Order Code RS21025
Updated March 1, 2004
CRS Report for Congress
Received through the CRS Web
The Postal Revenue Forgone Appropriation:
Overview and Current Issues
Nye Stevens
Specialist in American National Government
Government and Finance Division
Summary
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 for these services. 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 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. Some of this has lately been provided as an advance
appropriation for the next fiscal year, a practice the Bush Administration termed
“misleading” in 2001 and tried without success to reverse. 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 2004, but the President’s FY2005 budget proposes to eliminate the
payment. This could result in the entire amount, nearly $900 million, being written off
as a bad debt and charged to current ratepayers.
This report will be updated annually.
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
Congressional Research Service ˜ The Library of Congress

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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.
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.
Reduced second-class rates were provided for in-county mailings of small local
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 General
Government Appropriations for Fiscal Year 1994, hearings, part 2, 103rd Congress, 1st sess., Feb.
4, 1993 (Washington: GPO, 1993), pp. 44-45, 61, 66-67.

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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 fiscal years 1972 and
1973, to $800 million in fiscal 1979, $782 million in 1980, and $789 million in 1981. (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 class
rate to the full attributable cost level, effective in January 1983.3 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 fiscal year 1985, 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
appropriation was $81 million short of what was due; in FY1992, it was $71 million short;
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 Congress, 1st
sess., April 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.

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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.4
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. 106-384
(114 Stat. 1460) modified the formula, but not in a way that affected appropriations.)
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.
This was a gradual payment to “reimburse the Postal Service for losses which it incurred”
as a result of insufficient appropriations for fiscal years 1991, 1992, and 1993, and for
4 Ibid., pp. 4-6, 10-12, 27, 46, 51-52, 66-67.

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anticipated expenditures through 1998 relating to non-profits.5 Interest on the debt was
not provided. Figure 1 shows the entire history of revenue forgone appropriations since
fiscal year 1972, when USPS was established.

Figure 1. Revenue Forgone
Appropriation Fiscal Years 1972-2004
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-
2005.) 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 1991-98 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 are
only a fraction of what they were before enactment of the Revenue Forgone Reform Act.6
For example, the FY2004 appropriation was $60 million, including $$31 million for
revenue forgone in FY2003, and $29 million due annually under the 1993 Reform Act.
Some issues remain, however. 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
5 39 U.S.C. 2401 (d).
6 The cost of free mail for the blind is well over 90% of the total appropriation, even in an
election year.

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meant that only $29 million was scored in FY 1999. 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 next three budgets did not renew the
recommendation; the $61,709,000 request for FY2005 revenue forgone would not be
payable until FY2006. The postmaster general, in his House Appropriations Sub-
committee 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 has arisen in 2004 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
the list of 65 “terminations to discretionary programs” in the budget. In response to
questions, OMB has pointed out that the Revenue Forgone Reform Act of 1993 only
authorized the appropriations, and many programs across government are not funded at
the levels contemplated in authorization acts. It also mentioned that Congress and the
Administration had relieved USPS of the obligation (in P.L. 108-18) to pay $3 billion per
year for pension costs, and that as a result, USPS had $3.8 billion in net income in 2003.
USPS has 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 saves the taxpayer $29 million in FY2005, it could wind up costing postal
ratepayers $899.5 million in the next rate case if the Administration and USPS cannot
convince auditors that it is a one-time saving that will not be proposed in future budgets.
Finally, the FY2005 budget requests $14.2 million less for revenue forgone in
providing free mail for the blind and overseas voting than USPS had estimated these
subsidies would cost. 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 FY2005
($75,881,000), and the amount in the FY2005 budget ($61,709,000), 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 $61,709,000 budget request for FY2005
includes a $6,078,000 reconciliation adjustment reflecting that use of the subsidy in
FY2002 was underestimated by that amount. Presumably, if the Administration’s request
is below actual usage in FY2005, a future adjustment will make up the difference.
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.

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