February 22, 2016 (RARC-WP-16-004)

  • To reimburse the Postal Service for unpaid amounts for revenue forgone, Congress promised to pay the Postal Service $29 million a year from 1994 through 2035 without interest.
  • Starting in FY 2011, the $29 million payments were reduced or skipped for 4 years. They have now resumed, but there is a risk that payments could stop again.
  • If payments stop permanently, the Postal Service will have to declare a bad debt on its bottom line. One solution is to offset the remaining amount owed with interest, $1.6 billion, against the Postal Service’s current debt to the Treasury.

There is a long history of Congress requiring lower postal rates for certain postal services it believes should be supported such as reduced rates for nonprofit mailings and local newspapers and free mail for the blind. The 1970 Postal Reorganization Act continued many of these preferred rates. Congress pledged to pay for the difference in postage known as “revenue forgone” through appropriations. As time passed, however, the annual bill for revenue forgone began to seem increasingly costly to appropriators. In the early 1990s, as concerns about the budget grew, Congress stopped paying the full amount for revenue forgone.

The Revenue Forgone Reform Act was enacted in 1993 to fix the issue. Only free mail for the blind and overseas voters would continue to receive federal funds. Instead, rates for nonprofits and other preferred mailers would be partly increased, eligibility rules would be tightened, and other mailers rather than the federal budget would carry the remaining cost. To reimburse the Postal Service $1.218 billion for the shortfall of appropriations, Congress agreed to pay $29 million each year for 42 years without interest.

The installment payments were made regularly through 2010; however, in fiscal year 2011, the payment was reduced, and the next three payments were skipped altogether.  While payments resumed last year, the past due amounts of $105 million are still unpaid, and there is no guarantee that payments will continue. In total, the Postal Service is owed $656 million for the past due amounts and the remaining payments. If interest had been included, this unpaid amount would today be $1.6 billion.

Although the annual $29 million amount is small, receiving consistent payments is important for the Postal Service’s finances. If Congress stops making the payments, the Postal Service may be forced to conclude that repayment is unlikely. In that case, the Postal Service would be required under accounting principles to declare the amount it has already booked as a bad debt. This could have a material effect on the Postal Service’s bottom line.

One solution may be to offset the Postal Service’s $15 billion debt to the Treasury dollar for dollar by the remaining amount owed to Postal Service, using identical interest rates, $1.6 billion, or removing interest from both. This would eliminate the need for the revenue forgone installment payments to be part of the annual appropriations process, resolving a complication for appropriators, the Postal Service, and its auditors.

 

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Contributors

  • Nye Stevens and Renee Sheehy contributed to this report.

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