Wednesday, April 14, 2010

Legal Challenge Likely for Exigent Rate Increase

Mailers are likely to challenge the U.S. Postal Service’s ability to raise postal rates by more than the rate of inflation next year, a postal expert says.

Joe Schick, Director of Postal Affairs for Quad/Graphics, believes the Postal Service plan to implement exigent rate increases in January means it will file its request within three months. Postal officials indicate the average increase would be less than 10%, with Periodicals probably paying more than the average.

“When the filing is made, expect a legal challenge by the mailing industry on the grounds that a bad economy does not constitute an ‘emergency’ situation as intended by the language of the law,” Schick wrote this week in a blog at Quad’s Web site. Because Quad mails millions of catalogs and magazines every week, Schick (and his counterparts at the other major publication printers) has extensive contacts both with mailers and postal officials.

Some members of Congress who were involved in developing the postal-reform law agree that the Postal Service’s financial troubles are not grounds for exigent increases, sources tell Dead Tree Edition. Normally, annual rate hikes for most classes of mail are capped by changes in the Consumer Price Index. But the postal-reform law also includes a provision “whereby rates may be adjusted on an expedited basis due to either extraordinary or exceptional circumstances.”

When the Postal Service request such rate increases, the law gives the Postal Regulatory Commission 90 days to determine whether “such adjustment is reasonable and equitable and necessary to enable the Postal Service, under best practices of honest, efficient, and economical management, to maintain and continue the development of postal services of the kind and quality adapted to the needs of the United States.”

The law does not state exactly what “extraordinary or exceptional circumstances” would justify rate increases that exceed the rate of inflation. But Congress had in mind terrorist attacks or other national emergencies, not budget gaps, sources say. The expectation was that in normal times the Postal Service would live within its means – though Congress also gave the Postal Service limited ability to reduce its costs.

Schick also notes that the PRC has the authority to adjust, up or down, a USPS request for exigent rate increases.

“That could prove to be hazardous to those classes or categories of mail that are currently not at 100% cost coverage – Standard Mail flats [mostly catalogs] and Periodicals in particular.”

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