Since the earliest days of the Post Office there has been a public policy goal of promoting the dissemination of information throughout the country. This goal was also part of all 14 of the rate cases conducted under the Postal Reorganization Act. By law, rates had to consider “the educational, cultural, scientific, and informational value to the recipient of mail matter.” This provision generally tempered the increases for Periodicals, or at least kept the “institutional cost burden” for Periodicals to a minimum. In fact, in the final rate case in 2006 before the new price cap system of the Postal Accountability and Enhancement Act took effect, the “markup” on Periodicals was only 0.2 percent. Periodicals prices were set so that revenue was only 0.2 percent above attributable costs. The average for all mail was 79.3 percent.
The two price adjustments since that final rate case have been capped by inflation. Under the old rate case process, the increases would have likely been greater so that the prices covered the Postal Service’s costs for handling Periodicals. In fiscal year (FY) 2008, Periodicals revenue did not cover costs. In fact, the cost coverage (the ratio of revenue to attributable costs) was only 84 percent. (In rate cases, the recommended prices had to be at least 100 percent of costs.) The new law includes the price cap as an incentive for cost containment, but also says products should cover their costs.
So what do you think? Should the Postal Service try to increase Periodicals prices beyond the cap? What role do Periodicals play in the mailstream? What takes precedence: the cap or a requirement that products cover cost? Should the price for a flat that happens to be a magazine be significantly lower than the exact same flat that happens to be a catalog?
This blog is hosted by the OIG’s Risk Analysis Research Center (RARC).