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The NonProfit Times

Mail … Stephen Kearney

Pricing, Delivery Woes

Can NPOs continue to rely on the Postal Service?

Many nonprofits depend on an affordable, reliable United States Postal Service (USPS). The agency delivers outbound fundraising, membership, subscription, and call-to-action appeals, and publications essential to missions. Nonprofits receive in-bound First-Class Mail payments for membership, subscriptions, donations, and bills.

All of this seems up in the air with the relentless crisis headlines. Poor service and large rate increases cause nonprofit executives, leaders of a sector that currently accounts for more than one-tenth of USPS volume, to question whether they can continue to depend on postal mail.

The History

It helps to understand what’s going on in the context of the long history of the post office. Despite recent troubles, USPS remains the largest postal service in the world, and many consider it the most efficient. The U.S. direct mail industry also is by far the largest in the world. So, how did we get here?

Our postal system began during colonial times to spread the news to our far-flung outposts. When our nation was formed, Congress designated the Postmaster General as a member of the President’s cabinet, and local postmasters were politically appointed. While mailers paid postage for the service, Congress set postage rates and provided regular taxpayer funding.

The system worked mostly well for 180 years until President Richard M. Nixon signed the Postal Reorganization Act (PRA) of 1970.

All along, the post office has operated as a federal agency with unique businesslike practices. It charges customers fees, employs hundreds of thousands of manual laborers, and provides in-person services. The new act tipped the scale in the direction of a more businesslike, less governmental USPS.

The early 1980s saw the taxpayer annual subsidy phased out, a presidentially-appointed board selecting the Postmaster General, and rates set by the new Postal Rate Commission (PRC). Postage was based on the actual costs of delivering the service through a very regimented public process. The goal – to break even over a three-year cycle before raising rates again.

The new law carved in stone the principle of a “self-funded” independent agency. Congress expected the value of the monopoly to deliver mail to more than compensate for the money-losing requirements it imposed on USPS, such as operating thousands of unprofitable post offices and delivering to remote areas every day.

Conversion to postage-only funding initially benefited from the golden age of mail growth. Volume doubled from 100 billion pieces in 1980 to 200 billion in 1999. It appeared that the mailer-only funding model worked, at least with rapid mail growth.

But mail volume peaked in 2006 with the onset of the great recession. The 100% mailer-funded model failed for all intents and purposes.

Congress doubled down on the PRA’s business-like emphasis in 2006, passing the Postal Accountability and Enhancement Act (PAEA). It encouraged USPS to be more efficient, making money on market-dominant mail products and setting its own rates under an inflation cap. Competitive packages were freed up from rate regulation as long as they covered their direct costs.

With volume dropping from 213 billion in 2006 to 128 billion in 2021, massive losses ensued. USPS costs spun out of control and generous employee compensation and benefits still comprise more than 70% of its budget.

The Current Plan

USPS is now operating under the 10-year plan Delivering for America or DFA (https://bit.ly/3qWYfpS). Postmaster General Louis DeJoy and his DFA are an expression of the 1970 and 2006 postal law goals to operate as a profitable business. The 50-year experiment with a businesslike, mailer-funded USPS continues.

The Postal Service is putting its focus where it sees the growth and profit potential — package delivery. The boom in e-commerce is already long-established and is now accelerated by the pandemic. USPS lists nothing significant in its plan to encourage the growth of letters and flat mail. The businesslike USPS has waved the white flag on mail.

The mail delivery on which nonprofits rely, which was the original and longstanding public purpose of the Post Office, is at risk with the current business-first, package-first emphasis.

The Case of the Missing Regulator

The 2006 PAEA changed the “Rate” in PRC to “Regulatory.” Many in the mailing community believe the PRC subverted the rate system in its 2016-2020 regulatory review. The PRC blew up the rate cap Congress passed in 2006 in favor of a system that allows USPS to raise mail prices well above inflation.

Mailers appealed to the U.S. Court of Appeals, but the judges ruled that the five PRC Commissioners wield unbridled power to establish a rate-making system as long as they consider a long list of wildly conflicting objectives and factors.

Under their new system, if mail volume declines one year, USPS may raise rates above inflation the next. If volume increases, there is no reduction in rates. If generous retirement benefits are not fully funded, USPS can add another premium to rates. If a mail category is deemed non-compensatory, even due to USPS inefficiency, it can juice up rates even more. And USPS keeps its right to raise rates to cover inflation.

The latest insult to injury is the announcement that USPS will hike rates twice every year. The compounding will start with an estimated 6% to 10% postage increase in July 2022, following a similar hike in August 2021.

What About Service?

The businesslike Postal Service promises better service at a reasonable cost. Since launching DFA, the Postal Service has been pumping out press releases touting that service is getting much better. But, buyer beware.

USPS convinced the PRC in 2018 to change service measurement. USPS stopped using data supplied by an independent mail monitoring contractor collecting and reporting on the delivery of seeded mail pieces. Now service measurement is based on the USPS internal system of scanning mail at postal facilities.

USPS measures a limited portion of mail, only that prepared for businesses and nonprofits meeting stringent USPS requirements. Service measurement does not cover an individual donor, member, subscriber, or bill-payer mailing back a First-Class envelope using Business Reply Mail or a stamp.

The Postal Service assumes final delivery when mail is scanned in the post office. With postal employee absenteeism rampant, USPS is delivering mail days after it reports it as delivered.

USPS recently ignored strong public and PRC opposition to slow down about 40% of First-Class Mail in the hope of saving an insignificant amount of money. Even after lowering the bar, USPS is not coming close to delivering mail on time. The goals just set for 2022 are to deliver around 91% on time.

The Bottom Line

Congress should return USPS to the hybrid public-private funding formula that worked well for 180 years. Nonprofits need to continue their active involvement in the public discourse about the future of our mail system.

DFA neglects mail, puts heavy emphasis on the package opportunity, imposes punitive rate increases on monopoly mail, and does little to bring compensation costs under control. It is a direct outgrowth of the 1970 and 2006 Congressional decisions to tilt the Postal Service away from its public service roots toward an unachievable well-oiled business run by a government agency.

The current postal plan continues the 50-year quest to “boil the ocean” by operating the agency as a business.

The 100% mailer-funded model worked well during the boom years of the 1980s and 1990s. It failed when mail volume declined and public service costs rose.

Congress must define the USPS Universal Service Obligation (USO), everything it does that a profit-seeking private sector business would not undertake. An independent agency should value the USO cost, and Congress should fund it with an annual appropriation.

Nonprofits and the Postal Service fulfill many vitally important public services that commercial and government sectors do not. USPS needs to return to its public service roots.

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Stephen Kearney is the executive director of the Alliance of Nonprofit Mailers (www.nonprofitmailers.org). He previously served as a senior executive at the USPS. His email is steve@nonprofitmailers.org