Proposed 15 per cent postal rate increase would hurt everyone

By Amy Ridenour
web posted May 22, 2000

Americans across the 50 states are in agreement on one point: Gasoline prices are too high.

Gas prices recently hit an all-time high of an average $1.57 per gallon nationally. [1] But Americans do have one thing to be grateful for: Over the past four decades at least, gasoline prices haven't risen as much as U.S. postage. [2]

Back in 1962, the price of a first-class stamp was four cents. Today, it is 33 cents, and the U.S. Postal Service has asked the Postal Rate Commission to raise the price by another penny.

What's worse, over a hundred million Americans could be hit even harder by a hidden postage rate increase three to five times higher than the three percent increase the Post Office is seeking for first-class mail. That's because the Postal Service has officially asked the Postal Rate Commission to increase postage rates for delivery of magazines and newspapers by ten to 15 percent. [3]

The 166 million Americans who subscribe to magazines [4] will be hit hardest by this. They'll have to eat these costs in the form of inevitable subscription rate increases. If they don't, and in some cases they won't, some of the nation's up to 18,000 magazines [5] will simply go out of business.

Magazine publishing is a notoriously difficult industry. Publishers of new titles can expect to operate at a loss for the first year, [6] and often for many years. Make no mistake: A price increase of this magnitude will cut down on magazine options for consumers, and put some Americans in the publishing industry out of work.

Newspapers, particularly rural ones that rely disproportionately on mail for delivery, will also be particularly hard-hit if the proposed price increase for newspaper postage is approved when the Postal Rate Commission meets this November.

What is of particular concern to fans of periodicals is that a price increase up to 15 percent isn't necessary. Even Postmaster General William Henderson agrees it is not.

Why, then, has such a draconian postal rate increase - three times the inflation rate - been proposed by the Postal Service?

Some background is in order. According to law, the Post Office must charge rates for each class of mail - such as first-class, magazines, books, newspapers and non-profit bulk - that are sufficient to cover the Postal Service's costs in delivering that class of mail.

Throughout 1998 and 1999, a joint two-year U.S. Postal Service/Magazine Publishers of America task force identified ways to cut the Post Office's costs in delivering magazines by approximately $150 million.

If the Post Office adopted these measures, the postal rate increase needed to cover costs for magazine delivery would only have to be 7.5 percent, not 15 percent. For the many periodicals struggling with profitability, and the many seniors on fixed incomes who subscribe to periodicals who may not have the option of reading magazines via the Internet, this is a major price difference.

Postmaster General Henderson has indicated that he agrees, in general, with this assessment. In a speech last October to the Magazine Publishers of America, Henderson said that magazine postage rate increases could be kept below ten percent, in part because of identified cost savings.

Nevertheless, on January 12, 2000, the U.S. Postal Service asked the Postal Rate Commission to formally approve up to a 15 percent rate increase in magazine postage. The potential cost savings identified by the task force simply weren't taken into account.

Why not? One theory is that Postal Service management simply hasn't gotten around to it. Magazine publishers have asked why not, only to be told that Postal Service management does intend to address the issue before the Postal Rate Commission meets in November.

But with the very survival of some publications in jeopardy if the 15 percent price increase is approved, and circulation numbers at risk for all publications, publishers are worried. Some wonder why the Postal Service management didn't consider the cost savings issue before proposing such a sharp postage rate increase in January, especially since the Postmaster General publicly approved of the notion as early as October.

The Post Office has every incentive to keep postage prices for books, newspapers and magazines low. The Internet and other emerging technologies are proving to be a formidable competitor for the Post Office. So much so, in fact, that postal officials are predicting that, despite the growing economy and our growing population, the volume of first-class mail will decline in 2003 and every year thereafter. [7] So it is in the Postal Service's interest to make certain publishers aren't driven out of business or even suffer lower circulation rates. The Post Office needs this business, and doesn't want traditional publishers to start looking for alternative delivery methods.

In other words, if the Post Office is allowed to adopt rate increases that drive out publishers of traditional media - postal customers the postmaster general has reportedly called the "anchor" of the mail system, [8] the result could be not only the death of all but the most profitable of traditional mail-delivered media, but a more widespread long term death spiral that eventually envelops the Postal Service itself.

No one argues that the Postal Service should not charge publishers every penny it needs to recover costs of delivery. But it shouldn't charge a penny more.

Books, magazines and newspapers serve and important civic and educational function in our society. It is in everyone's interest if they survive.

In a December 1999 survey, a survey of seniors at 55 top colleges and universities found that only a little more than half knew general information about democracy and the U.S. Constitution. [9]

These kids are voters, or soon could be. Clearly, many could benefit from more exposure to magazines, newspapers and books. The Postal Service should take this into account and request only what it needs - a single-digit rate increase - for delivery of periodicals. If it doesn't, the Postal Rate Commission should refuse to approve any double-digit price hike.

Footnotes:

[1] Based on 800 gasoline stations surveyed, U.S. Energy Department, 3/13/00, as cited in "Retail Gasoline Price Hits Record High," Reuters, 3/13/00.
[2] The 33-cent price of a first class stamp in 2000 is 8.25 times higher than the four-cent price of a first- class stamp in 1962. The average $1.57 price of a gallon of gasoline in March 2000 (see footnote 1), including taxes, is 5.06 times higher than the 31-cent average price of a gallon of gasoline in 1962. Source for the average price of gasoline in 1962 is the American Petroleum Institute, Washington, D.C.
[3] U.S. Postal Service R2000-1, "Omnibus Rate Case Proposal," which states that requested postal rate increases for larger commercial customers, if granted by the Postal Rate Commission, would range from 12 percent to 15 percent and by ten percent to 15 percent for smaller commercial customers. According to Magazine Publishers of America fact sheets, the price increase for magazines alone would be 15 percent.
[4] Interview with the Magazine Publishers of America.
[5] The National Directory of Magazines 1998 estimate, as cited by the Magazine Publishers of America Fact Sheet "Number of Magazine Titles" at http://www.magazine.org/resources/fact_sheets/ed1_8_99 .html, downloaded April 30, 2000.
[6] "The Surviving Small Press: Starting a Magazine," reprinted from Laughing Bear Newsletter #110, copyright 1999, Laughing Bear Press, available on the Internet at http://www.laughingbear.com/magazine.html.
[7] "Empowering Core USPS Service with Electronic Technology," by Gene A. Del Polito, Ph.D., president, Association for Postal Commerce, prepared for Target Marketing.
[8] Interview with the Magazine Publishers of America.
[9] Andrea Billups, "Washington's History a Mystery to Collegians," Washington Times, February 21, 2000, p. A3.

Amy Ridenour is President of The National Center for Public Policy Research, a Washington, D.C. think tank. Comments may be sent to ARidenour@nationalcenter.org.

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