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 $45.6 billion between FY2007 and FY2013. Since FY2011, the USPS has defaulted on $16.7 billion in payments to its Retiree Health Benefits Fund (RHBF). The agency reached its $15 billion borrowing limit in FY2012 and did not reduce its total debt in FY2013. In October 2012, the USPS bolstered its liquidity by withdrawing all of the cash from its competitive products fund. This fund has not been replenished since that time.  While the financial condition of the postal service slightly improved in FY2013, both revenues and expenses have increased through the first three quarters of FY2014. Compared with the same point in FY2013, expenses are $1.4 billion higher while revenues have increased by $1.0 billion.

The USPS’s recent financial difficulties are partially the product of reduced demand. The agency has experienced a 21.7% 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 FY2013 were lower than they were in FY2004. 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 FY2014 year-end financial results in November 2014 and in the interim should there be any significant developments.

See:  The U.S. Postal Service’s Financial Condition: A Primer

By: Daniel J. Richardson, Coordinator, Research Assistant