Tad DeHaven

The U.S. Postal Service is structured to subsist on the revenues it generates from the sale of its products and services. In recent years, however, USPS expenses have exceeded revenues and the government agency now finds itself effectively broke having maxed out its $15 billion line of credit with the U.S. Treasury.  

Postal employee unions blame a 2006 law that forces the USPS to prefund retiree health benefits (a benefit that a small and declining number of private sector workers enjoy) for the government agency’s financial woes. But as a recent Congressional Research Service papernotes, the USPS would be in trouble even without the required payments:

While [Retiree Health Benefits Fund] payments have affected the USPS’s profitability, the USPS would have run deficits each of the past four years even if the agency did not have to make RHBF payments. These non-RHBF deficits would total $14.7 billion, an amount nearly equal to the USPS’s total borrowing authority. [T]hese deficits were produced by a sharp drop in revenues. (Expenses did not fall equivalently.)

Congress has been fumbling around with postal reform legislation for a couple of years now. And as I’ve noted more times than I can count, congressional micromanagement makes it difficult for the USPS to downsize its operations to match 21st century realities. So the USPS is reportedly looking to generate more revenue through higher stamp prices.

The USPS is limited in its ability to increase stamp prices. For “market-dominant” (the government’s amusing euphemism for “monopoly”) products, annual price increases cannot exceed inflation (as measured by the Consumer Price Index for All Urban Consumers). The USPS can, however, request a rate increase above inflation on the basis of extraordinary or exceptional circumstances from its regulator, the Postal Regulatory Commission (PRC).

Tad DeHaven

Tad DeHaven is a budget analyst at the Cato Institute. Previously he was a deputy director of the Indiana Office of Management and Budget. DeHaven also worked as a budget policy advisor to Senators Jeff Sessions (R-AL) and Tom Coburn (R-OK).