The U.S. Postal Service, with headquarters in Washington, DC, and with facilities throughout the country, is an independent agency of the Executive Branch. It does not receive tax dollars for operations but rather uses the revenue from the sale of postage, products and services to pay expenses.
The Postal Service delivers to about 157 million addresses and operates more than 300 processing facilities and more than 31,000 post offices, stations and branches. USPS also provides postal retail services such as stamp sales through commercial locations including contract postal units, community post offices and Village Post Offices, as well as approved shipper locations.
The Postal Service is overseen by a Board of Governors, which operates similarly to the board of directors of a publicly traded company; it directs and controls expenditures, reviews practices, conducts long-range planning and sets policies on postal matters. Nine governing members are appointed by the President, subject to Senate confirmation, for overlapping terms; no more than five of the nine may belong to the same political party. They, in turn, appoint the Postmaster General, currently Megan J. Brennan, who also serves on the Board. Then these ten appoint a Deputy Postmaster General who also becomes a member of the Board.
The Postal Regulatory Commission is a separate independent entity of five members also appointed by the President and subject to Senate confirmation. It regulates rates, consults with the Postal Service on delivery service standards and performance measures, and conducts general oversight including the Postal Service’s compliance with applicable laws, its accounting practices, and other matters.
Postal Act of 2006
The Postal Accountability and Enhancement Act of 2006 represented the most sweeping revision to the postal system since the Postal Reorganization Act of 1970 that changed the old Post Office Department into the government-corporate hybrid USPS. The 2006 law revised rate regulation and service standards, increased the authority of the Postal Regulatory Commission, and required pre-funding for Postal Service retiree health benefits, among other changes.
Under the 1970 law, the Postal Service had been required to break even financially over time. Under the 2006 law, however, the Postal Service has a profit-or-loss model. This encourages the Postal Service to make profits, retain earnings, and reinvest those earnings, for example to pay down debt or to invest in technology to improve efficiency and service.
In revising rate regulation, the law separated postal products and services into two general categories, market-dominant and competitive, and provided increased pricing flexibility for both. The market-dominant category, generally referred to as Mailing Services, includes First-Class Mail, Periodicals, and Standard Mail. For Mailing Services, the law capped price increases at the class level to the growth in the Consumer Price Index.
The competitive product category, generally referred to as Shipping Services, includes Priority Mail and Express Mail and bulk parcels. For Shipping Services, the Postal Service is free to set prices so long as products cover their costs, are not subsidized by mailing services, and make an appropriate contribution to institutional costs.
Separate accounting is required for the Mailing and Shipping Services categories. Additionally, the Postal Service is required to comply with Securities and Exchange Commission rules that implement the financial internal controls under Section 404 of the Sarbanes-Oxley Act of 2002.
For Postal Service retirement and health benefits, the law replaced a previous escrow requirement with a requirement that the Postal Service pre-fund its portion of future retiree health benefits. The Postal Service was required to make annual payments ranging up to $5.8 billion over a decade starting in 2007. However, USPS was unable to make those payments after the first several years, causing it to carry the defaulted payments as obligations on its books.
Business Climate and Strategy
USPS has been hampered in recent years by a decline in the demand for its products and services as consumers and businesses migrate transactions from paper-based to electronic form. This resulted in decreases in mail volume and its associated revenue, offset only partially by growth in package delivery and certain other traditional services.
The decline in volume made it difficult for the Postal Service to sustain its overhead structure of facilities and employees—labor costs constitute the majority of its expenses—that had built up in a time of higher demand. USPS also operates within contractual, statutory, regulatory and political restrictions that limit its ability to react quickly to changes in economic and industry conditions in updating its existing products, expanding into new markets and setting prices.
The Postal Service’s strategic plan focuses on four areas: deliver a world-class customer experience; equip, empower and engage employees; innovate faster to deliver value; and invest in future platforms. However, cash flow problems have been a hindrance. Lack of funds to replace aging vehicles in its large fleet has, for example, has resulted in higher maintenance and repair costs. In addition, some facility maintenance has been deferred, creating a backlog of needed repairs, and USPS has had limited ability to update existing equipment or to make investments in technology or infrastructure to take advantage of business opportunities.
Cutting Costs—USPS over several years reduced employment through normal attrition and early retirement and buyout offers, while shifting more work from career employees to less expensive non-career employees. More recently employment levels have steadied at about 500,000 for the former category and about 140,000 for the latter. USPS also has reduced injury compensation costs through additional training on preventing injuries, focusing especially on its most common hazards and most at-risk occupations.
USPS also consolidated 143 mail processing facilities, closing 97 of them and bringing the number to about 320. It initially intended to carry out a second phase aimed at consolidating nearly 100 more but under pressure from Congress to make no further changes pending a possible reform law, it delayed that plan indefinitely.
Other steps have included consolidating delivery routes, reducing retail operating hours at many post offices, consolidating delivery offices, upgrading facilities and equipment to reduce energy, water and other costs, negotiating contracts with its unions to hold down pay and benefit costs, and reducing administrative overhead costs. USPS also has lowered certain delivery standards in order to better spread the workload across delivery days and reduce overtime and operating costs.
Increasing Revenue—USPS has implemented a number of ventures aimed at generating new revenues and expanding its market reach by offering new or improved products and services and by focusing in particular on the growing demand for package delivery. For example, it increased delivery of packages to six days a week in certain ZIP codes, enhanced services for post office box holders, and entered new agreements with postal services of other countries. Also, USPS has added features to its Priority Mail offering that includes free insurance, improved tracking and day-specified delivery.
Legislative Reforms—For many years, USPS has sought legislation that would:
• relieve it of the mandate to pre-fund retiree health benefits;
• enable it to provide employee and retiree health benefits independent of the federal healthcare system;
• return to it an over-funding of the USPS obligation to the federal retirement trust fund;
• allow more flexibility in offering new products and services;
• create a defined contribution-only retirement program for employees hired in the future; and
• develop a more streamlined governance model to aid in faster decision-making.
Note: To improve chances of such changes being enacted, USPS in 2016 stopped advocating a reduction in mail delivery days, although at the same time it also began calling for reinstatement of at least some of a temporary rate increase for market-dominant products that expired that year.
Bills generally reflecting those proposals, although differing in details, have been introduced in Congress for just as many years but have not reached enactment, due largely to concerns about the potential impact on employees and customers. Meanwhile, other proposals have aimed in the opposite direction, for example to mandate continued six-day delivery of mail in law, set new restrictions on closing post offices or even reducing their operating hours, and reinstate prior delivery standards.
A reform bill approved by a House committee in 2017 attempted to strike a balance. It included proposals to allow the USPS to: raise rates on certain mail categories; phase in centralized delivery to certain business addresses to replace door-to-door delivery; provide nonpostal services to state and local governments; reamortize the pre-funding requirement over 40 years; and create its own health insurance program within the Federal Employees Health Benefits program and require its retirees to enroll in Medicare Part B, shifting some of the costs onto that program. The bill meanwhile would require the USPS to take additional factors into account when evaluating whether to close a post office while providing for more community input and appeals regarding facility closings or consolidations.
A counterpart bill offered in the Senate in 2018 contained many similar provisions, including regarding the pre-funding requirement and shifting retiree health care costs onto Medicare, while also requiring the preservation of current service standards for at least two years and restoring half of the expired temporary rate increase.
Later in 2018, the White House created a task force to study the USPS to make recommendations on service, pricing and the long-term outlook in light of changes in technology, e-commerce, marketing practices and consumer needs. Meanwhile, the White House’s government reorganization plan advocated privatizing the USPS—either by selling it to an existing company or by making it more independent—with the expectation that it would downsize and would no longer participate in federal employee benefits programs. However opposition arose almost immediately from significant numbers of House and Senate members of both parties, leaving the situation essentially the same for yet another year.