Overview

Prior to enactment of the Postal Reorganization Act of 1970 (PRA),¹ mail delivery in the United States was the responsibility of the U.S. Post Office Department, a Cabinet-level department in the executive branch funded through annual appropriations.² The PRA established the USPS as an independent agency of the executive branch, self-funded by revenue from the sale of postal products and services. PRA reform efforts were driven largely by the view that the Post Office Department was ill-equipped to meet the demands of the growing U.S. population and the changing economy.³ Mail volume had risen sharply and the Post Office Department lacked the institutional flexibility to respond quickly to market changes.⁴

In recent years, the U.S. Postal Service (USPS or Postal Service) has experienced sharp declines in total mail volume, due almost entirely to reductions in First-Class and Marketing Mail volume. Between 2008 and 2020, total mail volume decreased from 202.7 billion to 129.2 billion pieces, or a drop of 73.5 billion pieces.⁵ During the same period, however, shipping and package volume more than doubled, from 3.3 billion pieces in 2008 to 7.3 billion pieces in 2020.⁶ While package mail represents a small portion of total mail volumes, it requires larger facilities, specialized equipment, and more manual work compared to the largely automated process of sorting letter mail. Market changes and global economic conditions have contributed to the Postal Service's financial challenges and affected its efforts to control expenses, expand revenue, and manage operational issues.⁷

Governance and Oversight of the U.S. Postal Service

Postal Board of Governors

USPS is under the direction of the Board of Governors of the U.S. Postal Service (hereinafter, the Board), which USPS describes as "comparable to a board of directors of a private corporation."⁸ Created by the PRA in 1970, the Board consists of the Postmaster General, the Deputy Postmaster General, and nine Governors, appointed by the President with the advice and consent of the Senate.⁹

Under the Postal Accountability and Enhancement Act of 2006 (PAEA), Governors serve seven-year terms.¹⁰ When their term expires, a Governor may continue to serve during a "holdover" year until a successor is appointed.¹¹ A Governor appointed to fill a vacancy before the term expires will serve for the remainder of their predecessor's term. No person may serve for more than two terms as Governor.¹² The Governors appoint, and may remove, the Postmaster General.¹³ Under postal regulations, appointment or removal of the Postmaster General requires "a favorable vote of an absolute majority of the Governors in office."¹⁴ The Deputy Postmaster General is appointed, or may be removed, by vote of the Governors and the Postmaster General.¹⁵

The Board is responsible for setting the long-term plan of the Postal Service, including approval of official statements on policy and official positions on legislative proposals. The Board approves the annual financial plan, operating plan, and capital plan. Authorization from the Board is generally required before USPS may pursue certain changes to service standards.¹⁶ Select responsibilities and authorities are exercised by the Governors rather than by the Board as a whole. For example, the Governors establish rates and classes of competitive products and appoint the USPS Inspector General.¹⁷

Executive Leadership Team

An executive leadership team, headed by the Postmaster General who serves as the Chief Executive Officer, manages the day-to-day operations of the Postal Service.¹⁸ The executive leadership team includes the Deputy Postmaster General, who serves as Chief Human Resources Officer, the USPS General Counsel, and the Senior Vice President of Finance and Strategy. The team also includes Chief Technology, Financial, and Information Officers and Executive Vice Presidents of Commerce and Business Solutions, Retail and Delivery, Logistics and Processing Operations, and Marketing. With the exception of the Deputy Postmaster General, executive officers are appointed by the Postmaster General.

U.S. Postal Service Office of Inspector General

The U.S. Postal Service Office of Inspector General (USPSOIG) conducts audits and investigations of postal programs and operations. The USPSOIG is responsible for "detecting and preventing" waste and fraud within the Postal Service.¹⁹ Pursuant to the Inspector General Act of 1978 (5 USC App), the USPSOIG publishes its report recommendations on its website.²⁰ In addition, the USPSOIG investigates alleged misconduct and violations of postal law by postal employees.²¹

Postal Regulatory Commission

The Postal Regulatory Commission (PRC) is an independent regulatory commission responsible for oversight of the Postal Service and postal operations.²² Amongst its other responsibilities, the PRC reviews postal operations to determine whether the USPS is meeting its service standards and other statutory requirements.²³ Before implementing operational changes that will have a substantial or nationwide impact on postal service, the USPS must request an Advisory Opinion from the PRC.²⁴

The PRC also establishes, and periodically reviews, the regulations that govern how postal rates are set.²⁵ The PRC examines the Postal Service's annual financial statements, and conducts analysis of USPS operations and expenses to determine if revenue from each postal product and service is sufficient to covers its costs or if rates need to be adjusted.²⁶ The PRC is composed of five Commissioners, appointed by the President, by and with the advice and consent of the Senate.²⁷

Financial Condition of the U.S. Postal Service

The Postal Service faces financial challenges due to a confluence of factors including (1) U.S. and global economic conditions over the past decade, (2) the impact that technological innovations have had on the demand for postal products and services, and (3) statutorily required financial obligations.

The USPS must sell enough postal products to maintain self-sufficiency and meet its statutory requirements. However, the USPS cannot expand its operations beyond the scope of postal products and services and other limited nonpostal products authorized by statute.²⁸ Statutes also limit the USPS's ability to raise rates on certain postal products. This situation underlies many of the challenges facing the USPS and is also at the core of many of the reform efforts undertaken by the USPS and considered by Congress.

Financial Structure of the U.S. Postal Service

The current financial structure of the USPS was largely established by two statutes: the Postal Reform Act and the Postal Accountability and Enhancement Act. As already noted, the PRA created the USPS, which replaced the U.S. Post Office Department as an independent agency of the executive branch, and made it responsible for generating enough revenue to finance its own operations. Prior to the PRA, the U.S. Post Office Department was a Cabinet-level agency and was not expected to be financially self-sustaining.

Since enactment of the PRA, the USPS has generated nearly all of its funding—about $77 billion in FY2021 according to the USPS's most recent annual financial statement—by charging users of the mail for the costs of the services it provides.²⁹ Congress provides an annual appropriation—about $55 million in FY2021—to compensate the USPS for providing free mailing privileges to the blind and certain overseas voters.³⁰ In addition, the annual appropriation compensates the USPS for debt it accumulated in the 1990s while providing postal services at below-cost rates to nonprofit organizations.³¹

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act, P.L. 116-136) in March 2020 provided the USPS with $10 billion to fund operational expenses. This was originally borrowing authority, but pursuant to the Consolidated Appropriations Act, 2021 (P.L. 116-260), the funds do not need to be repaid. According to communications from USPS, the $10 billion in CARES Act funding was spent on FY2021 operating expenses.³² USPS also received $233 million in appropriated funds under the American Rescue Plan Act (P.L. 117-2) in March 2021 for reimbursement of certain leave costs related to the Coronavirus Disease 2019 (COVID-19) pandemic.³³

Funds appropriated to the USPS are deposited in the Postal Service Fund, a revolving fund in the Treasury that consists primarily of revenue generated from the sale of postal products and services.³⁴ The revenue in the Postal Service Fund is used to fund the operations of (1) the Postal Service, which includes the U.S. Postal Inspection Service (USPIS); (2) the U.S. Postal Service Office of Inspector General (USPSOIG); and (3) the Postal Regulatory Commission (PRC).³⁵

The USPS's end-of-year financial results for FY2021 marked the 15^th consecutive year of losses for the agency. In the years immediately prior to FY2007, the USPS ran modest profits. Between FY2007 and FY2021, the USPS accumulated $92 billion in net financial losses, including a net loss of $4.9 billion in FY2021, a net loss of $9.2 billion in FY2020, and a net loss of $8.8 billion in FY2019.³⁶

What Happens When USPS Ends the Year with a Net Loss?

The USPS does not receive additional appropriations (beyond the reimbursement for serving blind and overseas patrons) when it ends a fiscal year with a financial loss. The USPS has access to debt instruments from the U.S. Treasury and has a statutory debt limit of $15 billion, which help it to maintain liquidity and cover operational expenses.³⁷

The USPS has statutory authority to borrow a maximum of $3 billion per fiscal year and hold a maximum total debt of $15 billion.³⁸ At the end of FY2012, the USPS reached its statutory debt limit and USPS's total debt obligations remained at $15 billion from FY2012 to FY2017. As the USPS paid down its existing debt, it accumulated new debt at or close to its statutory maximum.³⁹ In FY2018, however, USPS began to reduce its outstanding debt balance. At the end of FY2018, USPS's outstanding debt balance was $13.2 billion, $1.8 billion below its debt limit. ⁴⁰ At the end of FY2019, USPS's total debt balance was $11 billion. According to its FY2019 financial statement, USPS had no plans to pay its debt down further in FY2020.⁴¹

Since 1974, USPS's debt has been issued through a variety of loan instruments (e.g., fixed and floating rate loans, short term credit lines) issued through the Federal Financing Bank (FFB).⁴² On April 3, 2020, the USPS borrowed $3.4 billion on a short-term credit line with FFB, which increased the total debt balance to $14.4 billion. The short-term credit line was repaid by the USPS on April 2, 2021, and as of September 30, 2021, their total debt balance was $11 billion, which is $4 billion under their statutory debt limit.⁴³ Table 1 below shows the amount of cash on hand at the beginning and end of the fiscal year, and the total debt at the end of the fiscal year, for FY2010 through FY2020.

As shown in Table 2 and Figure 1, in FY2019, the USPS had about 41 days⁴⁴ of unrestricted operating cash on hand. This was about 10 times the number of days of unrestricted cash on hand at its lowest point in FY2007. The USPS also had about 60 days of liquidity, which is an average daily measure of cash on hand plus available borrowing authority.⁴⁵ By FY2021, the days of liquidity had increased to 103.

Figure 1. USPS Liquidity and Unrestricted Cash, FY2006-FY2021

Sources: U.S. Postal Service10-Ks; electronic communication from USPS, December 18, 2019. Notes: USPS has modified the way it calculates days of liquidity a couple times over the years. Table 2 reflects the USPS's current methodology. When calculating total liquidity, USPS adds unrestricted cash to available borrowing authority ($15B minus outstanding debt), rather than the annually available borrowing authority, which is limited by the annual $3B limitation. For example, on September 30, 2019, USPS assumed total liquidity was $12.8B ($8.8B cash + $4B borrowing authority), even though, under statute, it is restricted to borrowing $3B each year. In reality, on October 1, 2019, USPS would have had access to $11.8B (the same $8.8B of cash + $3B of borrowing authority).

Postal Revenue, Mail Volume, and Operating Expenses

The PAEA, for the first time, provided a definition of the term postal service. Under the PAEA, postal service is defined as "the delivery of letters, printed matter, or mailable packages, including acceptance, collection, sorting, transportation, or other functions ancillary thereto."⁴⁶ This definition is significant because it prevents the Postal Service from developing new nonpostal products (e.g., expanded banking and financial services) that could compete with private industry.⁴⁷

The PAEA also changed how postal rates are established and divided postal products into two distinct groups: market dominant products and competitive products.⁴⁸

Prior to the passage of the PAEA, there was concern that the USPS was using its revenue from market dominant products to subsidize the costs of competitive products. Cross-subsidization could provide an advantage for the USPS in the competitive market by creating artificially low prices that did not include all the costs attributable to those products. The PAEA addressed this issue by forbidding the subsidization of competitive products with market dominant revenue and establishing the Competitive Products Fund (CPF), which receives deposits from the Postal Service Fund for revenue derived from the sale of competitive products.⁴⁹

Postal Revenue

In FY2021, overall revenue from postal products and services was $77.1 billion, which was an increase of nearly $3.8 billion (or 5.2%) from FY2020.⁵⁰ The increase was due in large part to revenue from competitive products, though market dominant products had a modest revenue increase of 0.4%. In FY2021, revenue generated from the sale of market dominant products accounted for approximately 55% of USPS's annual operating revenue.⁵¹

As shown in Figure 2, total revenue from market dominant products was $42.68 billion in FY2021, an increase of about $149 million from FY2020. Total revenue from competitive products was about $34.39 billion in FY2021, an increase of $3.7 billion (or 12%) from FY2020.

Figure 2. USPS Revenue, by Mail Category, FY2020-FY2021 In billions of dollars

Source: U.S. Postal Service, Final Revenue, Pieces, and Weight by Classes of Mail and Special Services for Fiscal Year 2021, November 12, 2021, https://about.usps.com/what/financials/revenue-pieces-weight-reports/fy2021.csv (hereinafter USPS, FY2021 RPW)

Historically, competitive products have constituted a much smaller share of USPS revenue than market dominant products, though that sector's share of revenue has more than tripled in the past 10 years, from 14% of revenue in FY2011 to 45% in FY2021.⁵² Competitive products account for a larger proportion of USPS revenue than they do of USPS volume. As shown in Figure 3 below, in FY2021, competitive products represented approximately 6% of mail volume, but they accounted for approximately 45% of USPS revenue.

Figure 3. USPS Products' Contribution to FY2021 Volume and Revenue Market Dominant and Competitive

Source: USPS, FY2021 RPW.

While market dominant products made up 94% of USPS's FY2021 volume, they generated less revenue per piece ($0.35) than competitive products ($4.73).⁵³

As previously explained by the USPS, since competitive products represent a relatively small percentage of total mail volume, growth in shipping and packages might not offset the decline in market dominant products:

Because Shipping and Packages represents only 20.3% of our 2014 operating revenue, compared to First-Class and Standard Mail [now, Marketing Mail], which represents 67.5% of operating revenue, revenue growth in Shipping and Packages, by itself, cannot fully offset the declines in First-Class Mail. Furthermore, the profit margins on both First-Class Mail and Standard Mail are greater than that of Shipping and Packages. As a result, revenue from Shipping and Packages would have to grow at a substantially higher rate than the decline in First-Class Mail revenue in order to replace the lost profit contribution of First-Class Mail.⁵⁴

The processing and delivery costs for competitive products, such as First-Class Package Service or Priority Mail, are greater than those of most market dominant products. For this reason, USPS's competitive products might be sold at a lower margin than their market dominant counterparts, meaning that a lower percentage of competitive product revenue is retained as profits for the USPS.⁵⁵

Mail Volume

Between FY2019 and FY2020, mail volume for market dominant products dropped by 14.85 billion pieces. There were declines across nearly all market dominant products, with the exception of presort cards and select parcel services, such as library and media mail. Market dominant mail volume continued its decline in FY2021, but at a smaller overall rate of 0.4% due to gains in marketing mail volume. Single-piece letters, cards, flats, and periodicals all experienced volume declines ranging from 2.2% to 10.4%.

Competitive products performed better than market dominant products in FY2021, with a total increase of 125 million pieces (or 1.8%). However, this is considerably less than the 26.9% increase in competitive volume between FY2019 to FY2020, which USPS attributed to the surge in e-commerce due to the COVID-19 pandemic.⁵⁶ Mail volume gains for competitive products were 10.8%, 13.5%, 13.3%, and 16.3% in FY2018, FY2017, FY2016, and FY2015, respectively. Figure 4 shows the mail volume for market dominant and competitive products for FY2020 and FY2021.

Figure 4. Market Dominant and Competitive Mail Volume, FY2020-FY2021 In billions of pieces

Source: USPS, FY2021 RPW.

Long-Term Trends

Total mail volume and revenue have either been consistent or in decline for the past 15 years. Periods of decline have been driven largely by reductions in market dominant mail volume and revenue, which has dropped sharply since FY2007 (see Figure 5).⁵⁷ The decline in market dominant volume has been driven by a variety of economic factors and long-term market trends, such as transition to electronic mail, that have altered the public's use of the postal service for more than a decade.

Figure 5. Market Dominant Revenue and Volume, FY2007-FY2021 In billions of dollars (revenue) and pieces (volume)

Sources: Figure created by Congressional Research Service (CRS) using data from USPS, FY2021 RPW and U.S. Postal Service "Decade of Facts and Figures," at https://facts.usps.com/table-facts (hereinafter USPS, Decade of Facts).

Figure 6. Competitive Revenue and Volume, FY2007-FY2021 In billions of dollars (revenue) and pieces (volume)

Sources: Figure created by CRS using data from USPS, FY2021 RPW and USPS, Decade of Facts.

As shown in Figure 6, growth in both competitive product volume and revenue has likely offset some of the revenue lost from the decline in market dominant products. Figure 7 below shows USPS's total annual mail volume and operating revenue for FY2005 through FY2021.

Figure 7. Total USPS Mail Volume and Revenue, FY2005-FY2021 In billions of dollars (revenue) and pieces (volume)

Sources: Figure created by CRS using data from USPS, FY2021 RPW and USPS, Decade of Facts.

From FY2005 to FY2021, total annual mail volume dropped 82.8 billion pieces. The drop was largely due to volume lost in market dominant products. Total annual operating revenue experienced a significant decline from FY2008 to FY2009, likely due to the economic recession, but has grown modestly over the past decade and was at about the same point in FY2021 ($77.1 billion) as it was in FY2007 ($74.7 billion). While total annual volume remained in decline after FY2012, total annual revenue began to recover. By FY2015, total annual revenue was $68.9 billion, or $1 billion below what it had been in FY2005, due in part to a temporary increase in market dominant prices.⁵⁸ Between FY2016 and FY2017, revenue decreased slightly at the same rate as volume. Since FY2017, revenue has increased an average of about 0.5 billion per year, possibly due to rate increases that went into effect in January of each year.⁵⁹ By the end of 2019, total annual revenue was $71.1 billion, or $1.2 billion above what it was in FY2005.

Operating Expenses

To address its financial challenges, the USPS has made several operational adjustments intended to align its revenue, mail volume, and operating expenses, including

• changes to its workforce (e.g., increased use of non-career employees);
• consolidation of delivery routes and reductions in number of delivery facilities;
• reductions to retail office hours; and
• realignment of its mail processing and distribution network.⁶⁰

For FY2021, USPS's total operating expenses, including retiree health, workers' compensation, and pension costs, were about $82 billion. Table 3 provides a further breakdown of expenses for FY2020 and FY2021.

Each fiscal year, roughly 60% of the USPS's operating expenses are attributable to personnel costs, through salaries, compensation benefits, workers' compensation, and retiree benefits—excluding the retiree health prefunding payments.⁶¹ For FY2021, personnel-related expenses were $50 billion, an increase of about $1.4 billion (or 2.8%) from FY2020.⁶² The largest line-item for personnel costs is salaries, which account for nearly all of the $1.4 billion increase to personnel-related expenses.⁶³ From FY2010 to FY2014, the costs for salaries and other compensation decreased steadily. USPS spent $35.1 billion on these costs in FY2014 and $37.5 billion in FY2010, with expenditures dropping an average of $600 million each year.⁶⁴ These reductions have been driven by a number of USPS management decisions, including the use of voluntary separation incentives and the increased reliance on non-career employees. This trend, however, reversed in FY2015 when USPS's salaries and compensation costs increased by 2.3% to $35.9 billion. The USPS attributes the increased costs to "contractually obligated salary escalations and additional work hours associated in part with the growth in the more labor-intensive Shipping and Packages business."⁶⁵

The USPS has not seen significant reductions in non-personnel costs in recent years. For the period from FY2015 to FY2021, total non-personnel related expenses have been about $15 billion to $19 billion annually.⁶⁶ The largest non-personnel expenses are transportation costs. The USPS spent $9.7 billion for transportation in FY2021, largely on contracts for air, ground, and water transportation of the U.S. mail.⁶⁷ Additionally, USPS notes in its FY2020 financial statement that COVID-19 travel restrictions led to limitations on commercial air carrier availability and increased air transportation costs for the Postal Service.⁶⁸ Fuel expenses are also included under transportation, but they comprise a relatively small portion of costs.⁶⁹ The other non-personnel expenses for FY2021 include supplies and services ($2.9 billion), rent and utilities ($1.8 billion), and depreciation of USPS assets ($1.7 billion).⁷⁰

Postal Retiree Health and Pension Benefits

Eligible postal employees and retirees receive health care coverage through the Federal Employees Health Benefits (FEHB) Program.⁷¹ Additionally, the Postal Service participates in the Civil Service Retirement System (CSRS) and Federal Employees Retirement System (FERS) retirement plans, which provide a defined benefit to eligible postal retirees.⁷² The Postal Service provides pension benefits to about 699,000 postal retirees and survivors and health benefits to approximately 499,000 postal retirees and eligible family members.⁷³

The Postal Service is required to make annual payments to cover the employer costs for future retiree health and pension benefits attributable to active employees' current year of service, referred to as "normal costs." Additionally, USPS must make annual amortization payments to pay down the unfunded liabilities for retiree health and pension benefits. Table 4 below lists the normal cost and amortization payments for FY2017-FY2021.

Since FY2017, USPS has made its required payments for FERS normal cost, but has defaulted on its FERS and CSRS amortization payments and its PSRHBF normal cost and amortization payments (shown in bold in Table 4). According to the Postal Service, this was necessary to maintain their liquidity and ability to pay other expenses.

Retiree Health Prefunding Payments

The PAEA requires the USPS to prefund its retiree health benefits.⁷⁴ To accomplish this task, the PAEA established a ten-year prefunding schedule (from FY2007-FY2016).⁷⁵ Under the PAEA, the USPS was to make statutorily prescribed prefunding payments into the Postal Service Retiree Health Benefits Fund (PSRHBF), which is an on-budget account in the U.S. Treasury. Pursuant to the PAEA, the USPS payments to the PSRHBF are to be derived from operating revenue held in the Postal Service Fund. The statutorily prescribed prefunding payments, shown in Table 5, ranged from $5.4 billion to $5.8 billion annually.

Since the prefunding payment schedule began in FY2007, the USPS has made a total of $17.9 billion in payments into the PSRHBF. USPS has made three of its annual payments in full—FY2007, FY2008, and FY2010. Congress reduced the FY2009 payment owed from $5.4 billion to $1.4 billion, which the USPS paid.⁷⁶ USPS also transferred $2.958 billion into the PSRHBF in FY2007 from a USPS escrow account that was set up in 2006, per the terms of the Postal Civil Service Retirement System Funding Reform Act of 2003 (P.L. 108-18, Sec. 3, "Disposition of Savings Accruing to the United States Postal Service"),⁷⁷ which brings their total contributions into the PSRHBF to $20.9 billion. As of September 30, 2021, the balance in the PSRHBF was $39.1 billion.⁷⁸

Since FY2011, the USPS has defaulted on its annual payments, which total $33.9 billion.⁷⁹ USPS's prefunding payments to the PSRHFB are listed in Table 5 below.

The statutorily prescribed payments concluded in FY2016. Starting in FY2017, the USPS is no longer required to make pre-funding payments and is permitted to access funds from the PSRHBF to pay for its current retirees' health benefits. Instead of the prefunding payments, since FY2017 the USPS is required to make payments to fund the estimated normal costs of retiree health benefits and amortization payments of USPS's remaining unfunded liability.⁸⁰

Legislative Proposals

The prefunding policy has been a contentious issue. Proponents argue that prefunding protects future customers of the USPS and taxpayers by ensuring that they will not need to finance retirement benefits currently incurred by the USPS. However, according to the USPS, the prefunding requirement has contributed "significantly" to its financial losses.⁸¹ In its FY2018 financial statement, the USPS reiterated its pursuit of legislation that would allow the USPS to change how it offers health insurance to its employees and retirees. The USPS argues that such changes would "eliminate any necessity for the [PSRHBF] prefunding requirement.... "⁸² The changes would require statutory authorization from Congress.

Two bills introduced in the 117^th Congress would, if enacted, repeal the requirement that the USPS prepay future retiree health benefits. H.R. 695 and S. 145, the USPS Fairness Act, would each repeal subsection (d) of 5 U.S.C. §8909a, which includes the prefunding schedule shown in Table 5. This would eliminate the $33.9 billion in defaulted prefunding payments from the USPS's financial accounts. If enacted, the USPS could continue to pay its contributions for eligible retiree health premiums from the fund until it is depleted of resources, which is estimated to occur by FY2030.⁸³ The bill, however, would not alter or alleviate the USPS's future retiree health liabilities.⁸⁴

H.R. 3076, the Postal Reform Act of 2022,⁸⁵ includes an expanded version of the USPS Fairness Act as well as other provisions that may reduce the USPS's future retiree health liabilities by requiring eligible postal retirees to enroll in Medicare as part of their health coverage. Additionally, the bill would establish a new mechanism for calculating USPS's future payments into the PSRHBF, based on the amount (if any) that USPS's contributions for retiree health premiums paid from the PSRHBF exceeded the estimated net claims costs of enrollees. The bill was reported out by the House Committee on Oversight and Reform in July 2021 (H.Rept. 117-89, Parts I and II), and was passed by the House on February 8, 2022.

Postal Delivery Standards

The USPS's delivery standards are performance goals that reflect "the number of days after acceptance of a mail piece by which the sender and recipient can expect it to be delivered."⁸⁶ Delivery standards differ for each mail class and product. Since 2012, the Postal Service has phased-in revisions to its delivery standards for market dominant products.⁸⁷

Under new regulations that went into effect on October 1, 2021, the USPS adjusted its service standards on select market-dominant products, specifically First-Class Mail and Periodicals. Service standards reflect USPS's estimate of the amount of time it will take to deliver a piece of mail. The new standards increase the target in-transit time for delivery by 1-2 days. While some market dominant mail will be unaffected, USPS expects that approximately 40% of First-Class Mail (particularly that which travels longer distances) will be subject to an adjusted standard that is 1-2 days greater than the previous standard. Most local First-Class Mail (i.e., mail traveling three hours or less by ground) will keep its 2-day standard. Prior to revisions implemented in 2015, First-Class mail sent within a certain geographical boundary was generally guaranteed to be delivered overnight.⁸⁸

As shown in Table 6, the end-to-end range for First-Class Mail within the contiguous United States is 1-5 days, while the end-to-end range for Periodicals is 3-9 days and, for Marketing Mail, 3-10 days. ⁸⁹ Within the end-to-end ranges, USPS adjusted its distance-based business rules for First-Class Mail and Periodicals, increasing the number of days for mail with delivery drive times exceeding 20 hours.

USPS also increased the end-to-end ranges 1-2 days for First-Class Mail and Periodicals traveling within and to/from noncontiguous states and territories, such as Puerto Rico and Guam. Standards for Marketing Mail and Package Services were unchanged.

The delivery standards are not, however, a guarantee of specific delivery times. Based on the delivery standards, the Postal Service sets "Service Performance Targets," which are the percentage of time it expects to meet its delivery standards. USPS's adherence to its service standards is measured against those performance targets.

Table 7 shows FY2021 service performance targets and the USPS's actual percent on-time score for select categories of market dominant mail. Actual percent on-time scores that fail to meet the percent on-time service performance targets are shown in bold. Those that are more than 10 percentage points below the percent on-time performance targets are in bold and underlined.

In FY2021, USPS met or exceeded its percent on-time performance targets for Single-Piece letters (2-day) and Marketing Mail Destination Entry. USPS did not meet its performance targets for most other types of market dominant mail. While performance generally improved in the 3^rd and 4^th quarters of the fiscal year, in many instances USPS's annual on-time performance was below the targets. Performance for Periodicals, Marketing Mail, and Single-Piece International Mail was more than 10% below the USPS's targets.

In the FY2020 Annual Compliance Report, the USPS attributes its performance issues to (1) winter weather storms, (2) insufficient air transportation capacity, and (3) staff realignments and other issues related to the network rationalization initiative.⁹⁰ USPS has argued that the revised standards will enable them to shift long-range delivery of select market dominant mail products to ground transportation (from air transportation), which they state is more reliable, less costly, and less subject to service delays than air transportation.⁹¹

Postal Processing and Delivery Network

The revised delivery standards discussed above are part of the USPS's broader initiatives to modernize its processing and delivery network to handle ongoing changes to mail volume.⁹² These initiatives involve consolidation and realignment of operations at select mail processing facilities, which USPS terms Area Mail Processing (AMP). In its AMP guidance, the USPS states "mail and packages require different machinery, processes and space allocations in terms of scope and physical location." ⁹³ USPS argues that changes to its processing network are necessary to (1) address recent changes to mail volume (i.e., decreases in first-class mail volume and increases in package volume) and (2) improve the efficiency of the overall postal delivery network.⁹⁴

Six- to Five-Day Delivery Schedule⁹⁵

One reform that the USPS proposed in its previous Five-Year Business Plan was to move from delivering mail six days a week (except Sunday) to five days a week (except Saturday and Sunday) for all or most classes of mail, including first-class mail and marketing mail.⁹⁶ To maximize revenue from the competitive portion of its product line, however, USPS proposed maintaining six-day delivery of packages, or further expanding its Sunday package delivery services.⁹⁷

Opponents of reducing USPS's delivery days argue that it will have a negative effect on postal delivery standards, which—according to the PRC's FY2015 Annual Compliance Report—have already suffered following the closure and consolidation of postal processing facilities from 2021-2015.

According to economic estimates prepared for the PRC, shifting to five-day delivery of mail while maintaining Saturday delivery of packages would increase revenue by an estimated $912 million to $1.677 billion.⁹⁸ The estimated net profit may vary due to customer behavior. For example, if post offices close on Saturdays, some customers may mail fewer items or choose another service for shipping packages, leading to lost revenue in competitive products. If, however, post offices remain open on Saturdays, there may be additional operational costs, even if they do not sort or deliver mail. Further, the Postal Service may incur additional labor costs due to increased mail volume on Mondays.⁹⁹ The PRC report based its estimation on a model where post offices remained open on Saturdays but did not sort or dispatch letter mail.¹⁰⁰ Under this scenario, the PRC report estimated that the annual net savings to the Postal Service would be between $625 million and $1.393 billion.¹⁰¹

Post Office Closures and Reduction of Operating Hours

Another reform from its previous Five-Year Business Plan was a proposal to reduce retail post office hours to better align them with estimates of operational demand.¹⁰² In 2012, the USPS announced a plan to reduce hours at 13,000 "low foot traffic" U.S. Post Offices in rural communities. The Post Office Structure Plan, commonly referred to as the "POStPlan," is, according to the USPS, an initiative intended to prevent closures of postal retail facilities by reducing operational hours at selected locations. According to communications from the PRC, most POStPlan facilities are small and often in rural areas, though neither term (i.e., "small" or "rural") has been defined by either the USPS or the PRC for the purpose of identifying specific retail postal facilities.¹⁰³

Table 8 below provides data on the number of USPS retail facilities in existence at the end of each fiscal year from FY2010 through FY2021.¹⁰⁴

Figure 8. USPS Retail Postal Facilities FY2005-FY2021

Source: Figure created by CRS using data from USPS, Decade of Facts. Notes: "Total retail post offices" includes contractor-owned-and-operated postal facilities.

Legislative Reforms

USPS revised its service standards for market-dominant mail products in 2012 as part of its broader Network Rationalization initiative,¹⁰⁵ and multiple bills have been introduced since instructing USPS to roll back standards to those that were in place before the revision. For example, in the 117^th Congress, expresses the sense of the House that USPS should "take all appropriate measures to restore service standards [to those] in effect as of July 1, 2012."¹⁰⁶ Additionally, S. 1678 and H.R. 2230, the Delivering Envelopes Judiciously On-time Year-round Act (or "DEJOY Act") would require USPS to adopt service standards for First-Class Mail that were in effect on January 1, 2021.¹⁰⁷

Postal Workforce

USPS's challenging financial circumstances have prompted the agency to implement several cost-cutting strategies, one of which has been to reduce the size and cost of the USPS workforce. The sections below discuss three USPS initiatives to reduce its workforce size and cost: (1) attrition and separation incentives, (2) increased use of non-career employees, and (3) non-personnel initiatives that could impact workforce size and cost. The sections focus on implementation of these three initiatives since FY2007, at which time the USPS began to experience substantial revenue losses.

Size and Cost of the Postal Workforce

The USPS has reduced its workforce size through voluntary attrition and separation incentives.¹⁰⁸ The total number of USPS employees declined about 20% between FY2007 and FY2020, from about 786,000 to 644,000 employees.¹⁰⁹ To increase the voluntary attrition rate, the USPS has offered certain employees separation incentives to resign or retire early, which have ranged from $10,000 to $20,000 per person.¹¹⁰ Between FY2007 and FY2018, 57,617 employees accepted a separation incentive (Table 9).

The USPS has also utilized separation incentives to avoid or minimize reductions in force (RIFs), which involve involuntary employee layoffs upon the abolishment of agency positions.¹¹¹Many of the separation incentives offered between FY2012 and FY2018 were associated with various postal facility closure and consolidation initiatives.¹¹²

Use of Non-Career Postal Employees

The USPS categorizes its workforce into two employee types: career and non-career. Career employees serve in permanent positions and are typically provided full federal benefits.¹¹³ Non-career employees, in contrast, serve in time-limited or otherwise temporary positions. In many cases, non-career employees earn lower wages and are not provided benefits that are provided to career employees. For example, non-career employees are not eligible for federal life insurance and are not covered under the Federal Employees Retirement System (FERS).¹¹⁴

The USPS has, at times, increased its use of non-career employees in an effort to contain costs. For example, the number of non-career employees grew by 28% between FY2007 and FY2014, from 101,167 to 129,577. The number of career employees, in contrast, decreased by 28% over the same time period, from 684,762 to 488,300. Between FY2011 and FY2014, the use of non-career employees increased by 46.1% (40,878 employees).¹¹⁵ The influx of non-career employees during that period was primarily attributable to the establishment of three new non-career positions: Postal Support Employees (PSEs), City Carrier Assistants (CCAs), and Mail Handler Assistants (MHAs).¹¹⁶ Employees in these three positions constituted 51% of the USPS non-career workforce in FY2014.¹¹⁷

From FY2015 to FY2019, the USPS continued its use of non-career employees. In recent years, however, the USPS has also converted thousands of non-career employees to career status. For example, in FY2019 and FY2018, the USPS converted approximately 36,000 and 35,000 employees from non-career to career status, respectively, due to operational needs and contract agreements.¹¹⁸ At the end of FY2019, the total number of non-career employees was 136,174 and the total number of career employees was 496,934.¹¹⁹ The trend also continued with PSEs, CCAs, and MHAs, and employees in these three categories now constitute approximately 55% of USPS's non-career workforce.¹²⁰

According to the USPS, non-career employees can reduce the overall costs of certain agency functions.¹²¹ Non-career employees can often perform the full range of duties undertaken by their career counterparts at lower wage rates. For instance, non-career CCAs can perform the duties of career city letter carriers while receiving a lower starting hourly rate.¹²² The wage difference between CCAs and city letter carriers is greater after accounting for benefits and overtime, according to a 2014 Government Accountability Office (GAO) report.¹²³ In addition, the USPS OIG reported that non-career employees could be used in place of career employees earning overtime and thus could reduce compensation costs.¹²⁴

The USPS's use of certain non-career employees is governed by postal labor union contracts, which limit the total number of non-career employees that can comprise the USPS workforce, and the USPS's ability to maintain or increase its use of certain non-career employees will depend on contract negotiations. Union contracts limit the number of non-career employees that can be used for certain functions, often within certain pay periods or within certain locations. Exceptions to the non-career limitations are generally made for high-volume pay periods, such as those that fall within the holiday shipping season, or under emergency circumstances. For example, the collective bargaining agreement between the American Postal Workers Union (APWU) and the USPS limits the number of non-career PSE mail processing employees to 20% of career staff.¹²⁵ Similarly, the 2019-2022 National Postal Mail Handlers Union (NPHMU) agreement limits the number of non-career mail handler assistants who may work at an installation to 24.5% of total number of career mail handlers, but exceptions are permitted during two select accounting periods (such as the month of December), and for emergencies.¹²⁶

Lower caps on the percentage of non-career employees might have implications for the size and cost of the USPS's workforce. According to a 2014 GAO report, the USPS asserted that it was close to reaching current caps on non-career employees.¹²⁷ Lower caps, therefore, might require the USPS to reduce the number of non-career employees, which might prompt changes to the agency's workforce composition in ways that might increase personnel costs. For instance, compensation costs might increase if the USPS increases the number of career employees to comply with lower caps, either through additional hires or transitioning non-career employees to career positions. Alternatively, overtime pay costs might increase if the USPS reduces the number of non-career employees that were being used in place of career employees earning overtime.

Impact of Workforce Initiatives on Costs

The USPS's initiatives to reduce the size and cost of its workforce have reportedly contributed to lowered compensation expenses in past years. For example, the USPS's total compensation costs decreased $526 million from FY2013 to FY2014, and the PRC found that 36.1% of the decreased amount ($190 million) resulted from increased use of non-career employees and a decrease in employee work hours.¹²⁸ These trends have reversed in recent years as the USPS has converted greater numbers of non-career employees to career status. For example, the USPS's total compensation costs increased $3.5 billion from FY2015 to FY2019 (from $44.0 to $47.5 billion). The USPS notes in its FY2019 financial statement that workforce numbers remained relatively flat in FY2019, and that the increased compensation costs are attributable to contractual wage adjustments, including general cost of living adjustments, increased work hours, and increased overtime costs.¹²⁹

Further Postal Reform Issues for Congress

Postal Fleet

The Postal Service maintains a fleet of 232,368 vehicles, including over 200,000 mail delivery vehicles.¹³⁰ However, many of the USPS's delivery vehicles are older than the expected service life and the USPSOIG notes that nearly 70 percent of USPS's mail delivery vehicles are between 25 and 32 years old.¹³¹

To replace its aging fleet, in October 2015, the USPS issued a Request for Proposal (RFP) seeking a qualified supplier to design and manufacture six "fully functional" prototypes for Next Generation Delivery Vehicles (NGDVs).¹³² Following a five-year process, which involved the development and testing of prototypes, on February 23, 2021 the USPS awarded a ten-year contract to Oshkosh Defense, LLC to produce 50,000 to 165,000 NGDVs.¹³³ The first NGDVs are expected to be available for mail carriers beginning in 2023.¹³⁴

USPS's Ten-Year Plan, Delivering for America, includes a commitment to transition to an electric mail delivery fleet by 2035, with "the right level of Congressional support."¹³⁵ The Postal Service estimates that approximately $8 billion is needed to transition their mail delivery fleet to electric vehicles.¹³⁶ Several bills have been introduced in the 117^th Congress that would provide the USPS with funding for electric vehicles. For example, H.R. 3521, the Postal Service Electric Fleet Authorization Act of 2021, would, if enacted, authorize $8 billion in appropriations to the USPS for the acquisition of electric vehicles and charging stations.¹³⁷ Similarly, H.R. 1636, the Postal Vehicle Modernization Act, would authorize $6 billion in appropriations for electric vehicles and charging stations.¹³⁸

Nonpostal Products and Services

The PAEA defines postal services as "the delivery of letters, printed matter, or mailable packages, including acceptance, collection, sorting, transportation, or other functions ancillary thereto" and prohibits the USPS from offering all but a limited number of excepted nonpostal products and services.¹³⁹ This restriction prevents the Postal Service from offering or developing new nonpostal products (e.g., expanded banking and financial services) or expanding into new markets that might increase its market share and revenue.¹⁴⁰

Under the PAEA, the Postal Service is currently authorized to offer 11 nonpostal products and services, including two market dominant and nine competitive products.¹⁴¹ The two market dominant products are

• USPS/public sector alliances, e.g., MoverSource, which allows the USPS to provide free change-of-address services by including moving tips and related advertisements;¹⁴² and
• philatelic sales intended for stamp collectors, e.g., uncut press sheets, framed stamps, binders for storing stamps, and philatelic guides.¹⁴³

The nine competitive products are

• private sector advertising on USPS.com, within U.S. post offices, or in other postal venues;
• licensing of USPS's copyrights and trademarks;
• mail service promotions, which "allow merchants who offer web-based customers the ability to create mail pieces through an online service." Prices for these products are negotiated between the merchant and the Postal Service;
• sale of officially licensed USPS retail products;
• U.S. Passport photo services;
• photocopying services;
• rental, leasing, and non-sale of USPS property;
• use of USPS training facility and courses; and
• the USPS Electronic Postmark (EPM) program, which "authorizes vendors to provide their customers with Postal Service-authorized timestamps."¹⁴⁴

In FY2020, net revenue from competitive nonpostal products were $96 million, which is a decrease of approximately 14% from FY2019.¹⁴⁵ Select postal reform legislation introduced in recent Congresses would provide the USPS with authority to offer additional nonpostal products and services. For example, H.R. 3076, if enacted, would allow the USPS to provide certain nonpostal products and services to state, local, or tribal governments if the reimbursement for the product or service sufficiently covers the USPS's costs.¹⁴⁶

In previous Congresses, postal reform legislation was introduced that would have expanded USPS's authority to offer nonpostal products and services, such as

• public Internet access;¹⁴⁷
• drivers' license services;¹⁴⁸
• hunting and fishing license services;¹⁴⁹
• voter registration;¹⁵⁰ and
• postal banking and financial services.¹⁵¹

Postal Banking

Until 1965, the USPS offered a government-backed savings system to its customers.¹⁵² Established by Congress in 1910, the Postal Savings System provided postal customers with a safe and convenient place to deposit money.¹⁵³ In recent Congresses, bills have been introduced that would provide the USPS with authorization to reinstitute postal banking, often as a means to expand financial services to underbanked communities.¹⁵⁴

In 2015, the USPSOIG published a white paper that explored a range of possible postal banking approaches, ranging from the limited expansion of USPS's existing money order, cash checking, and debit card products and services to the establishment of a licensed USPS bank, with authority to take deposits, issue loans.¹⁵⁵ The Postal Service began a financial services pilot program in 2021, which is similar in scope to the limited expansion of services proposed by the USPSOIG.

On September 13, 2021, the USPS pilot program was launched at the following post office retail locations:

• Baychester Post Office, Bronx, New York;
• Bailey Crossroads Post Office, Falls Church, Virginia;
• National Capital (Dorothy Height) Post Office, Washington DC; and
• Baltimore Post Office, Baltimore, Maryland.

According to a statement from the USPS, there are no costs associated with the pilot aside from the "very minimal expense" for signage at the four post offices.¹⁵⁶ USPS notes that no appropriated funds were used for the pilot and that the cost of the signage was paid for out of the Postal Service Fund.¹⁵⁷

The pilot program allows customers to purchase a gift card using a payroll or business check. To qualify, the check must be made out to the customer and have the company name preprinted on the check.¹⁵⁸ In response to a request for program details, the USPS filed a report on the pilot with the PRC. According to the filing, six gift cards have been issued under the pilot with an average value of $91.41.¹⁵⁹ The total fee revenue for the six cards is $35.70. USPS stated that "although we are considering potential next steps for this initiative, no decisions or definitive plans regarding terminating, changing, or expanding the pilot have been made."¹⁶⁰

Selected provisions in FY2022 appropriations acts would provide the USPS with funding to expand and continue its financial services pilot program. H.R. 4345, the Financial Services and General Government Appropriations Act, 2022, would provide $58.57 million for the Postal Service Fund, which is $6 million above USPS's budget request. According to the accompanying report, the additional $6 million is to be used by USPS to carry out non-bank financial services pilot programs in at least five rural and five non-rural ZIP codes "to the fullest extent permitted under current statutory authority."¹⁶¹ A proposed FY2022 appropriations measure would also provide $58.57 million for the Postal Service Fund, though it does not state whether the additional $6 million is for postal financial services pilot programs.¹⁶² Similar language was considered, but not enacted, in FY2021, as part of the Consolidated Appropriations Act, 2021.¹⁶³ The report accompanying the Financial Services and General Government Appropriations Act, 2021, encouraged the USPS to carry out postal banking pilot programs in "at least one urban zip code and at least one rural zip code."¹⁶⁴