Congressional Research Service (CRS) Report by Kevin R. Kosar, Analyst in American and National Government
Summary
Since 1971, the U.S. Postal Service (USPS) has been a self-supporting government agency that covers its operating costs with revenues generated through the sales of postage and related products and services. The USPS is experiencing significant financial challenges. After running modest profits from FY2003 through FY2006, the USPS lost $41.1 billion between FY2007 and FY2012. Since FY2011, the USPS has defaulted on $11.1 billion in payments to its Retiree Health Benefits Fund (RHBF).
The agency has reached its $15 billion borrowing limit and is low on cash. In October 2012, the USPS bolstered its liquidity by withdrawing all of the cash from its competitive products fund. At the end of the first half of FY2013, the USPS’s financial condition showed no appreciable signs of improvement. The agency’s revenues and operating expenses were little changed relative to mid-FY2012. The USPS’s recent financial difficulties are partially the product of falling revenues. The agency has experienced a 21.4% drop in mail volume during the past 10 years. Additionally, during the past decade the “mail mix” has shifted.
A growing portion of the mail is advertising mail, which yields low profits. Concurrently, the annual volume of first-class letters, which are highly profitable, has been dropping steadily, at least in part due to mailers shifting to electronic communications. As a result, the Postal Service’s revenues in FY2012 were lower than they were in FY2003. Additionally, the Postal Service’s liquidity has decreased and its debt has increased because of the statutorily mandated payments that must be made to the RHBF each year.
This report discusses these issues in more detail, and it will be updated after the USPS releases its FY2013 third quarter financial results in early August 2013 and in the interim should there be any significant developments.
Highlights of the report:
Ten-Year Operating Expense Trend
The USPS’s operating expenses have increased from $63.9 billion to $81.0 billion (21.1%) in the past 10 years. If the RHBF portion of the expenses is removed, the USPS’s annual expenses increased 9.4% over the decade. Figure 4 shows that in the four years (FY2003 to FY2006) prior to PAEA’s establishment of the RHBF (FY2007), expenses grew from $63.9 billion to $71.7 billion (12.2%). More than half of this increase ($5 billion) reflected rising compensation costs.
After the enactment of the PAEA, the USPS’s expenses (minus the RHBF) slightly declined.
Postal Service Fund balance:
At the end of quarter 2 of FY2013, the USPS had $2.7 billion in cash, which is a low level for an agency with an average weekly operating expense of more than $1.3 billion.
Competitive Products Fund balance:
The CPF held a balance of $1.6 billion at the conclusion of FY2012.
This amount was the largest year-end balance the CPF had in its five-year existence. Shortly after FY2012 concluded, however, the USPS transferred the CPF’s entire balance into the PSF.
As of May 2013, the U.S. Treasury’s “Monthly Statement of the Public Debt” carried no entry for the CPF, likely indicative of the CPF having little, if any, balance.
Retiree Health Benefits Fund balance:
The RHBF had $45.7 billion dollars as of the end of FY2013, and $46.1 billion as of May 2013. As currently calculated, the USPS’s unfunded RHBF obligation is approximately $47 billion.Federal law prohibits the USPS from drawing any funds from the RHBF before FY2017.
It goes beyond the scope of this report to assess which operational or policy changes could improve the USPS’s financial condition sufficiently to enable it to continue as a self-funding government agency. The above financial data, however, suggest that for any reforms to be successful they would need to contend with the USPS’s short-term liquidity problem;
• be of sufficient magnitude to make appreciable changes to the USPS’s annual operating revenue (currently $65 billion) or operating costs (currently $70+billion);
• enable the USPS to sufficiently fund its retiree health benefits;
• help the USPS reduce its debt (currently $15 billion); and
• place the USPS on a long-term trajectory where the agency’s revenues could be expected to meet or exceed expenses.