Forecast of Postal Service Self-Sufficiency Potential

This document discusses estimates of the Postal Service's expenses for 1984. In passing the Postal Reorganization Act (39 U. S. C. 101), the Congress hoped that the newly created Postal Service would, through more businesslike operation, become self-sustaining by that year. In theory, self-sufficiency could be achieved by setting postal rates at whatever level is necessary to cover expenses. In reality, this could involve postage rates so high as to drive mail users to other means of communication, thereby reducing volume and revenue-maybe completely undermining the Service's financial position. And even if the raising of rates was economically possible, they could reach a level that would, contrary to the intent of the Postal Reorganization Act, impair the personal, educational, literary and business correspondence practices of the people. The future level of postage rates depends directly on mail volume, the Service's expenses, and the amount of any Federal subsidy. The first two determine unit cost. The last determines the portion of this cost that will be borne by the taxpayer, rather than the mail user. We have forecast 12 different situations for 1984, assuming the same volume but varying rates of productivity and inflation. We have projected the price of a unit of first-class postage for each situation and under various assumptions regarding a Federal subsidy--from none to 20 percent of projected expenses. To show the effect of inflation on expenses and stamp prices. the value of these two items is presented In 1973 as well as 1984 dollars. For example, our forecast of what the postal expenses are most likely to be in 1984--$18.7 billion--assumes total mail volume of 105.5 billion pieces in that year, a slowly declining inflation rate between 1974 and 1984 (10.4 percent in 1974, decreasing to 4.4 percent in 1984), 1/ and productivity increases of O. 7 percent annually. With no Federal subsidy, these assumptions indicate that a unit of first-class postage in 1984 would cost approximately $0.18. The effect of inflation can be seen by considering that, in 1973 dollars, expenses would be $10.4 billion (rather than $18.7 billion) and a unit of first-class postage would cost about $0.10 (rather than about $0.18).