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Mailing letter or bill to cost 3 cents more

The cost of a first-class stamp will rise to 37 cents this summer, a federal rate-setting agency ruled Friday, but the Postal Service is expected to spiral into deeper debt even with the added cash.

The 3-cent increase _ the largest in a decade _ was approved by the Postal Rate Commission after an unusual consultation among the post office, bulk mailers and unions that was itself seen as a sign of the urgency of the mail service's financial problems.

The higher rates are expected to go into effect June 30. But they are expected to provide only "breathing room" for the Postal Service, said commission chairman George Omas, and perhaps a year of stable postal costs for businesses that rely on bulk mail service to reach far-flung customers.

A $70-billion entity with 900,000 employees and more than 38,000 local branches, the Postal Service was hemorrhaging money even before last fall's deadly anthrax cases. The attacks forced officials to spend more on safety and security. They also accelerated the post office's most serious long-term challenge _ the failure of mail volume to grow fast enough to cover costs.

"Although (the Postal Service) is mandated to break even over time, it is not generating sufficient revenues to cover both its operating expenses and capital needs," congressional auditors said in a report earlier this week. Its "financial outlook is becoming increasingly dire."

The rate increase, commission officials say, will raise an additional $1-billion this summer, and about $4-billion annually.

That amount will not be enough for the post office to break even, and the increase might make things worse by creating an incentive for some bulk mailers to seek less expensive alternatives, the congressional report said.

Along with the commission-approved increase in the price of first-class stamps, the cost of most other services also will rise. Post cards will go up by 2 cents, to 23 cents. Priority mail will go up 35 cents to $3.85 per pound. The cost to utilities of mailing bills will rise 2.3 cents, and a bank statement will go up 3 cents. Money orders up to $500 will cost the same amount, 90 cents.

"The rate change is not going to solve the problem," said Leslie Paige, a spokeswoman for Citizens Against Government Waste, which favors letting private entities compete with the post office. "It's time for Congress to step up to the plate and reform the system."

Postal service spokesman Mark Saunders said the agency is preparing a reorganization plan for Congress, to be issued next month.

Congress considered various reforms during the 1990s, but failed to enact any, a testament to thorny politics that involve powerful postal unions and business lobbies. The stakes are huge: The mailing industry employs an estimated 9-million people and accounts for 8 percent of the nation's gross domestic product. Lawmakers are reluctant to jump into the fray.

The postage increase arrangement with the mailers has backing from an unlikely source. United Parcel Service, one of the post office's chief rivals, said that it supported the agreement to help the post office "respond to recent extraordinary events and return to financial stability."

In addition, the Magazine Publishers of America has said the settlement was in the best interest of mailers and the industry, adding that without the agreement the service might have sought higher rate increases.

The magazine publishers were joined in the agreement by the Direct Marketing Association, the Association for Postal Commerce, the Alliance of Nonprofit Mailers, the National Newspaper Association and the Recording Industry Association of America, the post office said.

The American Postal Workers Union opposes the deal.

"The new rates will require American citizens to subsidize giant mailers," said William Burrus, president of the union that represents mail sorters.

_ Information from the Los Angeles Times, New York Times and Washington Post was used in this report.