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Wednesday, August 21, 2013

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

Kevin R. Kosar
Analyst in American and National Government

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.

This report replaces CRS Report R41024, The U.S. Postal Service’s Financial Condition: Overview and Issues for Congress, by Kevin R. Kosar.

Date of Report: July 24, 2013
Number of Pages: 14
Order Number: R43162
Price: $29.95

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