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Understanding the looming postal rate increase

BY TOM MITSOFF

If you have any three-cent postage stamps lying around, you might want to keep them handy.

Last Sept. 11, the U.S. Postal Service announced it would be increasing postal rates again in 2002, on the heels of the one-cent increase in 2001. That announcement came just minutes before something else that happened that day, and understandably got lost in the shuffle.

Now comes the news that the postal service is negotiating with its major mailers to try to accelerate the proposed 8.7 percent increase, which was to have taken effect late this year, to a June 30, 2002 start date. The 8.7 percent includes plans to raise the cost of a first-class stamp from 34 cents to 37 cents, and it means that John and Jane Q. Public will be facing a 12 percent increase in postage costs in a little more than a year’s time.

Maybe you’ve thought to yourself that postal rate hikes seem more and more frequent and perhaps even excessive. It’s not your imagination.

In 1962, a first-class stamp cost four cents. If the cost of a stamp had reflected trends in the Consumer Price Index -- one of the major measures of inflation and used by the government and some in the private business sector to calculate cost-of-living increases -- a first-class stamp would have cost 24 cents in 2001. But as we all know, that stamp cost us 34 cents as 2001 closed, or about 42 percent more than the inflation rate would have indicated. So what gives the postal service the right to set rates the way it does? After all, Social Security and other government benefits are linked directly to the Consumer Price Index. Why not the postal service?

Postal rates are set not by the President nor the Congress, but by the postal service’s board of governors. For a rate change to go into effect, the board of governors needs the approval of the Postal Rate Commission, which is independent of the postal service and was created to perform a review-and-check function of postal service proposals. But a rate commission rejection does not kill a rate increase, merely delays it. So basically, the postal service is an entity unto itself in setting its rates, and there is a reason for that.

Unlike most governmental programs, the U.S. Postal Service is expected to exist on its own self-generated revenue. You never hear Congress arguing about raising taxes for the postal service because we, the users, are paying the costs. Even though it is a government agency with Congressional blessing and oversight, the postal service faces the same day-to-day challenges as does any business which depends upon its revenues to survive.

Why does the U.S. Postal Service advertise its services so much? Because there are competitors, and it must keep market share in order to sustain and grow revenues. Why did the U.S. Postal Service contract with one of its leading competitors to allow FedEx customers to drop off packages at post offices? Because it judged the financial benefit to be worth it -- just like a private sector business.

So when you have to shell out an additional three cents for a postage stamp later this year, remember that by doing so you are helping the postal service from having to dip into the federal budget (your taxes) to sustain itself. Unfortunately, the events of Sept. 11 that occurred after the postal rate increase announcement resulted in the postal service receiving approval for more than $675 million in emergency federal aid, but its costs associated with coping with the Anthrax-by-mail crimes are expected to rise into the billions of dollars. Your additional three cents per stamp will help offset that expense while minimizing and hopefully negating the need for additional federal aid.

This column was written January 5, 2002, and published in several print and web publications across the country.