The Catholic Fundraiser

Postal Changes That Will Affect Nonprofit Mailers

Posted by Stephen Kearney on 3/24/17 11:07 AM

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Hey, Catholic fundraisers! I know you have a lot on your plate right now. In fact, you’re probably spinning several plates in the air. Congress and the new administration are looking at lowering charitable contribution limits. And they’re also considering lower marginal income tax rates, which would reduce the value of charitable deductions. Many nonprofits are still digging their way out of the fundraising hole the Great Recession of 2007-09 dropped them into. And our national turmoil is most likely diverting dollars away from religious causes and toward political controversy.

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In spite of all that, there is one more issue that we all need to put front and center! Changes regarding the way the U.S. Postal Service sets our postage rates. Reacting to many of the same factors that have affected nonprofits, the USPS is seeking much higher rates by eliminating the legal price cap it operates under. If you use mail for anything — fundraising, engaging supporters, spreading information, or distributing publications — you are in the USPS crosshairs.

The Postal Service has been given an ideal vehicle for its money grab. The 2006 law that changed postal rate regulations mandated a complete review of the system ten years later. That review was kicked off on December 20, 2016 by the Postal Regulatory Commission. The ten-year regulatory review will have two phases — (1) determining whether the current system is working well and (2) if it is not, deciding how it should be changed. The PRC has decided, with a strong push by USPS leadership, that it has the power to change or remove the postage price cap regulations that Congress hard-wired into federal law.

We Are Here To Help Nonprofits

Don’t worry too much, because we’ve got your back on postal issues. Over 35 years ago, several nonprofit organizations that rely on mail got together and formed the Alliance of Nonprofit Mailers, a 501(c)(4) organization that tracks, communicates, and when necessary, advocates on your behalf. Even better, a longtime Alliance board member, activist, and leading expert in postal matters is none other than Sister Georgette Lehmuth!

This regulatory review is so monumental, and we asked for your help. Our board has met several times with PRC Commissioners who will make the decisions about rates. Invariably, they have said that their deliberations will be greatly helped if they receive numerous comments from nonprofit mailers.

One Commissioner said that if we can send in letters that explain our mission, how we use mail, and how our mission would be negatively affected by large postage rate increases, we will effectively “humanize the mail.”

The Link Between Fundraising and a Changing USPS

The outlooks for the nonprofit fundraising sector and a changing USPS are inexorably linked. One-tenth of all mail in the U.S. is generated by nonprofits — 84 percent standard mail, 9 percent periodicals, and 7 percent first class mail. That’s 15 billion of 150 billion pieces of mail annually.

Household surveys indicate that mail from nonprofits is some of the most welcomed mail that people receive in their mailboxes. After all, these are the religions, causes, and subject matters that interest households the most — so much so that they are willing to make donations and pay for memberships and subscriptions.

We’ve all heard that the USPS is struggling for relevance and survival in the digital age. Most personal correspondence has moved online along with financial transactions. Key to USPS prosperity going forward is rich diversity and relevance of the content that arrives in America’s mailboxes every day. And nonprofits provide a necessary component of the content mix that USPS needs.

The nonprofit sector likewise relies on the Postal Service, raising over $150 billion through the mail annually. Direct mail has been shown to be much more effective and scalable than digital methods that on average raise one-eighth the money for the same expenditure.

The explosion of direct mail in the U.S. has transformed the nonprofit sector: It quadrupled in the 1980s, doubled in the 1990s, and doubled again in the early 2000s. And overall, USPS mail volume doubled from 100 billion in 1980 to 200 billion in 1999, but it has dropped back to 150 billion in recent years.

The great recession had a big effect on nonprofit standard mail volume, dropping it about 9 percent. And the exigent surcharge of 4.3 percent on all postage dropped fundraising mail by another 4.5 percent. As the surcharge was removed in April 2016, it is too early to tell whether and how much fundraising mail will rebound with a return to inflation-capped rate increases.

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A Brief History of The USPS

The Post Office has been with us since the beginning of our Nation. Two major pieces of legislation changed it in 1970 and 2006.

The Postal Reorganization Act of 1970 transformed it to the United States Postal Service, an independent establishment of the executive branch. It was still very much a federal government agency with a legal monopoly on mail delivery but no longer with a cabinet-level Postmaster General appointed by the President and rates set by Congress. Now it was led by a Board of Governors made up of nine Presidentially-appointed Governors and the Postmaster General and Deputy Postmaster General. And postage rates would be set by the Postal Rate Commission, also appointed by the President, based on future costs projected by the USPS. It was known as “cost of service” regulation, and it relied on the Postal Service making a convincing case that its costs would be going up by x amount.

The Postal Accountability and Enhancement Act of 2006 changed price-setting to an external price cap, in this case, the Consumer Price Index (CPI) applied to each class of mail, such as first class, standard, and periodicals. Price cap regulation is considered standard best practice in regulation of monopolies largely because the monopolist cannot control the cap and external financial discipline leads to efficiency and cost control. Indeed, since the imposition of the price cap, USPS has taken out over $14 billion in annual costs. It has done so mainly by reducing employees and work hours by over 20 percent, as well as the number of facilities by over 50 percent.

Mail volume has stabilized overall at above 150 billion, and the USPS competitive package delivery business, not subject to the price cap, is growing in double-digits. The Postal Service is on its way to a third operating profit in a row this year.

But the USPS is crying uncle, saying that it cannot reduce costs more and rather needs upward rate relief.

In other words, the USPS wants to make the customers pay.

The Current Status of The USPS

With the help of $4 billion of extra money from customers during the exigent surcharge, the USPS has survived the recession and diversion to the internet quite well. Competitive packages generate over 30 percent of USPS revenues and will continue to grow with e-commerce. But as a result of postal management crying crisis, actions are underway at the PRC and in Congress to raise customers’ rates well above the general rate of inflation — as a way to ease the pressure on postal operators.

The elephant in the room is that postal pay and benefits greatly exceed compensation for similar jobs in the private sector. That has been established as fact in recent arbitration rulings. Yet, postal managers and outside arbitrators continue to give postal unions raises and job protections.

Neither Congress nor the PRC is poised to deal with the labor-related cost driver. Bills in both the House and the Senate focus on integrating USPS retiree health care with Medicare to reduce postal liabilities and future costs. They also include the first legislated rate increases for customers since 1968. In fact, the House bill would raise all rates 2.15 percent, which would have a net present value cost to mailers of $30 billion. The Senate would double the legislated rate increase to 4.3 percent or an NPV of $60 billion.

The Chairman of the PRC, Robert Taub, has said that his job is to clean up the finances, liquidity, and balance sheet of the Postal Service with the main lever he controls — pricing. He will need to get two of the other three Commissioners to go along with this approach. Too much reliance on the seemingly easy way out — price increases — could doom the best postal system in the world to decline and irrelevancy.

You Hold The Future of Nonprofit Mailing

Nonprofit mailers have a great opportunity in the very near term to influence the course of postal history by emphasizing the need to keep the discipline of the price cap and continue the mighty effort to reign in postal costs.

It is critically important that the Alliance put forward a well-reasoned case that ditching the price cap is unnecessary and would be counter-productive to an efficient, relevant postal system. It is equally important that many nonprofit mailers join the grassroots initiative to tell your stories of reliance on mail that does not price itself out of existence. We need widespread support for the current CPI price cap on postage increases. And we need to humanize the role of mail with many, diverse stories told by outstanding nonprofit organizations.

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Written by Stephen Kearney

Stephen M. Kearney became the fifth executive director of the Alliance of Nonprofit Mailers in January 2014. Kearney represents nonprofit mailers’ interests with the United States Congress, the Postal Regulatory Commission, the Office of the Inspector General, the U.S. Postal Service, and other agencies. He also ensures that members are kept informed about the latest developments and opportunities in the postal world. Prior to joining the Alliance, Kearney had a 35 year federal government career, mostly as a senior executive with the U.S. Postal Service.