On December 5, 2019, the Postal Regulatory Commission (PRC) proposed changes to the system that regulates prices for so-called market-dominant mail, which includes much of the mail sent by nonprofit organizations. The PRC's proposed revised rules and request for public comment were published in the Federal Register on December 11, 2019.
The proposed changes, if implemented, would allow the U.S. Postal Service to charge significantly higher prices for some types of mail on which nonprofit organizations rely. Mail is a crucial mode of communication for many nonprofits, which use it to send fundraising appeals, membership appeals, thank-you or acknowledgment letters, front-end and back-end premiums, invoices, magazines, newsletters, and more. In many cases, mail is the most effective channel through which nonprofits can reach their supporters and members. And mail generates a significant portion of numerous nonprofits' revenues. We therefore want to make sure you are aware of proposed postal rate changes that could dramatically harm nonprofits and impair their continued patronage of the U.S. Postal Service.
Since the enactment of the Postal Accountability and Enhancement Act (PAEA) at the end of 2006, U.S. postal products have been divided into two categories: (1) competitive and (2) market-dominant. Competitive products, as the name suggests, are those sold by the U.S. Postal Service that face competition from private carriers, such as shipping of parcels and priority mail. Market-dominant products are those over which the U.S. Postal Service is effectively a monopolist. Market-dominant products are found in numerous classes of mail that nonprofits frequently use, including first-class letters and postcards, flat-shaped marketing mail, and periodicals.
When Congress passed the PAEA, it included an important protection for customers who purchase the U.S. Postal Service's monopoly products. Under the law, and absent "extraordinary or exceptional circumstances," the Postal Service cannot raise prices annually on classes of market-dominant mail by more than inflation (as measured by the Consumer Price Index for All Urban Consumers). The "CPI Cap" has safeguarded all users of market-dominant mail, including nonprofit mailers, from unjust and exorbitant postal price hikes.
The PAEA contains other key provisions: it requires the Postal Service to prefund postal employees' retirement health benefit and pension accounts, set out specific objectives and factors that must be considered when setting market-dominant prices, and instructed the PRC to revisit the system of regulations in ten years to see whether they are working well.
The "ten-year review" of the PAEA's system for regulating market-dominant rates began three years ago. In December 2017, the PRC issued its first proposed changes to the system, which would have allowed the U.S. Postal Service to charge above-inflation price increases on market-dominant mail every year for five years. Mailers, including many nonprofit organizations, submitted comments criticizing the PRC's first proposal. Two years later, we now have the PRC's second proposal. The new proposal would likely be even more harmful to nonprofit mailers than was the first one.
The PRC Proposes, Again, to Bust the CPI Cap
The PRC's revised proposal, like the previous one, would authorize the Postal Service to charge mailers above-CPI price increases for market-dominant products. The new regulations would fundamentally alter the ratemaking system that Congress established in the PAEA and represent a serious impending threat to Postal Service customers. The new rules would permit the Postal Service to adjust the prices for each class of market-dominant mail based on:
- Changes to the Consumer Price Index; plus
- A formula that would calculate extra pricing authority for the Postal Service based on declines in mail density; plus
- Another formula that would calculate even more pricing authority for the Postal Service based on its retirement prefunding obligations.
The new rules would also allocate an extra percentage point of pricing authority to the Postal Service for meeting very modest growth and service standard measures each year. And the Postal Service would be required to charge an additional two percentage points of pricing authority for mail products that do not cover their costs, such as flat-shaped marketing mail. If an entire class of mail does not collectively cover its costs (i.e., periodicals), this additional two-percent pricing authority will be optional rather than mandatory.
What Can Nonprofit Mailers Do?
Comments to the PRC’s new proposal are due by February 3, 2020. Reply comments are due by March 4, 2020. Venable is working with the Alliance of Nonprofit Mailers, the leading trade association representing nonprofit organizations on postal issues, to file comments with the PRC. If your organization would like our help preparing your own comments or learning more about the potential impact of the PRC's proposal, please contact Eric Berman, who specializes in nonprofit postal issues, or your regular contact within Venable's Nonprofit Practice.