Nonprofit Postage Rates Need Legislative Protection

Nonprofit organizations that pay for any goods or services or have other commercial and credit arrangements to mail fundraising letters should be interested in the cooperative mail legislation now before Congress. H.R. 1169 in the House of Representatives and S. 1562 in the Senate are designed to keep nonprofit postage rates available to nonprofits that have credit arrangements and other commercial contracts, including leases.

Nonprofits have to engage in commercial arrangements, whether to lease space, print fundraising letters, employ fundraisers or use any of the myriad commercial goods or services needed to engage in their mission. The U.S. Postal Service had taken a position that unless nonprofits either advanced payment for these goods and services or were at 100 percent risk of loss in their fundraising program, nonprofits were ineligible to use the nonprofit postage rates to mail their fundraising letters.

This position has been applied to charities based on the office lease and has been used against fundraising contracts that under some state laws require nonprofits not to bear 100 percent of the risk of losses. It could be applied to loans and other goods or services provided on credit to nonprofits. It was a bad choice, and even the postal service now supports S. 1562.

The problem occurred recently when a few people at the postal service tried to misapply a regulation called the Cooperative Mail Rule against fundraising letters. In the early 1990s, the USPS asked Congress to eliminate the nonprofit rates altogether because they were thought not profitable under the revenue foregone situation that the postal service faced after postal reorganization in 1970s. Postal officials did not persuade Congress to eliminate the nonprofit rates, but Congress did incorporate the CMR into law to help prevent the mailing of third-party commercial ads at nonprofit rates, which is the rule’s legitimate purpose.

A few people in the postal service decided to use the CMR to accomplish administratively what Congress refused to do legislatively: reduce the use of nonprofit rates. This was purely an economic decision, but it is contrary to the law.

S. 1562 has only one purpose. It will return the availability of the nonprofit rates to what it was before the recent administrative misapplication of the rule. The bill provides that whatever letters nonprofits could otherwise mail, may be mailed at the nonprofit rates regardless of the contracts that nonprofits enter into. The bill does not allow use of the nonprofit rates to mail any types of letters already prohibited by law, nor does it allow fundraisers or other commercial vendors to be paid out of a charity’s net income, which is already prohibited under 39 U.S.C. 4452. The bill merely gives back to nonprofits the freedom and flexibility to use the forms of commercial contracts they need to exist.

Besides being sound and technically correct legislation, S. 1562 will allow for the continued growth of small, start-up and less-endowed charities. Facts show that the creation of more nonprofit organizations is good for the economy. These new charities also seem to add to the donor money available to large nonprofits.

The Chronicle of Philanthropy says the number of nonprofits rose 67 percent from 1977 to 1998, from 739,000 to 1.23 million. In that period, annual contributions from individuals increased from $29.5 billion to $138 billion. Per-capita annual contributions by individuals, even adjusted for inflation, rose from $199 to $503, which is 1 1/2 times the 1977 level. The increase in the number of nonprofits not only added to the amount that individuals contributed overall, but resulted in an increase in the number of people who made contributions.

Nonprofits employ one in 12 Americans, and annual nonprofit employee earnings from 1977 to 1998 increased from $46.7 billion to $258.8 billion. The number of paid nonprofit employees doubled from 5.5 million to 10.9 million, so the increase in the number of nonprofits created more jobs. In 1999, nonprofits spent $785 billion, which was 8.5 percent of U.S. gross national product.

The growth of the nonprofit sector has benefited every segment of our society and has seemed to help older, larger organizations as well. The few people who have expressed reservations about S. 1562 represent larger groups that might not want competition, but expansion of the nonprofit sector has benefited everyone.

S. 1562 does not force any organization to adopt a specific form of contract, but merely allows nonprofits the choice of using pay-as-you-go contracts, no-risk contracts or other forms of credit arrangements that the charities may choose or need given their circumstances. Given the financial pressures of increasing nonprofit postage rates and costs of direct mail, S. 1562 will correct a wrong application of the CMR and give back to nonprofits the needed flexibility to raise money, which creates jobs, benefits the economy and helps the nonprofit sector as a whole.

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