The Postal Revenue Forgone Appropriation: Overview and Current Issues
The Postal Revenue Forgone Appropriation:
Overview and Current Issues
Kevin R. Kosar
Analyst in American National Government
Government and Finance Division
When Congress put the U.S. Postal Service (USPS) on a self-sustaining basis in
1971, it continued to subsidize the mailing costs of such groups as the blind, non-profit
organizations, local newspapers, and publishers of educational material, by providing
an appropriation to USPS to cover the revenues that were given up, or “forgone,” in
charging below-cost rates to these groups. Appropriations for these subsidies mounted
as postage rates and the number of non-profits grew, approaching $1 billion annually in
the mid-1980s. Successive administrations sought to cut these costs by reducing
eligibility and having other mailers bear more of the burden. Congress failed to
appropriate enough to cover costs in the early 1990s, and refused as well to allow USPS
to invoke its statutory right to raise rates to cover the shortfall. USPS pleaded that
providing social subsidies was not part of its mission, hindered its competitiveness, and
was more regressive than taxation in its impact on the public.
The Revenue Forgone Reform Act of 1993 eliminated appropriations to support
reduced rates for non-profits, transferring the costs to other mailers. The act retained
free postage only for the blind and for overseas absentee balloting materials.
Appropriations for subsidizing that narrow purpose since then have been in the range
of $60 million to $100 million each year. Most of this has lately been provided as an
advance appropriation for the next fiscal year, a practice the Bush Administration termed
“misleading” in 2001. The 1993 act also provided for an annual payment of $29 million
each year for 42 years to pay off the debt accumulated in the early 1990s. Congress
appropriated this amount every year from 1994 through 2006, even though the
President’s FY2005 and FY2006 budgets proposed to eliminate the payment.
This report originally was authored by Nye Stevens, who has retired from CRS.
Readers may contact Kevin R. Kosar with questions on postal issues.
Each year since implementation of the Postal Reorganization Act (PRA) of 1970,
Congress has provided an appropriation to the U.S. Postal Service (USPS) to compensate
it for the revenues it would have collected if it had charged full postage to groups
Congress has chosen to subsidize. This report covers the concept of the revenue forgone
appropriation, an overview of the appropriations provided since 1972, changes brought
about by the Revenue Forgone Reform Act of 1993, and current issues regarding the
appropriation. It does not cover appropriations for emergency preparedness costs.
The Concept of Revenue Forgone
The PRA1 established the Postal Service as an independent entity with a mandate to
operate as a business and cover its expenses through postal revenues. Before then the
Post Office was an executive branch department and Congress was heavily involved in
such basic decisions as mail classes, postage rates, and annual wage increases. Postage
rates were set by law, and because raising them was politically difficult, the substantial
annual postal deficit — often as much as 25% of costs — was covered by appropriated
funds. There was a long history of especially favorable — even free — postage rates for
mailers providing educational materials, political discourse, services to the blind, and
other eleemosynary benefits.
With its business orientation and cost-recovery mandate, however, USPS was not
expected to provide social services or subsidies. Rather, Congress recognized its own
responsibility to appropriate specific funds for any subsidies, and to compensate USPS
for any revenues that it would normally be entitled to for providing the service (i.e., for
“forgoing” those revenues). As a fail-safe provision, 39 U.S.C.§ 3627 authorized USPS,
if Congress failed to appropriate funds to cover the costs of free or preferred rates for any
class of mail, to “adjust” its rates “so that the increased revenues received from the users
of such class will equal the amount for that class that the Congress was to appropriate.”
Thus, for example, if Congress failed to appropriate an adequate amount of money, USPS
could (and vowed it would) raise rates for non-profits, the blind, in-county newspapers,
or books to the full regular rate applicable based on the cost of service as verified by the
Postal Rate Commission.
USPS strongly opposed suggestions that it pick up subsidy costs. It argued that
shifting costs for social subsidies from the taxpayer to the mailing public was not only in
conflict with the USPS mission, it would hinder USPS’s efforts to meet competition, and
perhaps also be regressive compared to covering the same costs through taxation. USPS
suggested that the need to appropriate money would in turn force Congress to consider
more carefully the costs and benefits of each subsidy.2
Growth of Appropriations in Early Years
In the early years, a number of preferred rates carried over from the pre-PRA days.
Free mailing privileges were provided for the blind and visually handicapped, and for
balloting materials sent under the Uniformed and Overseas Citizens Absentee Voting Act.
1 P.L. 91-375; 84 Stat. 719; 39 U.S.C. 101 et seq.
2 U.S. Congress, House Committee on Appropriations, Subcommittee on the Treasury, Postal
Service, and General Government Appropriations, Treasury, Postal Service, and Generalrdst
Government Appropriations for Fiscal Year 1994, hearings, part 2, 103 Cong., 1 sess., Feb.
Reduced second-class rates were provided for in-county mailings of small local
newspapers, for publications of non-profit religious, educational, fraternal, scientific,
agricultural, labor, and veterans organizations, and for-profit agricultural periodicals.
Reduced third-class bulk rates were available to certain non-profits and to authorized
political committees. Books, films, and recordings could be sent at reduced fourth-class
rates, including from publishers to schools and libraries.
The PRA provided a complicated formula for determining, and gradually raising,
postage rates for preferred mailing groups. It depended on the separation of costs of
handling into two categories: direct, or “attributable” costs that could be tied to each class
of mail, and overhead or institutional costs of maintaining the system, such as costs of
facilities, vehicles, pensions, debt service, management, and administration. The Postal
Rate Commission was established to oversee the cost determination and rate-setting
processes. The PRA set out a 16-year schedule for phasing in increases in preferred rates
until they fully covered attributable costs. It was contemplated that Congress would
continue in perpetuity to appropriate funds to cover the institutional costs for preferred-
rate mailers, assumed at the time to be about half of total costs associated with these
mailings. Over the years, as non-profit organizations grew in size and number and regular
postage rates increased, the annual revenue forgone subsidy became quite costly.
Amounts appropriated rose from $441 million and $557 million in FY1972 and FY1973,
to $800 million in FY1979, $782 million in FY1980, and $789 million in FY1981. (See
Figure 1.) At the same time, commercial interests began to complain that they were
losing business to non-profits. A frequently cited example was the alumni association of
a well-endowed university able to send out travel and cruise advertisements at subsidized
rates in competition with commercial travel agents.
President Reagan’s first budget, early in 1981 for FY1982, recommended substantial
cuts in revenue forgone funding. Congress eventually provided $620 million, about $180
million less than full funding for the subsidy. Consequently, USPS did raise second-class
preferred and library rates closer to their actual costs, and raised the non-profit third class3
rate to the full attributable cost level, effective in January 1983. Under pressure from the
Office of Management and Budget (OMB), the Postal Rate Commission gradually
changed its cost allocation principles so that attributable costs became a larger share of
the total, thus reducing the proportion for appropriations to cover.
The high point of revenue forgone appropriations was FY1985, when $970 million
was provided. The program was fully funded during the rest of the 1980s, but at
diminished amounts because of the cost allocation principles changes: $716 million in
FY1986, $650 million in FY1987, $517 million in FY1988, $436 million in FY1989, and
$460 million in FY1990. (See Figure 1.) About three quarters of these amounts went for
the costs of third-class bulk mailing for non-profit organizations.
During the first Bush Administration, the revenue forgone appropriation again
became the target of cost-cutting attention in the budget process. In FY1991, the
3 U.S. Congress, House Committee on Post Office and Civil Service, Subcommittee on Postal
Operations and Services, Postal Revenue Foregone (sic) Subsidy, hearings, 98th Cong., 1st sess.,
Apr. 6, 1983 (Washington: GPO, 1983), p. 48. This was the only time USPS raised rates
because of a failure of appropriations, but it was not the only such failure.
appropriation was $81 million short of what was due; in FY1992, it was $71 million
short; and in FY1993, it was an additional $360 million short. The shortfall was
particularly sensitive that year, because it pushed USPS from a narrow profit into an
overall loss for the year. The reason USPS did not take advantage of the “fail-safe”
provisions of 39 U.S.C.§ 3627, by raising rates for non-profits, was that it was expressly
forbidden to do so in the appropriations acts. Much of the discussion in the FY1994
appropriations hearings was devoted to the shortfall, which seemed likely to grow by
another half-billion dollars in that year.
Revenue Forgone Reform Act of 1993
Part of the rationale for not appropriating full revenue forgone amounts under then
current law was that the Bush Administration proposed in the FY1991 and FY1992
budget submissions to permanently change the eligibility of certain non-profit mailers for
preferred rates, particularly classes with major advertising or commercial content. The
FY1992 budget submission also proposed that charitable, educational, and benevolent
groups would continue to receive reduced rates, but they would be required to pay about
60% of the overhead cost share for their mail, with the revenue forgone appropriation
covering the other 40%. Non-profit mailers objected strongly, and no action was taken
other than a cut in the appropriation. President Clinton’s first budget proposal, released
February 17, 1993, likewise termed the revenue forgone mail subsidy an “inefficient
means of supporting charitable and non-profit organizations” and asserted that “many
loopholes exist that allow some mailers to take advantage of the system.”
In a compromise brokered by the House Committee on Post Office and Civil
Service, this proposal eventually resulted in the Revenue Forgone Reform Act of 1993
(Title VII of the Treasury, Postal Service, and General Government Appropriations Act,
1994, P.L. 103-123; 107 Stat. 1267). The act entirely eliminated the authorization of
appropriations for preferred rates for any class of mail. In its place, the act created a
mechanism to continue preferred postage rates for restricted categories of non-profits by
phasing in higher rates and having other mail classes bear the remaining institutional costs
that had previously been covered by appropriations. Non-profits gradually went from a
situation where they paid none of the institutional costs attributable to others in their class
in FY1993, to one-twelfth in FY1994, then in annual steps to one-half in FY1998 and
beyond. The remaining half is absorbed within rates charged other mailers. (P.L. 106-
The Revenue Forgone Reform Act did preserve one appropriated subsidy, however
— free mailing privileges for the blind and visually impaired, for voting materials under
the Uniformed and Overseas Citizens Absentee Voting Act, and for certain consular and
diplomatic officials on a reciprocal basis. (The latter sub-category has been too minor to
warrant mention in subsequent appropriations requests or hearings.) Because USPS was
owed substantial amounts for the failure of appropriations in FY1991-FY1993, and
because it would have additional costs during the phase-in period for the non-profits, the
act also authorized the appropriation of $29 million each year from 1994 through 2035.4
This was a gradual payment to “reimburse the Postal Service for losses which it incurred”
as a result of insufficient appropriations for FY1991, FY1992, and FY1993, and for
anticipated expenditures through 1998 relating to non-profits. Interest on the debt was
4 39 U.S.C. 2401 (d).
not provided. Figure 1 shows the entire history of revenue forgone appropriations since
FY1972, when USPS was established.
Figure 1. Revenue Forgone
Appropriation Fiscal Years 1972-2006
Sources: U.S. Postal Service, Comprehensive Statements on Postal Operations, 1980-1990. U.S. Office of
Management and Budget, Budget of the United States Government: Appendix (Washington, GPO, 1990-2006.) Note:
Since USPS uses accrual rather than cash accounting, figures in its Annual Reports do not match these data. USPS
has recognized revenues forgone in 1991-1998 as earned revenues in those years and accounts receivable, even though
the Revenue Forgone Reform Act of 1993 does not provide for final payment of the debt until 2035.
Current Appropriations and Issues
In the years since 1994, Congress has regularly appropriated the requested amounts
for revenue forgone in providing free mail for the blind and for overseas voters, including
the $29 million due each year for the 1991-1993 shortfall. Because only the blind,
overseas voters, and a few diplomatic officials are still eligible for subsidy, amounts are5
only a fraction of what they were before enactment of the Revenue Forgone Reform Act.
For example, the FY2005 appropriation was $90.7 million, including $61.7 million for
revenue forgone in FY2004, and $29 million due annually under the 1993 Reform Act.
Some issues, however, remain. First, beginning in FY1999, Congress has made the
revenue forgone appropriations payment not in the year during which the expenses were
incurred, but in the following fiscal year. Thus, the FY1999 appropriation was made
payable October 1, 1999, after FY1999 had ended, as an “advance appropriation.” This
meant that only $29 million was scored in FY1999. The George W. Bush Administration,
in its FY2002 budget, proposed to “reverse the misleading budget practice of using
advance appropriations simply to avoid [annual] spending limitations,” by providing the
FY2002 funds on a current basis. The FY2002 Treasury, Postal Service, and General
Government Appropriations Act (P.L. 107-67; 115 Stat. 514) maintained the practice of
advance appropriations. The Bush Administration’s following budgets have not renewed
the recommendation; the $58.8 million for FY2006 revenue forgone will not be payable
5 The cost of free mail for the blind is well over 90% of the total appropriation, even in an
election year. Usage has gone from 46.6 million pieces in 2000 to 71.1 million in 2004.
until FY2007. The postmaster general, in his House Appropriations Subcommittee
statement on February 26, 2004, complained about the “financial burden” USPS bears by
not being paid for a year after mailings have been handled and delivered.
An issue arose in 2004 and 2005 about the annual payment schedule for revenue
forgone in past years that is set forth in the Revenue Forgone Reform Act. As explained
above, the act authorized annual payments to USPS of $29 million through the year 2035.
For 11 years, the payment was provided as a matter of course. In its FY2005 budget,
however, the Bush Administration proposed to provide no funds for the payment, and
included it in a list of 65 “terminations to discretionary programs” in the budget.
Congress provided the funds anyway, however, added by the Senate in the FY2005
omnibus appropriations measure ( (P.L. 108-447, Division H). In its FY2006 budget, the
President again proposed to eliminate the payment. The subsequent budget justification
mentioned that Congress and the Administration had (in passing P.L. 108-18) relieved
USPS of the obligation to pay $3 billion per year for pension costs, “more than
compensating the organization for the loss of the small revenue forgone appropriation.”6
When the termination was first proposed, USPS complained to Congress about this
“dramatic departure from past Presidential budget submissions.” The postmaster general
has warned that since USPS booked the obligations as “accounts receivable” in the years
in which Congress subsidized non-profit mailers, the whole amount due might have to be
charged to current ratepayers in the next rate case. “Because the Postal Service is required
under generally accepted accounting principles to reduce the value of an amount
receivable to reflect an uncertainty as to full payment, the failure to receive these funds
may require the Postal Service to treat these remaining payments as a bad debt.”7 Thus
while the Administration’s budget proposal would save the taxpayer $29 million in
FY2006, it could wind up costing postal ratepayers $870 million in the next rate case.
This calculation is apparently what persuaded Congress to provide the funds in both
FY2005 and FY2006.
Finally, the FY2006 budget requested $21.2 million less for revenue forgone in
providing free mail for the blind and overseas voting than USPS had estimated these
subsidies will cost in FY2006. This is not as serious a matter for USPS as the annual $29
million payment of past debt, because both the amount requested by USPS for FY2006
($79,935,000), and the amount in the President’s FY2006 budget ($58,767,000), are both
estimates of the actual expense. It has always been the case that when final audited mail
volumes are available, a reconciliation adjustment is made in the budget to bring the
actual payment into line with past estimates. For example, the budget request for FY2006
included a $28,583,000 reconciliation adjustment reflecting that actual use of the subsidy
in FY2003 was underestimated by that amount. Presumably, if the Administration’s
request is below actual usage in FY2006, a future reconciliation adjustment will make up
6 For more on P.L. 108-18, see CRS Report RL32346, Pension Issues Cloud Postal Reform, by
Kevin R. Kosar. The law actually relieved USPS from the prospect of overpaying its obligations
to the Civil Service Retirement Fund by $103 billion under the previous payment schedule.
7 Letter from the postmaster general to the Honorable Ted Stevens, Chairman, Senate Committee
on Appropriations, Feb. 2, 2004, and Feb. 26, 2004 House Appropriations testimony.