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 155 million addresses and operates about 320 processing facilities and 31,600 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 in recent 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 the overall economic climate and by customer behavior changes including a decline in the demand for its products and services as consumers and businesses migrate transactions from paper-based to electronic form. This has resulted in steady decreases in mail volume, offset only partially by growth in package delivery and certain other services.
The decline in overall volume made the Postal Service’s overhead structure of facilities and employees, built up in a time of higher demand, increasingly difficult to sustain. USPS also operates within contractual, statutory, regulatory and political restrictions that limit its ability to react quickly to changes in economic and industry conditions.
Lack of available cash has limited the Postal Service’s ability to reduce its outstanding debt or to make investments in its infrastructure. Restricted ability to replace aging vehicles in its fleet has, for example, resulted in higher maintenance and repair costs. In addition, some facilities maintenance has been deferred, creating a backlog of needed repairs, and USPS has had limited ability to update existing equipment or to make investments to take fuller advantage of business opportunities.
Five-Year Plan—The Postal Service in 2012 released a five-year plan—updated in 2013—designed to achieve financial stability and repay debt that includes pursuing new revenue streams, improving productivity and reducing costs in areas within its control. Ongoing initiatives that address declining mail volumes include cost reduction and efficiency improvement measures intended to “right-size” USPS to reflect current and future expected mail volumes.
These measures reflect efforts to meet four major goals:
1. Become a leaner, smarter, faster organization—Measures to address this goal include redesigning the operating network, increasing the efficiency of the mail processing network, including a reduction in the number of mail processing locations and distribution plants, and the rescheduling of transportation routes.
2. Compete for package business—Measures include improving the tracking of packages, providing innovative solutions to make it easier for consumers and small businesses to use postal shipping services, and offering competitive pricing for deliveries of small packages within short-range destination zones.
3. Strengthen the business-to-customer channel—This strategy includes making it easier for small businesses to develop direct mail campaigns, continuing to advertise and promote mail as a key means of communication, and promoting commercial customer access via online services
4. Improve the customer experience—This includes increasing convenience for customers with enhanced online offerings; offering new mobile applications to allow customers to shop online, locate a post office, find a ZIP code or access services; and increase customer access to services through the introduction of Village Post Offices and partnerships with third-party retailers.
Cutting Costs—USPS has been reducing its workforce, and thus the labor costs that constitute the majority of its expenses, through normal attrition and with early retirement and buyout offers. Total employment fell from 712,000 in 2009 to 625,000 in 2016. Within that total, the number of career employees fell from 612,000 to 493,000 while the number of less expensive non-career employees rose from 89,000 to 132,000.
During 2013, USPS consolidated 143 mail processing facilities, closing 97 of them and bringing the total number of such facilities to about 320. It initially intended to carry out a second phase in 2014 aimed at consolidating nearly 100 more but under pressure from Congress to make no further changes pending a possible reform law, it temporarily delayed those plans several times and in 2016 delayed them indefinitely.
Other steps have included reductions in retail operating hours, reductions in the number of delivery routes, and consolidations of delivery offices. 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 expanding its package business.
For example, it partnered with online retailer Amazon to establish Sunday delivery of packages, and with the Staples office supply retailer to sell the most popular USPS products and services in its stores, starting in both cases with a small number of metropolitan areas. Also, USPS has added features to its Priority Mail offering that includes free insurance, improved tracking and day-specified delivery.
However, early in 2016 a two-year temporary price increase that had boosted income by some $2 billion a year was allowed to expire on grounds that it had accomplished its goal of offsetting exceptional reductions in income that USPS experienced due to economic recession.
Regulatory and Legislative Relief Efforts—In recent years USPS has sought regulatory and legislative relief on a number of key issues that affect its finances and operations. 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 an over-funding of the USPS obligation to the federal retirement trust fund;
• reduce expenses for injury compensation payments;
• create a defined contribution-only retirement program for employees hired in the future;
• allow it to reduce mail (although not package) delivery to five days per week and to offer non-postal products and services; and
• develop a more streamlined governance model to aid in faster decision-making.
Bills generally reflecting those proposals, although differing in their details, have advanced in Congress but have not reached enactment, due largely to concerns about the potential impact on employees and customers of reducing mail delivery standards and closing post offices and other facilities. To improve chances of a reform law being enacted, USPS in 2016 stopped advocating a reduction in mail delivery days and indefinitely delayed plans for consolidating more processing facilities.
Meanwhile, proposals have circulated aimed in the opposite direction, for example to mandate continued six-day delivery of mail in law, set new restrictions on closing or even reducing hours at post offices, and reinstate prior delivery standards.
A reform bill offered in the Senate in 2015 attempted to strike a balance. It included proposals to reduce the pre-funding requirement and stretch it out over 40 years; break off USPS into its own health insurance program and shift more of the costs of its retirees onto Medicare; impose a two-year moratorium on further processing facility closings and a five-year one on post office closings; allow USPS to partner with state and local governments to offer services; and preserve current delivery standards. However, once again the measure did not advance.
In mid-2016, a House committee introduced and quickly approved, on a bipartisan basis, a bill with a similar general intent, although differing in many details, improving the prospects for a reform measure eventually being enacted.