on Aug 20th, 2012 in Pricing & Rates | 5 comments
 
Since the beginning of the Post Office and the Postal Act of 1792, certain types of mail have qualified for lower postage through preferred rates. It was assumed that these types of mailings yield social benefits for senders, recipients, and more importantly, a large nation. Preferred rates’ roots trace to the first federal postal policy, which recognized that disseminating newspapers at below-cost postage would advance the important social goal of educating the electorate. Soon after, magazines received special rates. For its first 50 years, the Post Office was predominantly a newspaper circulation service, because of the high cost of sending letter mail. (Sending a one-sheet letter 500 miles cost 25 cents, while sending a newspaper that distance cost only 1½ cents.) As the Post Office evolved over the next century, so too did the rates it charged for various types of mail. Regular letter mail rates were lowered to be more in line with the newspaper rate. Still, Congress considered a preferred rate for socially important mail to be so crucial it extended eligibility to more types of mail. A class structure was introduced to organize the types of mail. In 1894, Congress allowed nonprofit organizations to send their publications at second-class rates, the rates for newspapers and magazines. That statutory language evolved to create the nonprofit subclass in Second Class, a class now known as Periodicals. In the late 1920s, Congress added Library Mail as a preferred rate for mail sent to or from libraries. In the 1930s, President Roosevelt created a preferred rate for all books that is now known as Media Mail. In 1951, after 2 years of deliberation and strong appeals by charities and philanthropic groups, Congress created a nonprofit subclass in Third Class, today’s Standard Mail. When all of these preferred rates were established, congressional appropriations funded the Postal Service’s operations. And even until 1993, Congress appropriated funds to reimburse the Postal Service for revenues it lost by providing below-cost rates for certain types of preferred mail. Today, the Postal Service receives only a small appropriation for free mail for the blind and overseas voting. All other costs are borne by mailers. At times, Congress has reconsidered the public policy benefits of preferred mail in light of the potential for abuse and in consideration of the Postal Service’s financial condition. As we again dive into reform of the Postal Service, is it time to reconsider the modern application of preferred postage rates? Since the Postal Service uses revenues from postage to fund operations, can it afford to offer some types of mailings reduced postage through preferred rates? Or, does the nation continue to benefit when certain types of mail qualify for preferred rates? How should preferred categories be selected? Do you agree with the current categories or should other types of mail qualify for preferred rates?

5 Comments

This would be a good topic for an OIG white paper.
If we view the postal network as fundamental infrastructure then there is a clear intellectual basis for giving some classes of mail preferential price treatment. For example, offering newspapers and periodicals preferential rates facilitates the concept of binding the nation together and promotes the open distribution of information and opinion, essential elements of a healthy democracy.
Non-profit rates are an especially interesting topic. Murray Comarow has argued that the subsidization of non-profits through preferential rates is an unacceptable burden on existing rate-payers accomplished by forcing them to fund activities they might otherwise be opposed to.
I don't necessarily buy what is essentially a Libertarian argument but there is some merit at looking at how non-profits in general have expanded and what their costs are. There are actually two studies here, the first being a general look at how we treat non-profits in the tax code and a more focused look at whether it is appropriate to endorse preferential postal rates.
If we view the postal network as infrastructure then the support of that infrastructure is more a national goal rather than simply the purview of ratepayers. Under those circumstances one could argue either way for preferential non-profit rates. One might argue that non-profits generally receive favorable tax and organizational benefits so granting preferential postage rates amounts to multiplying those benefits inappropriately. However the counter argument might be that as a matter of social policy we do wish to grant those preferential rates. If that's the case then the Postal Service probably ought to receive outside appropriations for that purpose rather than burdening rate payers.
This is an important subject that goes to the heart of what a postal network and a postal system ought to be and represent. It should addressed both from a singular standpoint but perhaps also from a more general perspective of discounted rates in general.

The United States Post Office should declare bankruptcy. While in court petition the judge to throw out the republican requirements to fund the future pensions. The business of the Post Office is ok but the mandates are wrong . If the Congress won't act, this is the way to go to force the issue.

While mandated preferred rates may benefit society, they should be paid for by the entity imposing the mandate (ie - Congress). I would like preferred gasoline prices, that would also benefit society. Will Congress impose preferred rates on ExxonMobil?

As your blog notes, the nation’s postal laws recognize several categories of mail—magazines, newspapers and books—for their educational, cultural, scientific and informational value. This ratemaking factor is known informally as “ECSI” value.

This is no accident. The goal of promoting nationwide distribution of the printed word was one of the main reasons for America’s government-sponsored postal system from its original establishment. Beginning with the 1792 Post Office Act, and continuing in every major revision of postal law since then (1845, 1863, 1912, 1917, 1958, 1970, 2006), successive Congresses and Administrations have agreed that encouraging the distribution of periodicals through the mail is in the national interest.

The central role of magazines, newspapers, and books in educating and informing the public is as important today as it was when the national postal system was first created over two hundred years ago—and should be continued.

Furthermore, magazines play a crucial role in keeping the Postal Service strong. Survey after survey has shown that magazines are one of the top types of mail that people seek out and enjoy receiving – a key reason people look forward to getting their mail delivery each day. In recognition of the value magazines and other periodicals add to the “mail moment”, several recent Postmasters General have called magazines the “anchor of the mailbox” – one of the main reasons people go there.

Magazines also directly benefit Postal Service finances. In addition to mailing magazines, publishers are heavy users of other postal products. According to Postal Service data, less than half of publishers’ postage spending is in the Periodicals class. The remainder covers the postage on mail that markets subscriptions and communicates with subscribers. Most of this mail pays high-contribution First-Class Mail and Standard Mail letter rates.

The Internet has not eliminated the need for reliable mail delivery of hard copy magazines at affordable prices. Although magazine publishers, like other users of the mail, also use the Internet to communicate with readers, mailed subscriptions will remain the largest channel of magazine circulation in the United States for the foreseeable future. For the magazine industry as a whole, subscription copies have grown to about 90 percent of circulation. Almost all of these copies are delivered to readers by the United States Postal Service.

Your blog appears to suggest that USPS cannot afford to offer preferred postal rates. Preferred rates, however, are not responsible for the Postal Service’s financial problems. Rather, the Postal Service’s financial woes result from an oversized infrastructure, created for mail volume levels twice as large as mail volumes today. Simply put, the Postal Service has too many buildings and workers for its current and future mail volume. Solving the Postal Service’s financial problems will require confronting these cost control issues. Driving away the types of mail most valued by mail recipients would be neither helpful nor constructive.

As Jim Cregan so aptly said , Periodicals are one of the main reasons why Americans go to their letterbox. Working for a major magazine Publisher,it may actually be the only reason. The rates and services we receive are imbedded in Federal law. Clearly the ECSI values of magazines and newspapers has been endorsed time and time again by our Nations lawmakers. Periodical Publishers use all classes of mail and a single new subscription eventually generates close to 100 pieces of additional and profitable mail. I believe we should be looking at ways to reduce USPS costs and infrastucture long before looking at ways to play with a rate structure that provides the reason of why mail is still viable and enjoyable to our mutual customer, the American citizen.

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