SUBJECT: Postal Services Proposed Change in Nonprofit Eligibility Requirements -- Cooperative Mail Rule
DATE: MAY 12, 2003

The Postal Service has published a proposed rule that, if implemented, will alter the eligibility requirements for Nonprofit Standard Mail Rates. These proposed changes could bar your nonprofit organization from mailing certain types of letters at the nonprofit postage rates. (Actually, one of the proposed changes is beneficial, and we need to support that one. It gets complicated, but we have a simple solution for you, discussed below.)

Specifically, on May 6, 2003, the Postal Service notice was published in the Federal Register setting out a proposed amendment to Domestic Mail Manual (DMM) Section E670.5.3, which sets standards for the nonprofit postage rates known as the Cooperative Mail Rule (CMR). Federal Register, May 6, 2003, Volume 68, No. 87, pp. 23937-23939.

The Postal Service in recent years has taken the position that the CMR prohibits nonprofit organizations which use no-risk contracts to send their mail at nonprofit rates.

The Free Speech Coalition (FSC) has opposed this position for years, arguing with the Postal Service and on the Hill. FSC believes that the CMR was designed (and is consistent with the controlling statute) only to ensure that a nonprofit organization is sending its own mail at nonprofit rates. The Postal Services view that any nonprofit organization which has a no-risk contract is in a joint venture with a fund raiser is ridiculous. The Postal Service has the authority only to determine that nonprofit rates are not misused, and may not use its regulatory power to regulate the type of fund raising contracts which it may sign.

Sometimes no-risk contracts are used by nonprofits because they cannot afford to absorb the risk of a fund-raising campaign being unsuccessful.

Sometimes no risk contracts are offered by fund-raising counsel as a way for the nonprofit to test out a new agency without assuming a great deal of risk.

Sometimes no risk contracts are used when small or start-up nonprofits lack the capital to begin national direct mail campaigns.

Sometimes no-risk contracts actually are required to be used under state charitable solicitation laws when solicitors must guarantee that a percentage of fundraising proceeds are paid to nonprofit clients even if costs exceed income. (Isn't it great when two government agencies take opposition positions, all for the public good, of course?)

Always no risk contracts are used because the nonprofit organization, its staff and board of directors believe, in the exercise of their fiduciary duty, that the no-risk contract is in the best interest of the organization.

Isn't it just lovely when the Postal Service which we had thought was set up to deliver mail believes that it knows best about how nonprofit organizations should run their own affairs.

As mentioned above, there is a silver lining to the rule change. Under the proposed rule published on May 6, the CMR would be loosened so that it may not be applied to letters that solicit contributions. That would mean that the Postal Service is changing its interpretation of the CMR even as applied to no-risk contracts. That's a win for the Free Speech Coalition.

But the rule change has its dark side. The proposed rule would not allow use of the nonprofit rates to mail other nonprofit matter, such as thank-you letters, newsletters, $250+ contribution acknowledgements, or other letters that do not include a solicitation for contributions under no-risk contracts. Also, the rule would not allow nonprofits to mail advertisements of low-dollar items that are substantially related to the nonprofits purposes at nonprofit rates. We view these restrictions as inconsistent with the controlling statute.

FSC will submit comments within the 30-day period opposing these new restrictions on use of the nonprofit rates. You are encouraged to do so as well, but we understand that many of you may not have the time to fight this particular fight.

If you cannot file your own comments, we would welcome FSC members and other nonprofit organizations to join FSCs comments which are now being prepared. Please e-mail back your agreement in concept to sign onto these comments, and we will forward them to you for your review in about 10 days. Then, you will have the chance to make a final decision.

You may not now use "no risk" contracts but you may want to in the future. And if the Postal Service can decide it doesn't like these type contracts, what is next? Please help us help the entire nonprofit community on this one. Thanks so much.