Elaine Thompson/AP file photo

Postal Service Forced to Take Nearly Unprecedented Step of Cutting Prices

This weekend’s move will put USPS back in a dire financial situation, agency says.

The U.S. Postal Service will reduce the price of its offerings on Sunday, including decreasing the cost of a stamp for only the second time ever and the first time in 97 years.

The price drop comes after a protracted legal battle following the scheduled expiration of a temporary, emergency surcharge the mailing agency instituted to recuperate the losses it suffered during the recession. The cost of a stamp for a regular-sized letter will drop two cents to 0.47; international letters will drop from $1.20 to $1.15 and postcards will decrease from 35 cents to 34 cents.

While the price change is inconsequential to the occasional mail user, the exigent surcharge has caused significant backlash in the mailing community and continues to drive divisions between postal management, its customers and members of Congress. The Postal Service is terminating the surcharge -- which allowed the agency to bypass its mandate to increase its rates solely to match inflation -- only after the Postal Regulatory Commission and a federal court ruled USPS could not continue charging the higher prices in perpetuity.

The Postal Service asked for the emergency rate in 2013, citing the effects of the recession on its business to justify a 4.3 percent increase. Under a 2006 law, USPS can only raise its prices by the rate of inflation except under extraordinary circumstances.

With significant controversy, the Postal Service argued the recession constituted such a circumstance, and its oversight body -- the PRC -- obliged, but set a cap on the amount of money USPS could bring in as a result of the higher prices. The higher rates went into effect in 2014. The Postal Service was set to hit that ceiling in August of 2015, and it challenged the need for the cap in court. The mailing industry joined the case to argue the recession never should have justified a rate increase.

A federal appeals court denied the USPS contention that the emergency rates should become permanent. Instead, the court said, the aftermath of the recession has become “the new normal,” and the Postal Service must adjust to that reality.

The court also ruled, however, PRC had arbitrarily decided USPS could only count one year of revenue from a customer lost due to the recession when determining the cap for how much money the agency could collect from the emergency rates. The court remanded the “count once” provision back to PRC, instructing it to use a more evidence-based approach to determine the effects of a lost customer. If, for example, a postal customer lost his job and decided to cancel his cable television subscription, USPS would lose the business of the cable company mailing his bill for as long as he went without his subscription, not just for 12 months.

The PRC issued a new ruling for how much revenue the Postal Service could collect from the surcharge, a cap of $4.6 billion the agency will hit on Sunday. The Postal Service again challenged that ruling in federal court, but to no avail.

The emergency price was providing USPS hundreds of millions of dollars in bonus revenue each quarter since its implementation, helping the agency stay operationally profitable since the implementation of the rate.

“Given our precarious financial condition and ongoing business needs, the price reduction required by the PRC exacerbates our losses,” said Megan J. Brennan, postmaster general and CEO. “This unfortunate decision heightens the importance of the review of our ratemaking system, which our regulator is required to conduct later this year.”

To mailers, however, the price drop came as welcome news.

“The sense of relief and satisfaction over at the PRC must be second only to that of the postal customers, who shouldered both recovery from the Great Recession and above-inflation postage rates,” said Stephen Kearney, executive director of the Alliance of Non-Profit Mailers, in a statement. 

Lawmakers in both parties had hoped to address the pricing issue before the surcharge expired, but those representing states with a large mailing industry have opposed making the higher rates permanent. The 2015 Improving Postal Operations, Service and Transparency (iPost) Act, a comprehensive postal reform bill with bipartisan backing, would remove the expiration date and use the increased prices as a baseline for future pricing decisions. 

Brennan requested congressional intervention so the agency would have the revenue to “invest in the future.”

“We continue to seek legislative reforms to put the Postal Service back on a sustainable financial path, and pricing is an important component,” the postmaster general said.