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Report  |  June 2024

An Alternative Approach to Ratemaking for USPS Market Dominant Mail

By Nam D. Pham, Ph.D., Mary Donovan, and Stephanie Barello

 The Postal Accountability and Enhancement Act of 2006 (PAEA) designated the USPS as an independent agency, changed ratemaking from a cost-of-service model to a price-cap system, and abolished the breakeven requirement. In 2021, after 15 years of net losses, the USPS introduced its Delivering for America (DFA) strategic plan to resolve its financial issues. However, the Plan has proven to be ineffective. The ratemaking approach implemented to increase revenue is taking a toll on long-run financial stability. Instead of relying on unpredictable rate increases that exceed CPI twice per year, the USPS must address a combination of productivity issues and regulatory barriers that curb its current ability to break even. If the USPS does not correct its course, it will be forced to address severe budget shortfalls through government subsidies, substantial layoffs, reduced service via fewer delivery days, or facility closures.