USPS Bail Out Could Hike Publishers Postal Rates 41% in Next Five Years

The Postal Regulatory Commission is proposing that publishers’ postal rates increase by an estimated average of 34% to 41% over the next five years.

The postage increases would be lower than average for magazines that use co-mail and higher than average for less efficient mailers.

The PRC announced its proposal to bail out the U.S. Postal Service with future rate hikes late Friday. The vote on a final version seems likely to occur in spring of 2018, giving mailers, the USPS, and other interested parties time to comment.

The PRC’s 10^th-anniversary review of the Postal Accountability and Enhancement Act (PAEA) concluded that the postal-reform legislation had met some of its goals – but not the one calling for stabilization of the Postal Service’s finances. As a result, the commissioners concluded, they must override the law’s inflation-based cap on most postal rates.

Many mailers’ groups disagree with the PRC’s interpretation of the law, saying the agency must have Congress’s explicit approval to breach the price cap. A legal challenge to the PRC’s final plan seems likely, which could delay implementation until 2019.

The proposed rate hikes would fall especially hard on the Periodicals class, the supposedly money-losing mail category used by most magazines and many newspapers.

The PAEA is self-contradictory, calling for continued special treatment of Periodicals because of their “educational, cultural, scientific, or informational value” but also requiring that the USPS’s revenue for every class and type of product cover its costs. The same Founding Fathers who put protections into the Bill of Rights for only one industry – “the press” – also advocated low rates for periodicals because they believed newspapers were crucial to democracy and would help bind the nation together.

The PRC chose to emphasize the law’s breakeven requirement rather than its special-treatment requirement. The agency envisions five years of above-inflation rate hikes for Periodicals that would consist of four layers:

• Inflation-based: The usual rate increases that are pegged to changes in the Consumer Price Index would continue. The PRC estimates an annual inflation rate of 2.05% over the next five years.
• Supplemental: An additional two percentage points per year would be added to rates for all “market-dominant” mail, which also includes First Class and Standard mail.
• Special Periodicals assessment: An additional two percentage points would be added for any type of product or class of mail that doesn’t cover its costs. In the most recent calculation, Periodicals’ cost coverage was 73.7% and dropping, as the Flats Sequencing System and other USPS foul-ups overwhelmed publishers’ continued shift to more efficient mailings.
• Performance-based: During the five-year period, up to one percentage point of additional rate increases would be allowed if the USPS meets certain efficiency and service goals established by the PRC.

The USPS would not be able to pick and choose which layers to use: Each year, it would either have to use all of its rate-increase authority or forego any rate increase that year. With an inflation rate of 2.05%, and assuming the USPS meets its performance goals, that would mean annual rate hikes of 7.05% (except in the unlikely event that the Periodicals class gets to breakeven).

With the magic of compounding, such 7.05% annual increases would mean an average 41% hike in just five years. Without the one-point performance bonus, rates would rise “only” 34%.

The PRC proposal would also require that any efficiency-based postage discount be equal to at least 75% of the Postal Service’s resulting savings. That would apparently force the USPS to provide greater incentives for publishers to sort mail into carrier-route bundles.

The Association of Magazine Media (MPA) says that the discount for carrier-route copies is only 60%. In a joint statement with two other mailers’ groups, in March it said upping the discount to 100% would “stimulate a massive surge in co-mailing, enabling Periodicals . . . to cover most if not all of their reported attributable costs.”

It also said, “The Postal Service must not be allowed to charge captive mailers for the added costs resulting from the Postal Service’s disastrous decision to invest in the Flats Sequencing System (“FSS”) instead of committing fully to co-mailing.”