* Increase hopefully will raise $2 billion
* Critics say rate hike will drive away customers
The cash-strapped U.S. Postal Service plans to raise the cost of mailing a letter in the United States by three pennies to 49 cents in January, the agency announced on Wednesday.
The plan to increase the price of stamps and other postal services is expected to raise $2 billion annually and is subject to special approval from the Postal Regulatory Commission, it said. Prices also will go up for international mail and postcards.
The Postal Service is trying to reverse years of financial losses. It is coping with massive payments into a mandatory fund for its future retirees' healthcare, and with tumbling mail volumes as more Americans communicate and pay bills online.
The mail carrier lost nearly $16 billion last year and expects to lose $6 billion this year. The U.S. Congress is considering a structural overhaul that would give the Postal Service flexibility with its obligations and services but lawmakers have so far failed to agree on how to do so.
In the near-term, industry representatives and lawmakers said the higher rates are foolhardy and will only drive business away.
"No private company would increase prices when sales are already plummeting," said Mary Berner, CEO of the Association of Magazine Media, also known as MPA.
The MPA said the proposed increases could cost the magazine industry approximately $200 million annually and cause job losses.
Berner said her organization will aggressively oppose the rate hike and may consider litigation against the Postal Regulatory Commission if it approves the hike.
A 2006 law prohibits the Postal Service from raising prices beyond the annual inflation rate as measured by the Consumer Price Index. But the agency can seek a higher rate increase if faced with adverse circumstances.
The Postal Service Board of Governors voted to seek the so-called exigency rate increase, citing extreme financial challenges.
The agency does not require congressional action for an emergency rate increase, but must seek the approval of its direct regulator.
"I empathize with their decision but this comes at a serious cost," said California Republican Representative Darrell Issa, who is chairman of the House Oversight Committee. "If implemented, today's announcement may ease the financial burden on USPS in the very near term. But this rate hike and the ones sure to follow will only push more and more private sector customers to stop using the mail altogether."
Issa has sought legislative fixes for the Postal Service including switching to a five-day first-class mail delivery schedule but those efforts so far have been met with fierce opposition from other lawmakers and industry groups.
The U.S. Postal Service is a semi-independent government agency that does not receive taxpayer money but depends on sale of stamps and other products to fund its operations.
Maryland Democratic Representative Elijah Cummings, ranking member of the Oversight Committee, said the Postal Service cannot solve its problems only by reducing costs or increasing prices.
"It is Congress' responsibility to put the Postal Service back on the path to solvency by passing a comprehensive reform bill that encourages innovation and new product development," Cummings said.
The Postal Service posted a net loss of $740 million in the third quarter, which ended June 30. While still high, the loss was a huge improvement from the $5.2 billion loss the same quarter the previous year.
Citing this improvement, industry groups say that the Postal Service does not need the aggressive cost-cutting measures and rate increases it is seeking.
"Exigency rate increases were meant to respond to extraordinary circumstances and are no substitute for common sense structural reforms that will put the Postal Service on sound and sustainable fiscal footing," Rafe Morrissey, the Greeting Card Association's vice president of postal affairs, said in a statement.
Morrissey said the exigency rate increase would only drive away mail volume to the Postal Service's competitors.