Last week, the United States Postal Service (USPS) and its regulators were left scrambling after the U.S. Court of Appeals for the D.C. Circuit struck down 2019’s stamp rate increase. The court determined that the Postal Regulatory Commission (PRC) failed to follow prescribed procedure in approving the USPS’ request to change stamp rates from 50 cents to 55 cents. Now, the postal service and PRC must begin the process again. With a 5-cent price increase off the table, USPS and those who write postal rules must reckon with a larger-than-expected ongoing budget gap that could now be up to $875 million wider, based on 2018 stamped letter volumes.

The reasoning behind the court ruling will inform the debate over how postal rates are determined moving forward. USPS rates are determined by a set procedure laid out in postal law, most recently restructured with passage of the Postal Accountability and Enhancement Act of 2006 (PAEA). In section 3622 of the law, the PAEA outlines 14 factors that the USPS “shall take into account” to determine postal rates, as well as nine objectives the postal rate system “shall be designed to achieve”. The law subjects proposed USPS rate changes to review by the Postal Regulatory Commission for compliance with the 14 factors.

For the 2019 rate change, the USPS argued that increasing the stamp rate from 50 to 55 cents per stamp was appropriate because a 5-cent increase accounts for “simplicity of structure” for stamp rates. This is factor number six of the 14 criteria the USPS is supposed to use in setting mail rates. The petitioner countered, arguing that the USPS and the PRC did not appropriately consider factor three—the effect of rate increases on the general public—and that the change violated objective eight—to establish and maintain a just and reasonable schedule of rates. Further, they argued that there was nothing particularly simple about a 5-cent increase in stamp rates.

The court found the petitioner’s argument convincing. It found that “[the Postal Regulatory] Commission failed to consider the relevant policies of the PAEA, particularly those raised in the public comments.” In doing so, the PRC violated the Administrative Procedures Act, thus invalidating “the stamp price hike and the rate adjustments to the category of first-class mail.”

The finding makes clear that future rate changes will need to be justified by the 14 PAEA factors more completely. The idea of a nickel increase, with future increases in five cent increments, was simple on some level. But within the full context of the postal rate schedule, having any product change price in a simple increment doesn’t make postal rates as a whole any simpler.

With billions of pieces of mail sent, large increases in stamp prices on a percentage basis can be expected to have a real effect on the general public and mail-reliant businesses. Simplicity alone is unlikely to overwhelm these welfare losses, so the USPS will need to justify future rate increases by other means. It has a few options. It can justify postage stamp rate increases by the “relative value of mail,” PAEA factor eight, which would argue that increased stamp rates reflect an increase in the relative value of mail service to users. As letter volumes decline, the USPS can argue that remaining mail users are more dependent on its services, justifying higher prices per unit. Alternately, it could make a similar point with the “value of mail service provided,” PAEA factor one. But justifying higher mail rates with falling mail volumes isn’t exactly painless. It essentially claims that the best case for more expensive mail is that it benefits fewer people each year, an admission that erodes the democratic grounds for a federally supported letter carrier.

The USPS could also find grounds in other factors. Factor 13 allows rate changes to be justified by the need for the USPS to improve its efficiency. It could claim the rate increase is necessary to fund new investments and lower costs. Alternately, the service could argue that increased stamp rates allow it more leeway to offer flexible postal prices elsewhere in the rate schedule in compliance with PAEA factor seven. Barring that, it would likely take intervention from Congress to allow such a large rate increase at any point in the future.

Future stamp price changes are being watched, both by industry and independent postal observers like the gentleman who brought this lawsuit. Repeating this saga benefits nobody—the USPS, the PRC, postal consumers or the general public. With the risk of court intervention in postal rates now abundantly clear, the USPS will need to find a better reason for raising stamp rates than it has so far.

Image credit: Jessica Kirsh