July 1, 2020

State of the U.S. Postal Service


KEY TAKEAWAYS

  • The postal system is provided for in the Constitution, and has been a fundamental part of American life for more than 200 years.
  • The U.S. Postal Service has incurred losses each year since 2007 – a total of $78 billion – including a loss of almost $9 billion in 2019.
  • In the long term, COVID-19 may do significant economic harm to the Postal Service; in the short term, an increase in package deliveries has boosted USPS’ financial situation.

The postal system has been a part of American life and culture from the founding and is an important part of the national economy. Post office buildings have served as hubs of communities, particularly in rural areas and small towns. The U.S. Postal Service will deliver mail six days a week, to any address in America, by plane, train, truck, car, boat, ferry, helicopter, bicycle, mule, and foot. It is the only federal agency that most Americans have contact with on a near-daily basis. A recent poll found an overwhelming 91% of respondents had a favorable view of USPS, higher than any other federal agency. If the Postal Service were a private sector company, it would rank 44th on the Fortune 500, with an operating revenue of $71 billion in 2019.

USPS Facts and Figures

Post Office Stats

a proud history

The Post Office Department was established in 1775, with Benjamin Franklin serving as the first postmaster general. The post office has been a powerful force in American life ever since, and has been essential to connecting people and facilitating commerce across the country.

The Constitution grants Congress “the Power to establish Post Offices and Post Roads.” The Supreme Court has interpreted the post office clause broadly, holding that the language confers congressional power to determine what can and cannot be mailed, and enact federal laws criminalizing the use of the mail for certain purposes.

By the late 1960s, the post office faced a number of challenges, including financial losses, management problems, a poor service record, and low productivity. In response, Congress passed the Postal Reorganization Act to improve and modernize the service. The PRA abolished the Post Office Department and established the Postal Service as an “independent establishment of the executive branch of the Government of the United States.” The law states USPS’ basic function and obligation is “to provide postal services to bind the Nation together through the personal, educational, literary, and business correspondence of the people.”

USPS Facts and Figures

Post Office Stats 2

To help USPS fulfill this mission, Congress has granted USPS two statutory monopolies. The first is to carry, collect, deliver, and receive letters over regular postal routes: the letter delivery monopoly. The second is for the delivery of mail and packages into mailboxes: the mailbox monopoly. Historically, these two monopolies helped USPS cover its operating expenses. While even these advantages have been insufficient lately for the service cover its expenses, the monopolies remain valuable. Reform proposals have included ways to further monetize them, such as licensing access to mailboxes.

The PRA also established the board of governors of the USPS. The board consists of the postmaster general, the deputy postmaster general, and nine governors, appointed to staggered terms of seven years. The board directs the exercise of the powers of the Postal Service, reviews the practices and policies of the Postal Service, and directs and controls the expenditures of the Postal Service.”

financial footing

Congress intended USPS to be a self-sustaining business entity. The service generates nearly all of its revenue by charging for the services and products it provides – including standard, first-class, priority, and express mail; packages weighing up to 70 pounds; and money orders – but it has received taxpayer funding. USPS has incurred losses every year since 2007, for a total loss of $78 billion. Last year, its expenses were nearly $80 billion, while revenues were $71 billion, a loss of almost $9 billion.

The main source of USPS’ financial challenges is the ongoing decline in mail volume, its primary revenue source. First-class mail volume peaked in 2006 and has declined every year since. Email, text, and social networking have replaced sending letters, and the majority of bills are now paid online instead of by mail. Advertisements now account for 62% of all household mail.

Retiree health benefits funding

USPS also faces issues related to its retiree and health benefit system. Since 2006, USPS has been required to prefund its share of health benefits for its nearly 500,000 retirees. USPS has not made these required payments since 2010 due to its tenuous financial situation.

Observers are split on whether this requirement helps or hurts. Some support removing the prefunding requirement, arguing that no other federal agency is required to prefund its current employees’ future retirement health benefits, and the requirement is draining the service’s cash. Others support the current system, arguing prefunding provides security to current employees and protects U.S. taxpayers from a future bailout of the Postal Service.

impact of covid-19

On April 10, as the country tried to slow the coronavirus pandemic, Postmaster General Megan Brennan said, “the sudden drop in mail volumes, our most profitable revenue stream, is steep and may never fully recover.” She estimated “the COVID-19 pandemic will increase the Postal Service’s net operating loss by more than $22 billion dollars over the next eighteen months, and by over $54 billion dollars over the longer term, threatening our ability to operate.”

Partially in response to these concerns, Congress included a provision in the Coronavirus Aid, Relief, and Economic Security Act allowing USPS to borrow up to $10 billion from the Treasury Department.

There has been one bright spot for the Postal Service: package deliveries of e-commerce orders, fueled by the large number of people following stay-at-home orders, have surged. While first-class single piece mail volume plunged, package volumes were up 80% in mid-May compared to last year. The increase in package revenue has helped offset losses from the decrease in first-class mail. Sales revenue dropped the first few week of the pandemic, but has since increased week-to-week compared to 2019.

Change in Weekly USPS Volume and Revenue vs. 2019

Post Office Data

Postal reform

The Government Accountability Office has placed the Postal Service’s financial viability on its “high-risk” list since 2009 “because USPS cannot fund its current level of services and financial obligations from its revenues.” GAO claims the USPS’ overall financial condition is “deteriorating and unsustainable” and stated in a May report, “Congressional action is essential to enable a sustainable business model.”

Outside experts and think tanks have proposed various ways to modernize USPS and return it to firm financial footing. These include relatively incremental ideas like using more “cluster boxes” where residents and businesses in a neighborhood or other geographic area would go to pick up their mail; reducing the frequency of delivery to five or fewer days per week; closing and consolidating post offices; reducing hours of operation; and allowing for more productive and creative use of USPS’ massive retail footprint, such as by allowing residential buildings to be constructed above post office locations. Retiree health benefits reform has been a part of postal reform bills introduced in Congress over the past decade.

Other observers have proposed more fundamental reforms, including privatization of the Postal Service and opening the mail system to competition. Many European nations have privatized their postal systems, and some have opened the market to competition. A Cato Institute report noted last fall that Great Britain “opened postal markets to competition in 2006 and privatized the Royal Mail with share offerings in 2013 and 2015.”

At the beginning of this Congress, Senators Jerry Moran and Gary Peters, the ranking member of the Homeland Security and Governmental Affairs Committee, introduced a bipartisan resolution opposing privatization of USPS. The resolution said the potential privatization would “result in higher prices and reduced services for [USPS] customers, especially in rural communities.” The resolution currently has 54 cosponsors.

In December 2018, the Task Force on the United States Postal System – established by an executive order issued by President Trump and chaired by Treasury Secretary Steven Mnuchin – released a report on how to put USPS on a sustainable path forward. Its recommendations include reforming the board of governors to be more accountable and nimble; pricing reforms such as the ability to charge market rates for commercial mail; restructuring the retiree health benefits system; pursuing new revenue streams such as licensing access to mailboxes; and providing additional services at post offices such as the sale of hunting and fishing licenses.