March 21, 2016 (RARC-WP-16-005)

  • Historically the purpose of the postal monopolies has been to ensure the Postal Service has adequate revenue to cover the cost of its universal service obligation.
  • The combination of the decline in letter mail and the price cap on monopoly products has challenged the ability of the monopolies to earn sufficient revenue.
  • The OIG looked at various funding alternatives and suggests three that are viable – monopoly with increased pricing flexibility, direct subsidy, and diversification.

Currently, the U.S. Postal Service has two legal monopolies — a monopoly on most letter mail and exclusive access to the mailbox. Historically, the purpose of these monopolies is to help ensure the Postal Service has adequate revenue to cover the cost of its universal service obligation (USO).  However, the combination of the steady decline in letter mail and the price cap on the monopoly products has begun to decrease the monopoly-related revenue. This, in turn, has eroded the ability of the Postal Service to fund its USO.

In this paper, we look at several USO funding alternatives and suggest three viable options that can be used alone or in combination. They are

  • the revenue from the current monopolies with greater pricing flexibility,
  • direct subsidies to compensate the Postal Service for specific targeted obligations, and
  • diversification, allowing the Postal Service to earn revenue from non-mail products and services.

Each of the alternatives has its own pros and cons, and policy makers will have to decide which alternative, or which mix of alternatives, is most suitable. For example, it may be possible to fix the funding issue by simply allowing the Postal Service to increase prices beyond the current price cap. However, if there is little tolerance for higher prices, price increases could be mitigated by using one or both of the other alternatives — direct subsidy and diversified revenue stream — in addition to more pricing flexibility. In conclusion, while there may be no one perfect funding mechanism for the USO, it may be possible to combine several alternatives to ensure that the Postal Service has sufficient revenue to cover the entire cost of the USO.

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Comments (4)

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  • anon

    Where can I find a copy of the current USO?

    Jan 13, 2017
  • anon

    It's funny how while their pre-funding healthcare for the next 75 years the past 9 years that I worked at the post office I haven't got $1 health care until this year. Let's be honest and explain that it's not pre-funding no health care and it's more an IOU to the treasury Department

    Sep 15, 2016
  • anon

    US Code Title 39 Section 101...

    Mar 22, 2016
  • anon

    I read the legislation and I have to say the USPS is NOT keeping up their part! They are failing miserably to perform the services that they are obligated to perform. Their customer service is terrible, can't even speak with a live person outside your local post office, so if you have a package issue out of state you are out of luck! I have a time sensitive package of live goods that were supposed to be delivered days ago, NEVER HAPPENED! It, as several other of my packages in the past are "lost in the system". That is not at all acceptable and we the people need to have access to live personnel who can investigate. We used to have access to that, but not anymore as it is all automated and refuses to let you speak with a live person. The next time the government plans on closing down the USPS, the government will have my full support!

    Mar 28, 2016