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Will the USPS Seek An 'Exigent' Rate Increase?

Postal Expert: “Everything’s a maybe—a scary maybe.”


Chandra  Johnson-Greene By Chandra Johnson-Greene
07/27/2009 -12:32 PM






While there has been recent speculation that the U.S. Postal Service is close to raising First Class stamps from 44 cents to 50 cents or seeking an “exigent increase” of 2 to 3 percent in order to improve its dire financial outlook, there are a couple of actions that it will probably take before getting to that point, according to postal consultant Ed Mayhew.

“The Postmaster General would rather bite the bullet than go for an exigent increase because even as revenue would go up, volume would go down,” he told FOLIO:. “They don’t want to drive customers away.”

■ The Office of the Inspector General recently hired actuarial consultant Hay Group to investigate how funds for postal workers’ retiree benefits were being calculated. The company concluded just last week that “the Office of Personnel Management’s (OPM) assumption that the annual health care cost inflation rate will average 7 percent annually for all future years is unreasonably high. So, based on OPM’s assumptions and methodology, the Postal Service’s future retiree health care liabilities will be overestimated.”

Had these extra charges not been expensed, the Postal Service would have had a net income of approximately $400 million as of the end of this year's fiscal second quarter and a possible “exigent increase” probably wouldn’t have even entered the discussion. The investigation, however, may urge the USPS to adjust retiree benefits in future quarters, therefore, freeing up some much-needed funds.

■ While each class is supposed to contribute 100 percent of its postal costs, the Periodicals class only contributes about 83 percent. Because Periodicals only accounts for 5 percent of overall volume, Mayhew said, this fact has gone largely unnoticed—that is, until coupon mailing company Val Pak recently filed a complaint. In order for periodicals to start contributing what it should, the USPS will have to increase their rates by 17 percent, which would be financially detrimental to most publishers. Mayhew guesses that if the Commission does decide to make the periodical class pay up, the increase won’t come this year and will most likely be done in phases.

And even if the USPS got to a point where they decided that an exigent increase was necessary, the Consumer Price Index needs to increase by 5 percent every month between now and December, Mayhew said, which is unlikely. (Postal rate increases are generally capped by changes in inflation.) The possibility of the USPS switching to a five-day delivery has also been discussed, but that’s up in the air as well, he added.

“It looks possible, but at the same time, the USPS does not have the authority to carry that out—Congress does—so they may have to wait a few years. Everything’s a maybe—a scary maybe.”





Chandra  Johnson-Greene By Chandra Johnson-Greene --

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