Tempering reform: mailers face huge rate increases, despite new law.

Although long-awaited postal reform legislation was greeted enthusiastically by nonprofits last month, the bill will not affect a pending rate case expected this spring that could mean huge increases for non-uniform mail.

A decision on the rate case is likely by March, with implementation of new rates expected by May. The average rate hike is expected to be 8 to 10 percent, but many mailers are facing much greater increases. In the case of letter-sized mail that is not uniform in thickness, such as greeting card packages or other premiums, some packages could see 100-percent jumps as a result of a new category, Not Flat Machinable.

There's some debate about whether the case applies to letters and/or flats, but others believe any type of front-end premium, such as greeting card packages or pencils included in petitions, would not meet the thickness test and could not be mailed at a discount because of its lumpiness.

Errol Copilevitz, a Kansas City attorney who represents nonprofits as well as some of the largest mailers, said greeting cards are a huge part of fundraising strategies for many nonprofits, estimating as many as 500 million boxes in the mail this past season. He said there have been suggestions to incrementally raise the rates, rather than all at once on May 1, giving the industry time to develop alternative packaging.

Under the reform bill, a new Postal Regulatory Commission, with more power than the existing Postal Rate Commission, has 18 months to establish a new rate-setting process, which nonprofits expect will bring much more stability to postal hikes. The commission will be allowed to increase rates each year, but no more than the annual increase in the Consumer Price Index (CPI). The United States Postal Service could change most rates with 45 days notice while the current process can take a year and has no cap on rate hikes.

Annual postal increases within an acceptable range will "allow all of us to run our businesses more efficiently," said Lori O'Brien, senior vice president of direct marketing for St. Jude's Children's Research Hospital in Memphis, Tenn. "Smaller leaps every year are just better for everybody."

Future proposed rate hikes will be a "much more streamlined process for everyone," she said, saving time and energy of the big legislative efforts necessary with filing current rate cases.

The bill also would separate monopoly postal products, such as First Class Mail, from competitive products such as Parcel Post, for rate-making purposes, and would require the USPS to devise delivery standards for all classes of mail, measure success in meeting those standards, and take corrective action when the standards are not met. For nonprofits, which have long complained of slow delivery of fundraising mail, this is an important new provision.

Anthony Conway, president of the Alliance of Nonprofit Mailers, said relieving the ratepayer from some of the financial burdens will help keep the USPS stable in the years to come, which may not have been possible without changes.

Annual escrow payments of more than $3 billion--the reason behind recent rate hikes--will now go to pre-fund the USPS's health benefits liability for 10 years, and after that, the money is free to be used for other purposes, such as debt repayment or operations, Conway said. That revenue stream, about $78 billion, will shore up future financial woes, in addition to $27 billion in military retirement costs returning to the U.S. Department of the Treasury.

Without this legislation, Conway said the burden of escrow and military payments would have had such a negative impact on the USPS, it might have made it impossible to continue the same way for 10 to 20 years. "That will go a long way to stabilizing the financial situation and ensure we continue having universal mail service in this country," he said of the measure. The Alliance also fears the Postal Service might sneak in one final rate case before the new rate-setting process takes effect, which the new law allows.

"This isn't a one-shot deal," Conway said, where "overnight everything's fine. It does provide the Postal Service and Postal Rate Commission to get together and gives us a lot of tools to address a lot of issues."

There also are various studies in the legislation about universal mail service, network realignment, and other issues that need to be explored, Conway said, because the USPS "business model has been at risk. This legislation goes a long way to helping resolve problems."

Created from the Postal Reorganization Act of 1970, out of the former cabinet-level Post Office Department, the USPS is expected to be much more secure financially as a result of the Postal Accountability and Enhancement Act (H.R. 6407).