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US Postal Service

Last Updated:2013-Feb-04
Principal Writer:Barry Shatzman

Issue Sections

Understanding The Issue
More Information

Reported News

Gov Services: US Postal Service

Related Bills

Postal Accountability and Enhancement

2006 (HR-6407)

Postal Reorganization Act

1970 (HR-17070)


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What is the United States Postal Service

The postal service is both the oldest federal agency and the only one specifically mentioned in the U.S. Constitution. Article 1, Section 8 gives Congress the power "To establish Post Offices and post Roads".

Yet it is not a federal agency in the traditional sense. Its operations are not funded by tax dollars, and the Senate doesn't have to approve its chief executive.

The U.S. Post Office Department used to be a full federal agency. But in 1970, the Postal Reorganization Act converted it into the United States Postal Service (USPS) we know today. It is governed by an 11-member Board of Governors. The postmaster general - rather than being a presidential appointee approved by the Senate - is hired by the board's other 10 members.

The USPS operates much like a private corporation. Its operations (delivering mail) are funded by revenues (postage).

It is mandated to deliver mail at a low cost. To compensate for the high cost of regularly delivering mail to even the most remote addresses in America, the USPS was given a monopoly on all low-cost mail delivery.

Why is the USPS losing money?

This chart shows USPS revenue and expenses from 2004 - 2011.

It's clear that revenues have been decreasing since 2008 (though not as dramatically as the chart makes it appear, since it isn't starting at $0). Many point to the rise in email and other electronic substitutes for physical mail as the main cause. Most of the losses, however, were covered by postage increases, according to a 2012 report by the Congressional Research Service.

Two other things stand out from the chart. The first is that, until 2006, the USPS was bringing in more money than it was spending. The second is the huge spike in expenses that occurred after 2006.

The 2006 Postal Accountability and Enhancement Act

In 2006 Congress passed the Postal Accountability and Enhancement Act. The law called for the USPS to pre-fund health benefits for employees who would retire during the next 75 years. And they had 10 years to do it - amounting to about $5.5 billion a year until 2016.

"No other government agency or private company bears this burden," the American Postal Workers Union stated.

That expense accounted for about 95 percent of the postal service's losses. In 2009, Congress passed legislation allowing the USPS to delay some of the required payments, as it was about to run out of operating cash.

Pension Issues

USPS employees participate in the Federal Employee Retirement System. The USPS has contended that it overpaid into the system by almost $7 billion. It likely would require action by Congress to refund the overpayment.

The USPS also contends that the formula used to calculate its required pension contributions for employees who were working for the agency before 1971 - when the Postal Reorganization Act took effect - has incorrectly cost the USPS $75 billion.

Postal employees have best of all worlds

The USPS has more than 500,000 employees, who enjoy a special place in the workforce. The law requires the USPS to offer compensation and benefits comparable to the private sector. Yet USPS employees also negotiate wages and conditions with collective bargaining. Employees are protected from layoffs.

They also contribute less toward their health insurance premiums than other federal employees. The Obama administration calculated that the difference is costing the USPS more than $750 million a year, and has proposed requiring them to pay the same amount.

Added business can be part of USPS viability plan

On Feb. 7, 2013, Postmaster General Patrick Donahoe proposed eliminating Saturday mail delivery (on April 10 the USPS announced Saturday mail delivery would continue at least until Sept. 30). In recent years, the USPS has considered shutting down several thousand post offices and increasing the number of days it takes for a first-class letter to reach its destination.

Various ideas to increase revenue also have been discussed, including...

o Use post offices as broadband hotspots, providing email and the transmission of digitized documents.

o Become a store for cell phones and providing notary services

o Low-fee banking - providing federally insured accounts.

Should the USPS have to support itself?

Discussing why the USPS is losing money, or how it can become profitable, assumes the premise that the function of delivering letters and packages at a low cost should pay for itself. This is unlike other government services, which are paid for by public tax dollars and typically cost more to operate than any revenue they might take in (for example by userfees or other charges).

There are tradeoffs that need to be considered...

o Privatizing the USPS likely would result in losing the ability to mail a letter for less than 50 cents - especially from and to remote areas.

o Keeping first-class mail delivery to the most remote places, six days a week, will require higher postage rates or the use of public tax dollars.

o If the USPS's 500,000 employee workforce is reduced by layoffs, the labor market will be affected.

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