Postal Service gets approval for a temporary increase in stamp prices

December 24, 2013

The price of a first-class letter and most other mail will rise by 3 cents on Jan. 26, the largest rate hike in 11 years, the commission that oversees the U.S. Postal Service announced Tuesday.

The stamp-price increase to 49 cents will be in effect for two years, giving the financially struggling agency a temporary infusion of extra revenue intended to help it recoup losses suffered during the economic downturn between 2008 and 2011.

The Postal Regulatory Commission rejected the Postal Service’s petition for a permanent increase, saying that the $2.8 billion infusion should compensate only for the recession, not offset losses caused by Americans’ growing use of electronic communications and commercial delivery services.

“Allowing the rates to remain in effect indefinitely would result in overrecovery of the financial impact of the Great Recession on the Postal Service,” the commission wrote in a 219-page decision. The downturn “does not eliminate the Postal Service’s obligation to respond to revenue losses by reducing costs or improving efficiency.”

The commission’s 2 to 1 approval of an emergency or “exigent” rise of 2 cents will give the Postal Service extra revenue for the first time since a 2006 law limited rate increases to the rate of inflation. Regulators approved an inflation-tied 1.7 percent hike in November that will raise stamp prices by a penny; the announcement Christmas Eve will result in an overall 6 percent jump in postal rates.

The decision was a blow to mail-dependent publishing industries, which lobbied against an increase, saying it would add millions of dollars in costs for consumers and depress mail volume.

In addition to first-class mail, the higher rates will apply to magazines, newspapers, advertising mail and bills — which together account for most of the 158 billion pieces of mail delivered every year.

“This is a counterproductive decision . . . and it does nothing to fix [the Postal Service’s] systemic problems,” Mary G. Berner, president and chief executive of the Association of Magazine Media, a trade group, said in a statement. The rate hike “will have ripple effects through our economy — hurting consumers, forcing layoffs, and impacting businesses.”

Spokesman Roy A. Betts said the Postal Service is “disappointed in the [commission’s] split decision to limit the duration of a modest exigent rate increase.” He said postal officials were reviewing the ruling “in an attempt to determine the basis for the decision.”

One regulator wrote in Tuesday’s decision that postal officials should not consider the temporary reprieve a salve for the agency’s “structural challenges.”

“The Postal Service remains in a state of financial crisis,” Commissioner Mark Acton wrote. “Granting the Postal Service some or all of the pricing relief it seeks . . . may help in the short term, but that does not alter that reality.”

Acton said Congress needs to step in to help the agency address structural challenges in its business model. “That does not mean, however, that the Postal Service may lawfully move to address unrelated structural concerns by way of a tool ill-suited to the task — the extraordinary or exceptional circumstances rate adjustment,” he wrote.

In a dissenting opinion, commission Vice Chairman Robert Taub said the higher rates should be permanent because the effects of the recession will linger for a long time.

Sen. Thomas R. Carper (D-Del.), chairman of the committee that oversees the Postal Service, said in a statement that the rate increase “provides some much needed financial relief for this struggling American institution.” But he added that “no one should confuse this with a long-term solution.”

It was unclear Tuesday whether postal officials will issue 49-cent stamps they would have to retire after two years, or whether they anticipate the current first-class rate of 46 cents to reach 49 cents anyway in 2016, based on future inflation.

Also unknown is whether the Postal Service will rely on its popular “Forever” stamp, which can be used to mail letters weighing one ounce or less regardless of when the stamps are purchased and no matter how prices change.

Forever stamps, which first went on sale in 2007, were developed to help customers ease the transition of price changes and now account for most first-class stamp sales. But customers could stockpile them before the 49-cent price takes effect.

For years, regulators approved rate increases based solely on higher costs of labor, fuel and equipment designed to mechanize the mail-sorting process. That was the case with the last 3-cent jump in stamp prices to 37 cents in 2002.

But the agency has been required since 2006 to limit rate increases to the rate of inflation, unless regulators approved more. The cap was designed to prod the Postal Service to cut costs and to benefit the mailing industry.

The Postal Service has long been required to fund its operations through postage sales. But even with significant reductions to its workforce, the agency has struggled for years with declining mail volume and a congressional mandate that it pay $5.6 billion annually to cover expected health-care costs for future retirees. It has defaulted on three of those payments.

Without congressional approval, postal officials have few options to make large-scale cost cuts such as a change from six delivery days to five.

Legislation that would reduce the health-care payment and give the agency more flexibility to raise money has been stalled in Congress for two years.

The Postal Service’s board of governors, repeating a 2010 request that regulators had rejected, called the request for an emergency rate increase a “last resort” after Congress failed to pass legislation.

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