Marketers and business groups praised the Postal Regulatory Commission’s decision to unanimously reject the Postal Service’s request to raise rates above the rate of inflation. The PRC decided September 30 that the USPS failed to justify its request for a 5.6% average increase.
“Today’s decision is a great victory for businesses and consumers,” said Lawrence Kimmel, CEO of the Direct Marketing Association. “The US Mail will remain a viable and affordable communications channel.”
The Affordable Mail Alliance, a coalition formed to fight the possible increases in the days after they were announced, also praised the PRC’s decision.
“The PRC today has helped countless businesses stay competitive and saved tens of thousands of jobs,” said Tony Conway, executive director of the Alliance of Nonprofit Mailers and spokesperson for the Affordable Mail Alliance. “The commissioners recognized that imposing an additional tax on Postal Service customers is not the way to address its financial troubles.”
In an interview with Direct Marketing News, PRC Chairman Ruth Goldway said the recession caused a severe disruption in the economy, hurting the Postal Service more than some industries. However, the USPS’ documentation in the case did not demonstrate that the recession was the primary cause of its liquidity crisis, she said.
“The Postal Service showed that it has a structural problem. The requirement to prefund retiree health benefits at such an aggressive pace threatens the Postal Service’s liquidity,” Goldway said.
The Postal Service filed an “exigent” rate request July 6, arguing that the recession and subsequent decline in mail volume constituted an “extraordinary or exceptional” circumstance. The law allows the USPS to raise prices above an inflation-based cap only for exigent circumstances. This was the first time the Postal Service invoked the exigency clause.
The Postal Service made a $5.5 billion payment on September 30 to its Retiree Health Benefits Fund, as required by law. After making that payment, it ended its fiscal year on September 30 with $2 billion cash and available credit – an amount less than one payroll. The USPS had asked Congress to defer the retiree health payment, but Congress did not take action earlier this week. If the prefunding schedule is not changed, the Postal Service will not be able to meet its 2011 financial obligations, Potter said.
The Postal Service expressed disappointment in the PRC’s decision to deny the price increase, but agreed with the regulator’s comments that the aggressive pre-funding schedule hurts its financial stability.
“We are encouraged by their acknowledgment and understanding of the larger financial risk we face through the mandated prefunding of Retiree Health Benefits,” Postmaster General John Potter said. “Clearly, the Postal Service is a viable business. Maintaining that status requires elimination of several legislatively imposed constraints that hamper our ability to operate efficiently and profitably.”
The PRC decision leaves the Postal Service with tough choices on how to proceed. It can appeal the PRC’s decision to a federal appeals court or it could file another exigent case and attempt to argue more convincingly that the recession has caused its financial crisis. Or, it could file for inflation-based price increases as allowed under the law. PRC staffers said the current inflation rate would allow the USPS to ask for price increases of about 1.6%.
In a statement, Potter said the Postal Service is studying the PRC ruling before making any decisions on its next course of action.
