Imagine this: your cousin lends you $1,200 to start a little business and you have 42 years to pay him back, interest free, at $29 a year. No penalties kick in if you don’t pay him each year and there’s no interest on the debt. 

In the 1990s, Congress arranged that type of deal with the U.S. Postal Service.

How’s that, you say? Well, it’s complicated, as most things involving the federal budget and the Postal Service tend to be. Our recent white paper walks readers through the history of the revenue forgone reimbursement, as this quirky little payment schedule with big implications is called. 

When Congress reorganized the Postal Service in 1970, it promised to appropriate funds to pay the difference between the special rates it mandated for certain types of mail it considered socially valuable (such as nonprofit mailings, reduced postage for libraries, and free mail for the blind) and regular postage. These funds represented what was known as “revenue forgone” because the Postal Service, as a self-sustaining entity, was forgoing money it would ordinarily receive. 

Things chugged along until the early 1990s when Congress had second thoughts. At the same time, it refused to allow the Postal Service to raise rates for these mail types, as allowed under law. Losses on revenue forgone began to mount. 

Congress attempted to resolve the issue with the Revenue Forgone Reform Act of 1993. The discounts and the number of eligible groups were reduced with the remaining costs passed on to other mailers. Only free mail for the blind and overseas voters would continue to be covered by appropriations. To pay the Postal Service back for the unpaid revenue forgone – a total $1.2 billion – the law established a 42-year, interest-free repayment schedule of $29 million annually.

The Postal Service received the payments consistently from 1994 to 2010, but starting in fiscal year 2011, payments were reduced or skipped for the next 4 years. The Office of Management and Budget has proposed ending the payments. While payments resumed for 2015 and 2016, $105 million is past due. And there is no guarantee the remaining payments will be made. In total, the Postal Service is owed $656 million. If interest were included, this would be $1.6 billion.

Although the annual $29 million amount is small, consistent payments are important to the Postal Service’s bottom line. If Congress were to again stop payments, the Postal Service may be forced to conclude that repayment is unlikely and declare the amount it has booked as bad debt — as required under accounting principles. One solution may simply be to net the amount the Postal Service is owed against its own debt ($15 billion it has borrowed from Treasury Department) to the Treasury. This would end the complication of the $29 million payments for appropriators and the Postal Service.

In the grand scheme of postal finances, the revenue forgone payments might seem like an obscure footnote in the financial statements. But they are symptomatic of a larger problem: How the Postal Service’s finances can get caught up in federal budget concerns, preventing it from operating in a businesslike way.

What do you think? Are entanglements with the federal budget a problem for the Postal Service? If so, what’s the best way to deal with the issue?

Comments (6)

  • anon

    I move my mailbox to left side of my driveway.The mailbox meets all regulations.The postman refuses to deliver my mail cause he/she cant use my driveway as a turn around.They can turn around at the end of my road but wont to use my driveway .My driveway was being abuse and they would drive through my lawn at times to turn around.Now my mail is on hold until i let them use my land as a turn around.If i get a po box and put up a gate will the uspo make everyone on my street move there box to the right and use there land as turn around.There plenty of room at the end of our road for them to turn around.This is very unprofessinal and lazy of the postman not to mintion i have to go 20 miles to pick up my mail.We pay for a mail service i am not paid for uspo to use my land as a turn around.I hope this can be resolved for i will not be bullied for the use of my private property

    Mar 05, 2016
  • anon

    Seems to me that the Postal Service should be brought back into the cabinet and lose its "independent" status. Mail service is a public function. Sure it's easy to get it to the city address but not so (and certainly more resources) to get it to the more rural areas. This is what government does--it provides services irrespective of profit. Congress wants to provide free mail to the blind and others, which is a fine (government) thing but seems to have problems allocating money to make it happen. That's a problem and if it stopped paying a private entity that would be a government default. Congress wants the Postal Service to prefund retirement, which the Postal Service can't seem to do. These funds aren't going into some lockbox for later use by the Postal Service, they are being spent. The best way for Congress to get its free delivery and for the Postal Service's revenue and for ensuring Saturday delivery AND for controlling the Postal Service like it wants to would be to bring it back into the cabinet and abolish it as an independent agency. That's the best way to deal with the "revenue foregone" issue.

    Mar 04, 2016
  • anon

    A few months back I reported all types of mail being tossed into our office recycling bin. Three weeks ago I showed my management some mailings in the recycling bin which included monthly circulars and first class mail. Management said it was not my business and laughed it off. I tried to tell them it was my business since I have to process this mail. A piece of mail belongs to the public and not to management and carriers are supposed to have the responsibility to deliver all types of mailings. Some of this mail is never taken to the streets. The carriers toss it into the recycling bin.H

    Feb 27, 2016
  • anon

    How about charging businesses the FULL cost of mailing advertising in bulk to regain revenue? Then you won't have to subsidize anything. This would save capacity, reduce labor hours, and best of all reduce landfill waste. I'm not expecting the cost of a stamp to go down, but at least I don't dump mail directly from the mailbox to the recycling container as often or as much!

    Feb 25, 2016
  • anon

    if the us post office would drop its union and its pension then it would actually be solvent, as it its doomed to die a slow death choked under a mountain of unsubstainable earmarks.

    Feb 22, 2016
  • anon

    I find it interesting the stoppage of payments coincides with the Obama administration, notorious for operating without actually passing a budget. Thus as each appropriation runs out, and "emergency" bill is passed to continue operations. This is clearly irresponsible behavior and further emphasizes the deterioration of the US government process. Ridden with debt ever growing, and no "road map" to follow, the USA is spiraling down towards a major recession. When the Congress, greedy for funds, attacks the Social Security System to bail them out with their constituent's money, things are bad. When the Executive Branch finally accepts responsibility to the people and administer funds via the budgetary process, perhaps such omissions won't be "swept under the rug" anymore.

    Feb 22, 2016