Postal Service Debt-free, But Still Raising Rates?

The U.S. Postal Service (USPS), once a perennial debtor, has announced that it wiped out its debt during 2005, while delivering 50 percent more mail than it did 20 years ago, and doing so at 1985 staffing levels. So, why are postage rates going up again in January?

Remember that the USPS is sort of a private business under close federal control. Legislation enacted in 2003 required the Postal Service to put aside over $3 billion each year into escrow beginning in 2006. The postage increase coming on January 8 is needed to help the Postal Service make its $3.1 billion escrow payment for 2006. Efforts by the USPS to change the escrow requirement have been stalled in Congress. Without the escrow requirement, postage rates most likely would have remained at current levels until 2007.

Although the current postal financial news is positive, Postmaster General John E. Potter cautions that the forecast for 2006 projects a surplus from operations, but coupled with an anticipated escrow requirement of $3.1 billion, the Postal Service will likely have a net deficiency approaching $2 billion. As you can probably guess, that translates into future postage increases.

On January 8, 2006, the cost of a First-Class stamp will go up two cents, to 39 cents, while the postcard rate will rise to 24 cents.

Performance of the USPS for the past year is available in the 2005 Annual Report of the U.S. Postal Service.

Also See:
Postal Service: Agency or Private Business?
The Financial Woes of the US Postal Service (2001)