November 7, 2018

So many different factors, events, and proceedings are at various stages of affecting nonprofit mailers, it’s time to give a focused update for each.

• The Mid-Term Elections

Rep. Elijah Cummings (D-MD) will become chairman of the House Committee on Oversight and Government Reform with the Democratic takeover of the House.  Rep. Cummings has been a strong proponent of postal reform legislation, including the current bill in the committee, HR 6076, of which he is one of seven co-sponsors. The bill seeks to strengthen USPS mainly by reducing retiree health benefit obligations by requiring postal retirees to use Medicare as their primary health insurance. The bill also sets a bad precedent by permanently raising all postage rates by 2.15 percent, the first time Congress would set postal prices since 1968.

Rep. Cummings and his Democratic colleagues also are very committed to investigating all of the controversies in the Trump administration under the committee’s broad mandate to look for waste, fraud, and abuse anywhere in the federal government. A question for the postal community is whether the focus on investigation will crowd out postal legislation that has not been moving with previous Republican control.

In the Senate, there is hope that during the lame duck session they will move several postal nominations forward:  extending USPS Governors David C. Williams’ and Robert M. Duncan’s terms to a full nine years; confirming the two new Trump USPS Governors nominees, Ron Bloom and Roman Martinez, IV; and confirming PRC commissioner nominee Michael Kubayanda. Senate oversight committee chairman Ron Johnson (R-WI) lost two of the five co-sponsors of their postal reform bill introduced by Sen. Tom Carper (D-DE), S.2629:  Sen. Heidi Heitkamp (D-ND) and Sen Claire McCaskill (D-MO), who lost their seats last night.

• President’s Task Force

The administration has committed to releasing the recommendations of the President’s Task Force on the United States Postal System by the end of the year.  It had been made clear that the release would be held until after the mid-term elections.  The recommendations are expected to include both administrative and legislative remedies for USPS.  The Democratic takeover of the House reduces the chances for the legislative changes, but we have thought that the administrative reforms are more likely to happen anyway.

The Alliance of Nonprofit Mailers represented nonprofits before the Task Force, both face-to-face and in providing extensive data and information about nonprofit mailers.  We have reported before that we sensed the professionalism and open-mindedness of the members of the Task Force.  We remain hopeful that its recommendations will lead to comprehensive reforms that will ensure affordable, reliable mail service for decades to come. Nevertheless, the Task Force remains a big unknown hanging over mailers and the Postal Service.

• Ten-Year Regulatory Review

Started on December 6, 2016, the review of pricing regulations of the Postal Service is being run by the Postal Regulatory Commission, a government agency whose only role is to regulate another government agency, the USPS.  The review is required by the 2006 Postal Accountability and Enhancement Act (PAEA) that brought our postal system into the 21^st century with price cap monopoly regulation and the ability to make and retain profits.  PAEA mandates the start of the review ten years after passage, which the PRC accomplished, but has no required end-point.  So, we rapidly approach its two-year anniversary.

Part of the reason it is taking this long is that the PRC is being very careful about inviting comments from outside parties.  Its initial proposal, however, was met with widespread criticism.  Most commenters disagreed that the best regulatory solution would be to tack on enough possible surcharges to the CPI price cap to amount to potential 28 to 40 percent compound rate increases over five years.  Adding to the criticism was the lack of any proposed regulatory incentives for the USPS to better control its costs.  In fact, the PRC proposal would cancel out most of the efficiency incentives in the law right now.

A second likely reason for extended deliberation by the regulator is that three of the four Commissioners expressed serious reservations about the proposal.  Only Chairman Robert Taub fully supported it, as the sole presenter at the announcement and as the only Commissioner not filing dissenting comments.  One Commissioner, Tony Hammond, completely disagreed, and the other two, Nanci Langley and Mark Acton, expressed the hope that the public comment process would lead to better results.

Finally, the process is extended likely because the Commissioners are rightfully deferring to the administration’s Task Force.  If the PRC were to jump the gun, it might have to try to put a genie back in a bottle after the Task Force recommended conflicting directions.

The PRC ten-year review remains a “Sword of Damocles” hanging over all mailers with imminent and ever-present peril.

• Federal Register Notice on Marketing Mail

Started on August 23, this proposal to potentially ban all merchandise or goods from all Marketing Mail is set to continue at least until the end of January before any relevant mail is safe.  The Postal Service believes that keeping a major portion of its loyal mailing customers in doubt for at least five months is worth it.  It seems as if retaining mail volume is not a big issue these days.  Not if you might be able to grab a bit more revenue from customers who have been putting small objects inside Marketing Mail.  You do this by making customers use more expensive First-Class Mail or Package Services.  Or maybe they’ll just stop mailing.

The notice asked for comments, and 4,700 USPS customers took time out from their day jobs to write letters to the Postal Service, trying to maintain the service they have been receiving for a long time.  Is it a good thing that 4,700 customers felt they needed to write comments to try to protect the status quo?  Will the Postal Service really read all 4,700 letters and glean valuable “market research” to guide their decisions?  Actually, they are delegating that task to a committee of customers.

The next step is for the Postmaster General’s Mailers Technical Advisory Committee (MTAC) to form a “task team,” made up mostly of mailers, to read all the comments and try to discern whether the proposed rule should go forward as written, impacting all Marketing Mail, or be refined and revised to meet USPS goals. (Several brave souls have volunteered to represent nonprofits.) Pardon our cynicism, but aren’t we postal customers gluttons for punishment?  I mean, we already wrote 4,700 letters, universally denouncing the proposal!  Now we have to read them and try to reach some sort of compromise with the postal agency that wrote the proposed rule in the first place.  Do we have Stockholm syndrome?

In any case, the Postal Service has committed to ensure that the task team forms quickly and finishes its work in 60 to 90 days, hopefully 60.  So, the threatening uncertainty will continue at least through January when many nonprofits are already setting their postage budgets for 2020, the year that USPS leaders have targeted for implementation of the new content restrictions.

Question: Do mailers ever feel like Charlie Brown?

• USPS 2019 Rate Increases

Shortly after everyone has finished eating their Thanksgiving turkeys, we expect the PRC will announce that it has approved the proposed USPS price increases for next year.  Really, what they will have done is checked the math on each of the monopoly classes of mail to ensure that the weighted average increase in each does not exceed the Consumer Price Index cap calculated by the PRC.  While First-Class, Marketing, and Periodicals Mail will each have met the cap requirement of about 2.5 percent on average, the devil is in the details that the postal Governors must approve.

After only about two months in their new roles, the two USPS Governors, David C. Williams and Robert M. Duncan, approved a stunning change in First-Class mail single piece with a 10 percent increase, or four times the rate of inflation.  Very few people know why this was done.  The proffered rationale that five cent increments are more convenient for consumers is absurd.  No one buys single stamps.  No one pays cash for stamps. In fact, in the Forever stamp era, very few people even keep track of what the current rate is.  The convenience argument obviously holds no water.

The impact on many nonprofit mailers, however, is massive.  And we wonder how much, if at all, the newly-minted Governors took this into account.  Nonprofits that use stamps on return envelopes are facing cost increases four times what they budgeted.  So are nonprofit users of Business Reply Mail.

In Marketing Mail, USPS continued its pattern of the previous two years—large increases (2 times inflation) for drop-shipped, work-shared letters, and minor increases in mail entered close to origin with little or no private sector involvement.  Dropped-shipped letters are used by many nonprofits for fundraising, membership and subscription mailings.

The postal policy is driven by their calculation of how much they save by having the private sector do part of the work.  Their statement that they are giving mailers more than 100 percent of the internal USPS cost savings drove the PRC to mandate that they get that number down by reducing the work-share discounts.  All of which makes sense, if the Postal Service is calculating its cost avoidance correctly and is managing its operations efficiently.  But if the USPS has excess capacity and not fully utilized employees around, then the marginal cost of taking on new mail is measured much lower than it should be.

The USPS move to squeeze work-sharing margins over a number of years not only costs nonprofit mailers who pay higher than inflation increases, it also stresses and strains the very mailing industry that helped the Postal Service grow to what it is since the 1980s.  And it works in contrast to the general trend of private sector partnership with government at all levels.

Finally, the Postal Service did a nice job of measuring the impact of Periodicals increases on individual nonprofit publications and announced that it is keeping the increases in a fairly tight range around the CPI average of 2.5 percent.

• Top Ten Ways to Ensure Successful Postal Pricing

Two years ago, the Alliance and a group of representatives from all corners of the mailing industry got together and agreed on a list of our recommendations to postal management on pricing.  We presented USPS leadership with the following list of ten recommendations.  We believe it is worth repeating that following these recommendations will increase mail volume, revenue and contribution.

1. Have an internal, cross-functional process to vet and prioritize all pricing initiatives.
2. Involve customers, mail service providers and all members of the postal supply chain as partners in the process of developing the rates filing long before going to the regulator.
3. Run scenarios of the actual impact the pricing and rules changes will have on all of your larger customers.
4. Keep a tight range of actual price changes around the CPI cap to maximize the benefit of predictability for the USPS and its customers.
5. Phase in structural pricing and rules changes over several annual rate cases to minimize disruption and maximize customer retention.
6. Ensure USPS has adequate resources to build and implement rates and rules that grow the business.
7. Make avoiding surprises for your partner customers, mail service providers and other members of the postal supply change a very high priority.
8. Release mail preparation requirements as early as possible in the process to minimize disruption and maximize retention.
9. Share all Federal Register and other rules changes with your partner customers, mail service providers and members of the supply chain well in advance of their publication.
10. Always remember that pricing and related rules are the main way you communicate with most of your customers.