How the U.S. Postal Service Works

The Postal Service is facing serious problems in this century — namely that it's deeply in debt and continues to lose money. The USPS lost more than $83 billion from 2007 through March 2020, plus owes $11 billion to the U.S. Treasury. It's also more than $59 billion behind in payments to its employee pension and health care funds [source: Pew Research].

One reason for these dire financial straits is that its mail volume has plunged, as communication increasingly moves online. Mail volume dropped from 207.9 billion pieces in 2000 to just 142.6 billion in 2019, and the drop was steepest among its most-profitable first-class deliveries [source: Pew Research]. And while the USPS doubled its packaging and shipping volume from 2010 to 2019, thanks to the growth in online shopping, that hasn't been nearly enough to turn things around. But the drop in mail volume doesn't explain fully why the USPS is so deeply in debt.

The Postal Service began losing money in 2007, the year after the Postal Accountability and Enhancement Act went into law, which requires the USPS to pre-fund pension and health insurance benefits for its employees — something pretty much no other governmental entity has to do. If this one requirement was removed, the USPS could largely sustain itself.

The Postal Service also operates under a universal service obligation, which requires it to deliver mail to everyone in the U.S. This means to people living on remote islands, in the backwoods, in the Alaskan tundra, as well as in cities and suburbs. Those farflung deliveries aren't cheap. Commercial services, in contrast, can opt out of remote deliveries if they're not profitable. And they often do, hiring "last-mile delivery" services to do it for them. For years now, the USPS has been offering such last-mile service to help bolster its bottom line, delivering mail and packages to every corner of rural America for private companies such as FedEx, UPS and Amazon. Although President Trump and others have said that the USPS has lost money by charging too little to these companies for package delivery, the Postal Regulatory Commission concluded that the Postal Service does make money off doing these last-mile deliveries for Amazon, etc. [source: Naylor].

Still, this hasn't been enough to put the USPS back in the black. In addition to that onerous pre-funding requirement for employee pensions and health care, the Postal Service's labor costs are high, both in salary and health benefits, the latter of which traditionally have been more generous than those received by other government employees. The USPS has tried to combat this issue by eliminating workers through retirement incentives and attrition. Its workforce today is 30 percent smaller than its peak in 1999 [source: Pew Research].

Bills have been introduced to try and address some of these issues. There is a proposal for USPS retirees to be required to take Medicare, which would relieve the agency of having to pre-fund retiree health benefits. Another bill, the USPS Fairness Act, would repeal the requirement to pre-fund the employee benefits and allow the agency to pay-as-you-go as other government agencies and most private companies do. These bills are still pending in Congress [source: Institute for Policy Studies].

Some USPS opponents are clamoring to privatize the institution, which they believe will result in a mail service that is more efficient, effective and profitable. For another issue with today's Postal Service is that delivery has slowed. In 2020, it was taking the USPS more than a half-day longer to deliver first-class mail than in 2012. More eye-opening is that from 1971 to 2012, the USPS was delivering much of its mail in just one day. But in 2015, it eliminated the one-day standard, again to try and combat its financial problems [source: Steidler].

But talk of privatization touches on another issue — while the government expects the Postal Service to function as efficiently as a business, it's saddled with governmental requirements that traditional businesses do not face, such as the requirements to deliver mail to everyone and to pre-fund employee benefits. In addition, it can't even raise its own rates without approval by the Postal Regulatory Commission. And Congress can add any requirements it wishes to the USPS, and it must obey.

Despite all of these woes, the USPS is a beloved institution, with 91 percent of Americans reporting they viewed it favorably in 2020, the highest rating of all federal agencies [source: Pew Research]. One likely reason is that it's a lifeline for rural communities. Another is that it performs community services through programs such as Carrier Alert, which has mail carriers keeping an eye on their elderly and disabled customers.

Time will tell whether the USPS is able to evolve enough to stay in business, or whether this venerable institution will become but a beloved memory.

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