Sept. 25 (Bloomberg) -- The U.S. Postal Service, after failing to get congressional support to change its business model, should raise postage rates beyond the rate of inflation, its board said. A sponsor of postal legislation called the move a “desperate cry for help.”
The service’s board said it wants to raise the price of a first-class stamp three cents, or 6.5 percent, to 49 cents and to increase rates for magazines, advertising mail and packages more than is allowed without consulting the service’s regulator.
“Of the options currently available to the Postal Service to align costs and revenues, increasing postage prices is a last resort that reflects extreme financial challenges,” Postal Service Board Chairman Mickey Barnett said in a letter sent to postal customers today.
The board may reconsider if Congress passes postal legislation, he said.
The price-increase plan, for which the board will seek approval from the U.S. Postal Regulatory Commission, is the latest volley from the service on how it plans to close its budget gap. Earlier this year, it backed off its plan to defy the law and end Saturday mail delivery.
The board met yesterday and today in a closed-door meeting in Washington. The service had said it would consider raising rates as it expects a $6 billion loss this year following a $15.9 billion loss last year. The rate increase would generate an additional $2 billion in revenue annually, the board said.
The service, which is supposed to fund its operations through postage sales, is allowed by law to raise most rates -- including those for the price of a stamp for a letter -- each year by no more than the rate of inflation.
A Washington-based trade group whose members include Hallmark Cards Inc., the closely held greeting-card company, said the postal regulator should stop the increase.
“Raising rates or cutting critical services will exacerbate the Postal Service’s current predicament by driving away much-needed mail volume to other competitors,” Rafe Morrissey, vice president of postal affairs or the Greeting Card Association, said today in an e-mailed statement. “Pursuing both simultaneously, as some propose, is a recipe for disaster.”
A group representing magazine publishers said a rate increase will worsen the decline in mail volume.
“No private company would increase prices when sales are already plummeting,” Mary Berner, chief executive officer of the Association of Magazine Media, said in an e-mail. “The board’s request -- if approved by the Postal Regulatory Commission -- will cause significant declines in mail volume and further job losses across the industry without addressing the USPS’s core issues.”
The trade association, based in New York, includes Bloomberg Businessweek among the 175 media companies representing 900 titles that are members. Bloomberg Businessweek is owned by Bloomberg LP, the parent company of Bloomberg News.
The top Democrat and top Republican on the House Oversight and Government Reform Committee, which oversees the Postal Service, issued statements saying the postal board plan shows Congress needs to act.
Representative Darrell Issa, the California Republican who has sponsored legislation to change the Postal Service business model, called the plan a “desperate cry for help.” Issa, chairman of the House panel, said the board’s plan should motivate Congress to pass legislation allowing the Postal Service to cut costs in ways that include ending Saturday delivery.
“I empathize with their decision, but this comes at a serious cost,” Issa said in an e-mail. “If implemented, today’s announcement may ease the financial burden on USPS in the very near term. But this rate hike and the ones sure to follow will only push more and more private-sector customers to stop using the mail altogether.”
Representative Elijah Cummings, the panel’s ranking Democrat, said the Postal Service can’t solve its financial problems alone.
“It is Congress’ responsibility to put the Postal Service back on the path to solvency by passing a comprehensive reform bill that encourages innovation and new product development,” Cummings, of Maryland, said in an e-mail.
The price increases would take effect Jan. 26, 2014.
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