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?