USPS Could Lose Its Relatively New Authority to Raise Rates Above Inflation Under a New Bill
Lawmakers question the need for the authority, as well as Louis DeJoy's plans to consolidate mail sorting operations away from post offices.
The U.S. Postal Service could see its authority to raise prices at historically high rates revoked under a new bill, which would call on the agency’s regulator to reassess the extra leeway it provided two years ago.
The Ensuring Accurate Postal Rates Act, which Rep. Gerry Connolly, D-Va., will introduce on Friday, would require the Postal Regulatory Commission to reexamine the rate-setting system it established in 2020. The measure would require the commission to take a new look at the authority provided to postal management in light of the Postal Service’s newfound financial situation after the passage of the Postal Service Reform Act and the pandemic-era boom to package business.
The new rate system the Postal Regulatory Commission established in 2020 created a complicated formula for setting prices derived from factors including inflation, declining mail and retiree costs. The Postal Service historically only raised its rates in line with inflation, but since 2021 Postmaster General Louis DeJoy has repeatedly used the new authority to increase prices at a far faster clip.
That system, however, was designed to give the Postal Service more flexibility due to the dire nature of its finances. USPS recently announced it experienced a net profit of $59.7 billion in the third quarter of fiscal 2022, which ended June 30. Nearly all of that came from the reform law’s lifting of the Postal Service’s obligation to pre-fund health benefits for retirees. The agency currently has around $24 billion in cash on hand. All told, the reform act is expected to save a combined $107 billion for USPS by eliminating existing debt and taking future liabilities off of its books
“We must ensure that rate hikes do not return the Postal Service to a service of the privileged,” Connolly said on Wednesday at a hearing in Philadelphia hosted by his Government Operations panel of the House Oversight and Reform Committee. He added his bill would call on the regulatory commission to “restart their rate making system review process and include the positive financial effects of the Postal Service Reform Act to determine if existing enhanced rate increase authorities are warranted.”
Connolly’s bill would give the commission 90 days to once again review the rate-making system for the Postal Service’s market-dominant products, as it existed prior to the new authority. It could either reinstitute the old system or take one year to come up with a new one.
DeJoy promised as part of his 10-year business plan to use his authority to raise rates above inflation "judiciously," but predicted USPS would generate between $35 billion and $52 billion by 2031 by raising prices. Some lawmakers and stakeholders have criticized DeJoy’s dual approach of raising rates while slowing down delivery for some mail, arguing it will accelerate losses to mail volume. DeJoy has defended his strategy as necessary to set realistic goals and put the agency on firmer long-term financial footing. USPS most recently raised its rates in July, increasing prices for regular, First-Class mail by 6.5% and by 8.5% for package services.
Several industry groups have asked the postal regulator to revoke that authority, noting the Postal Service’s financial outlook has changed dramatically since President Biden signed a reform measure into law. That petition is currently pending before the commission. The groups previously sought to block the new authority from taking effect, but they lost the case in federal court.
DeJoy has said the law’s cost savings did not go far enough to get the agency out of the red.
“Therefore, from my perspective, the mailing industry needs to be prepared for continued use of our authority to raise prices on market dominant products at an uncomfortable rate until such time as we have accomplished our objective of projecting a trajectory that shows us becoming self-sustaining—as required by law,” DeJoy said. “While our pricing decisions are ultimately made under the authority of the Board of Governors, in the near term, I will most likely be advocating for these increases.”
In a recent interview with Government Executive, DeJoy said not using the high price increases would amount to a subsidy for large mailers and it would be “negligent” to not take advantage of his authority.
“Boy, I'd love to be Mr. Great Guy who didn't raise the prices and didn't change a thing, yet all of a sudden had the place profitable,” DeJoy said. “It doesn't get done that way. It doesn't get done without making change.”
Also at Wednesday’s hearings, lawmakers and stakeholders questioned DeJoy’s plan to consolidate some of the operational functions that currently take place in post offices and other facilities around the country. Rep. Mary Gay Scanlon, D-Pa., said her office has fielded a number of calls about the changes, as the reforms would require letter carriers to travel further distances to pick up mail and could require both more staff and delivery vehicles.
“It seems to me that is going to create additional time for those letter carriers, that we’re going to need more, that we’re going to need more vehicles because many of these folks pick up from the local place and then walk,” Scanlon said. She added her concern was “some of these efficiencies really aren’t actually efficiencies in terms of service, or even actual savings for the post office.”
Ivan Butts, president of the National Association of Postal Supervisors, said USPS has not been forthcoming with information, even as it is implementing the first of the consolidations this month. As USPS has conceded, Butts noted the longer travel times for letter carriers will mean more personnel will be required to deliver mail.
“There’s a lot of pieces in here that we don’t know what the costs are going to be,” Butts said.
USPS has not detailed its estimates, but said the changes will save costs on the contracted trucks that USPS hires to bring mail between various facilities. Lawmakers joined employee groups in calling for more transparency from postal management.
“Chief among Congress’s concerns is that the Postal Service has once again failed to keep its key stakeholders—its workforce and Congress—effectively informed of their plans and how it will impact careers and everyday job performance,” Connolly said. “We also remain inherently skeptical of a long-term Postal Service plan that relies on rate hikes, slower service, fewer workers and a reduced infrastructure.”