USPS Update: The Future of Postage Rates for Nonprofits

On the heels of the postage rate changes that took place just a couple of weeks ago, some big news hit the nonprofit postal world last week and it’s a…

MAJOR WIN.

Most significantly, the Postal Rate Commission (PRC) agreed with the nonprofit industry and concluded the USPS won’t be allowed to change the calculation of the 60 percent ratio between nonprofit and commercial Marketing Mail rates. This is a topic that surfaced over the summer when the USPS said they wanted to re-align the discount ratio of nonprofit to commercial rates. This is a significant win for the nonprofit industry as we would have been looking at a 4.2% increase to nonprofit rates in addition to the looming postal reform adjustments, had the PRC ruled in favor of this modification.

Thank you to the Alliance of Nonprofit Mailers who led the opposition to this, filing two sets of extensive comments, and rallying industry leaders to issue comments to the PRC letting them know just how negatively this would have impacted the nonprofit industry.

While this is a great win for the industry, preventing a major rate hike and saving nonprofit mailers close to $61.5 million per year, there are number of items still looming that we are keeping a close eye on, including:

1. PRC Rate Review – Last fall the USPS concluded its mandated 10-year review of the USPS CPI-cap rate system that went into effect in 2006 under the Postal Accountability and Enhancement Act (PAEA). The requirement stated that the PRC had to review the rate-making system that had been put into place and determine if it met the original objectives. In conclusion, the PRC shared that the current system is not meeting the original objectives and outlined a handful of areas of concern which means we could see significant changes to rate-making going forward via modifications to the current system or an entirely new system.

The PRC issued a notice of proposed rulemaking to address some of the concerns. Here are a few highlights in the proposal:

• The PRC recommends keeping the current CPI methodology in place, but allowing the USPS to add a supplemental rate authority in addition to the CPI price cap of 2% over a five-year period after which they suggest another evaluation
• A recommended one percent of “performance-based rate authority” per calendar year if the USPS meets certain measures
  • 0.75% for meeting specific operational efficiency-based requirements laid out in its proposal
  • 0.25% based on service quality measurements
• The USPS would need to adjust pricing on classes that are under water. The proposal would increase rates for mail classes which aren’t covering their attributable costs by a minimum of two percent above the percentage increase for the mail class. Periodicals and some flats could be heavily impacted by these adjustments
• The PRC stated the USPS hasn’t done a good job of setting workshare discounts and suggested these modifications be put in place:
  • For Periodicals, the passthrough could be limited to 75 – 125% of avoided costs
  • For all other classes, the passthrough will be limited to 85 – 115% of avoided costs
  • Additional non-compliant passthroughs would be allowed a three year grace period, after which the pass throughs would need to be compliant with the PRC’s requirements

The PRC allowed the industry a 90-day comment period which ends on March 1st. Review of these comments is scheduled to occur by the end of March so the industry expects to hear from the PRC after that point.

2. No Board of Governors – While three people have been nominated to serve as Governors of the Postal Service the Senate Homeland Security and Governmental Affairs Committee has not held confirmation hearings for these nominees which means at this point it looks like there will be NO USPS Mailer Incentive Programs for 2018. This is disappointing news as a number of nonprofits took advantage of the incentives in 2017, including the Mobile Shopping and Tactile, Sensory & Interactive promotions.
3. Postal Reform – H.R. 756 is still in Congress and we could see this bill make traction with the House and the Senate later this year.

The USPS just issued their first quarter results for 2018 stating controllable income of $353 million, compared to controllable income of $522 million for the same period last year. Stating the decrease was largely driven by volume declines in First-Class and Marketing Mail, higher normal cost of retiree health benefits expenses of $140 million and higher transportation expenses of $109 million, partially offset by a reduction in compensation and benefits expenses of $91 million. While they continue to see a surge in package volume, this is not offsetting the continual decline in letter mail. The USPS feels their long-term financial stability depends on the PRC establishing a new pricing system that enables the organization to generate sufficient revenue to cover their costs. Postmaster General and CEO Megan J. Brennan is pushing for these changes and shared these recent comments: “Although we continue to win customers and grow our package business, these gains are not sufficient to offset continuing declines in our mail business, which is our main source of revenue and contribution. We will continue to do everything within our control to improve operating efficiencies, manage expenses, expand our use of technology and keep mail affordable, but these actions must be combined with regulatory and legislative changes.”

Are major changes to postal rate-making system coming our way? Maybe, but for now it’s a wait and see situation. We’ll continue to monitor these items and keep you informed of any changes that may impact your budget. Contact us today for any questions or concerns.