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Why Alliance Is Appealing Rate Increases

You likely won't see coverage on Court TV anytime soon, but the Alliance of Nonprofit Mailers last month appealed the results of the postal rate case to the U.S. Court of Appeals, Washington, DC.

Why appeal? Because the U.S. Postal Service will earn billions of dollars in illegal monopoly profits unless the court acts. While all mailers suffer with rate increases, nonprofit mailers are bracing for percentage increases reaching into double-digits.

The facts are simple: the USPS is a monopoly. Competition for its two biggest classes of mail — First Class and Standard A — is a felony. The USPS also has market dominance over many of its other services.

To protect mailers and consumers, the law forbids the postal service from exploiting its monopoly power to earn excess profits. Postal rates must be set so the USPS' total expected revenues equal, as nearly as possible, the total expected costs that it would incur if managed honestly and efficiently. That's it.

To satisfy this break-even earnings requirement, the USPS must show that its revenues and costs will be in balance during a “test year” of the USPS' choosing. In the rate case that just ended, it chose a “test year” defined as the 12-month period from Oct. 1, 1997 through Sept. 30, 1998. The USPS said that, without a rate increase, it would suffer $1.4 billion in operating losses this test year.

Early into the rate case, it became clear that its earnings projections were woefully pessimistic. By the end of the rate case hearings this spring, it was obvious the USPS was headed for a $1 billion operating surplus, not a $1.4 billion operating loss.

Events since then have confirmed the enormity of the USPS' windfall. New postmaster general William Henderson testified in Congress last month that the test year is shaping up as one of the best financial years ever for the USPS. That's saying a lot: The USPS earned $5 billion in profits in the three previous years.

In its May 11 decision, the Postal Rate Commission agreed. It found that the “USPS seriously misestimated its need for a rate hike and is unlikely to incur the $1.4 billion loss it predicted for FY 1998.” That should have ended the matter. The case should have been dismissed, but instead of throwing out the rate increase the PRC gave the USPS an increase of $1.6 billion — two-thirds of the amount originally requested.

Why didn't the PRC dismiss the case? Some think the PRC feared a USPS appeal of any dismissal. In the interim, the postal service could have implemented a temporary rate structure that would have been costly to the postal community. The speculation is that the PRC may have opted to shave one-third of the revenue requirement thinking one-third of a loaf is better than none.

Regardless of the reasons, the PRC allowed the USPS monopoly to increase rates at a time when volumes are increasing and surpluses are certain.

A firestorm of criticism ensued. A bipartisan majority of the House of Representatives voted 393-12 to urge the USPS' governors not to increase rates at all. Members of Congress and others urged the USPS to spare its customers from unnecessary rate increases. If you didn't see Rep. Tom Latham's (R-IA) floor speech on C-SPAN (not exactly “must-see” TV for those outside the Washington beltway), here's an important excerpt about the nonprofit problem:

“Included in this $1.6 billion rate hike, or “stamp tax,” is an increase in rates for nonprofit mailers. Local churches, temples and charities in every member's district will have to pay about 11 percent more per mailing they send out.

“As we all know, mailings often are the lifeblood of these organizations' donations. That is why the alliance and its more than 150 member organizations strongly support this resolution. The alliance includes a spectrum of organizations, such as the AARP, American Cancer Society, American Farm Bureau Federation, International Association of Fire Fighters, Disabled American Veterans, Citizens for a Sound Economy, American Baptist Churches, B'nai B'rith International, Salvation Army, YMCA, Rutgers University, UCLA, Chesapeake Bay Foundation, National School Board Association, World Wildlife Fund and Consumers Union of the United States.

“Nonprofit periodical publishers, such as the National Geographic Society, were hit the hardest by the stamp tax.

“I think it is evident that the leadership at the postal service has forgotten that they operate a public trust. This $1.6 billion stamp tax represents a break in that trust. I urge all of my colleagues to join me in sending a unanimous message to the USPS' governors to reject this huge stamp tax.”

The governors were undeterred and unimpressed with the overwhelming sentiment of Congress. On June 29, they voted to implement the new rates on Jan. 10.

And while many commercial mailers are dancing in the streets over the increases, nonprofit charities and churches brace for double-digit rate increases on Jan. 10, on top of the Step 6 increases slated for Oct. 4.

Now only the courts can protect nonprofit mailers.

Neal Denton is executive director of the Alliance of Nonprofit Mailers, Washington. His e-mail address is [email protected].

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