the DoJ brief defending the most recent PRC decision in the exigency case (and extending the rest of the briefing schedule by the same amount). No party opposed the extension, and the court granted it.

Here are the new briefing dates:

• February 24, 2016: due date for PRC/DoJ respondent’s brief.
• March 2, 2016: due date for joint brief of the Alliance of Nonprofit Mailers, MPA, NPPC, PostCom and Valpak as intervening respondents.
• March 16, 2016: due date for USPS reply brief.

Bottom line

The bottom line appears to be that USPS leadership will keep fanning the flames of uncertainty for mailers as long as they believe that USPS cannot balance the books without above-inflation price increases for its customers.

The Alliance believes the true bottom line is that the USPS is capable and should be allowed to reduce its size and cost structure to fit the 150 billion pieces of mail it now delivers. It took almost 200 years for our national mail volume to reach 100 billion in 1980. It then doubled to 200 billion 19 years later in 1999. As it adjusted to a 100 percent increase in the 1980s and 1990s, USPS needs to adjust now to a 28 percent reduction. Pursuing excessive price increases will only exacerbate the volume reduction.

© 2016 Alliance of Nonprofit Mailers