July 4, 2002

Postal Service Trying To Offset $1.5 Billion Loss With 3-Cent Stamp Price Increase

Fireworks were not the only thing that went up this week as the United States Postal Service Rate increase took effect June 30 across the nation as the Independence Day holiday was being celebrated.

The first class stamp rate increased from 34 cents to 37 cents, which postal officials estimated will force the average household to spend less than 50 cents more per month on postage. However the increase will help the postal service offset what Postmaster General John E. Potter projected as a net loss of approximately $1.5 billion in fiscal year 2002 for the USPS.

Nondenominational stamps for the new rate went on sale early in June. Stamps showing the 37 price on the face are expected to begin circulating by the end of July.

On April 8 the Governors of the Postal Service acted on the recommendations of the Postal Rate Commission and approved the changes in domestic rates, fees, and classifications proposed in the rate case settlement agreement.

The Board of Governors approved the filing of this rate case on September 10, 2001, just before the terrorist attacks on September 11 and the subsequent anthrax mailings, meaning the rate increase is not addressing any potential revenue losses created by the national tragedies.

Other price increases included a two-cent hike on postcard stamps from 21 to 23 cents; a jump of 35 cents for priority mail up to $3.85; and the increase of certified mail by 20 cents to $2.30. The overall average increase for Periodicals items will be 10 percent.

The additional ounce price for first class mail remained at 23 cents.

The Postal Service does not set rates unilaterally. The Postal Reorganization Act of 1970 shifted ratemaking authority from Congress to two presidentially appointed bodies: the Postal Service Governors and the Postal Rate Commission (PRC).

When the Postal Service determines that its revenue needs require raising rates, it requests a recommended decision from the independent PRC, which holds public hearings on the request.

During the hearings, interested parties including Postal Service customers, competitors, mailing groups, and members of the public, have the opportunity to provide evidence and arguments to the PRC reflecting their respective concerns.

From the time the Governors file the case, the PRC has up to 10 months to conduct in-depth hearings before it makes a recommended decision back to the Governors, who act on the recommendations. The Governors may order new rates into effect as recommended or, in some circumstances, modify the recommendation, if necessary, to reflect appropriate revenue requirements.

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