USPS ‘hopeful’ freedom to set higher mail rates will increase revenue

The Postal Service is on track to receive more pricing flexibility for its mail rates, a move that its leadership says will put the agency on firmer financial footing.

The Postal Regulatory Commission released a final rule Monday that would keep a price cap on market-dominant products like first-class mail, but would base the cap on changes in mail density and retirement costs.

The PRC found these variables remain out of the Postal Service’s control, and should be considered to help the agency cover its operating costs. USPS reported its market-dominant products accounted for about 58% of its annual revenue in fiscal 2020.

The final rule from the PRC wraps up a 10-year review of the USPS rate-setting system under the 2006 Postal Accountability and Enhancement Act, the last major postal bill Congress approved.

Postmaster General Louis DeJoy has criticized the PRC for taking three years to come up with an alternative pricing system after it determined the existing rate-setting system didn’t meet standards to keep the USPS financially healthy. However, DeJoy and former USPS executives have counted on greater pricing flexibility from the PRC as one of three critical pieces to long-term postal reform.

DeJoy, meanwhile, has sought to move forward on the other two pieces. He’s spoken to House and Senate lawmakers on the need to pass a comprehensive reform bill and has introduced operational changes to control the agency’s costs.

The final rule retains many of the key elements of a proposed rule the PRC released last December, except for a provision that would have allowed the agency to further increase mail rates if it met or exceeded annual performance metrics.

Modifying the price cap, the commission wrote last year, would “allow the Postal Service to achieve long-term financial stability and increase operational efficiency while maintaining high-quality service standards.”

The 2006 Postal Accountability and Enhancement Act required the PRC to determine whether the Postal Service’s rate-setting model still met nine statutory objectives and 14 statutory factors. During that review, the PRC found that the current USPS rate-setting system “did not meet the objectives relating to the financial health” of the Postal Service.

The PRC, recognizing comments it received from the mailing industry, said the Postal Service “will be able to exercise its business judgment” and decide whether or not to raise rates to the maximum extent possible under the new rule.

However, Stephen Kearney, the executive director of the Alliance of Nonprofit Mailers, said the PRC final rule doesn’t address excessive USPS operating costs as outlined in inspector general and Government Accountability Office reports.

“It’s a bit hard to fathom how the regulatory agency wants to fix the financial stability of the postal agency by putting at risk the financial stability of hundreds of nonprofits that rely on affordable mail for fundraising, membership, and distributing publications,” Kearney said.

Paul Steidler, a senior fellow at the Lexington Institute, said the USPS Board of Governors should consider holding off on raising rates to the maximum extent possible under the new price cap, given recent operational changes that led to a decline in on-time mail delivery.

“It may just be that the tipping point for a number of mailers is what they perceive as an onerous price increase,” Steidler said.

In the lead up to Election Day, federal judges in a dozen lawsuits effectively blocked those operational changes. A recent USPS inspector general report recommended the agency hold off reintroducing these changes until after its peak holiday operations.

USPS spokeswoman Martha Johnson said in a statement that the agency is reviewing the PRC’s final rule.

“We are hopeful that this order will provide the Postal Service with some much-needed assistance to generate revenue as we are committed to providing world-class affordable and dependable service to every American home and business — today, tomorrow and for generations to come,” Johnson said.

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