Postal Service Proposes 2007 Rate Increase, 'Forever' Stamp

The Postal Service said Wednesday it wants to raise the price of a first-class stamp by 3 cents — to 42 cents — and suggested a "forever" stamp that people could use as hedge against future rate inflation.

The changes would take effect in the spring of 2007 if approved by the independent Postal Rate Commission.

"A forever stamp would help ease the transition to any future price adjustments," board Chairman James C. Miller III said.

Postmaster General John E. Potter said the agency would not be making a rate change if it were not necessary.

"The Postal Service is not immune to the cost pressures affecting every household and business in America," Potter said.

For example, each penny increase in the price of a gallon of gasoline costs the post office $8 million, and payroll, health expenses and other costs also have been rising.

And, unlike private delivery companies, the post office cannot simply add a fuel surcharge to its rates.

The forever stamp would help soften the blow of a rate increase by allowing customers to stock up. As originally proposed it would sell for the first class rate and, once purchased, the special stamp would remain valid for whatever the first-class rate is when it is used, regardless of future increases.

Once the post office proposes a rate change, including the new stamp, the matter goes to the Postal Rate Commission, which holds hearings and has 10 months to consider the matter before responding.

The earliest a change would take effect would be May 2007.

The cost of a first-class stamp went from 37 cents to 39 cents in January. Before that, the price had been unchanged since 2002.

The proposed increase would boost the price of mailing a letter to 42 cents.

The increase in January was required so the post office could place some $3 billion in an escrow account, a step required in law.

The House and Senate have both passed bills to eliminate that requirement and efforts are under way to resolve differences between the two versions, but it also faces the threat of a presidential veto.

Since that increase went into the escrow account, the Postal Service still must cover rising costs of fuel, salaries, equipment and other expenses.

In addition to its own fuel expenses, the post office has about 70,000 employees who use their own vehicles and are reimbursed for fuel costs, and there are some 17,000 contractors whose rates are adjusted for rising fuel costs.

Overall, the Postal Service expects to finish this fiscal year about $2 billion in the red.

While a 3-cent increase in first-class stamps would be the most visible change, rates will change for other types of mail also.

For example, it currently costs 63 cents to mail a two-ounce first-class item whether it's a letter, large flat envelope or package. But the post office makes more than 30 cents on the letter, 10 cents on the flat and loses money on the package.

That means the agency will be looking at shape as well as weight in setting new rates, officials have said, particularly in the face of a decline in first-class mail as more people pay bills and send messages via the Internet.

Congress mandated the escrow requirement in 2003 when it passed a law reducing the amount of money the agency has to pay into its retirement system, which auditors said was being overfunded. Instead, Congress ordered the money to be used to reduce debt and, when that was done, to be put into the escrow fund.

The White House has opposed the release of the money from the fund because placing it there counts as income for the federal government and releasing it would have the effect of raising the deficit.