Nonprofit Postage Rates Headed Upward Again

By Anthony Conway
When the Postal Accountability and Enhancement Act was signed into law by President George W. Bush on December 20, 2006, the era of large, unpredictable postage rate increases ended. The new law reforms many aspects of postal regulation. None is more significant, however, than how postage rates are set.

During the 35 years that followed enactment of the Postal Reorganization Act of 1970, the United States Postal Service (USPS) raised postage rates about once every three years. Rate cases were lengthy and costly exercises that produced migraines for nonprofit mailers. And the result was cost of service ratemaking, which allowed the USPS to pass along cost increases to customers, whether those costs were efficiently incurred or not.

The new rate setting process caps overall increases for each class of mail by the rate of inflation, as measured by the Consumer Price Index. The USPS will have greater freedom to adjust postage rates within each class, but the average increase of each mail class will be limited to the rate of inflation during the previous 12 months.

It is extremely important for nonprofit mailers to recognize that the rate cap applies independently to each class of mail: First-Class, Periodicals, Standard, and Parcels. And the CPI cap at the class level requires that the average increase within the class is no greater than CPI. That means that some subclasses and categories within a given class could have rate increases greater than CPI, while others could have smaller-than-CPI increases.

The only constraint is that the average increase for each class cannot exceed the change in the CPI. As a matter of policy, however, the USPS has given out signals that it intends at least the first set of increases to be roughly uniform across the board.

The USPS is expected to increase its postage rates once a year, instead of once every three years. But the increases should be fairly predictable and regular. And, they shouldn’t disrupt business plans or bust budgets.

Here’s how the new system is likely to work in 2008, the first full year under the new rules.  The USPS will announce its new rates early in the year, probably this month (February). The average rate increase for each class of mail will be capped at the average annual rate of inflation during the previous 12 months. The Bureau of Labor Statistics (BLS) releases the CPI change each month, and the Postal Regulatory Commission posts that change on its website. The January posted annualized CPI change was 2.9 percent.

The USPS  proposal will go to the Postal Regulatory Commission, which will review it to ensure compliance with the inflation cap. The Postal Service will then implement the new rates about 90 days after they are first announced.

If the USPS does announce its rate changes in February, they probably will be effective in May. The process is likely to take place again in 2009 and each year after that. Nobody likes postage rate increases, but the new system should make budgeting and planning much easier.
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Anthony Conway is executive director of the Alliance of Nonprofit Mailers in Washington, D.C. His email is tony@nonprofitmailers.org