Since 1971, the U.S. Postal Service (USPS) has been a self-supporting, wholly governmental entity. Prior to that time, the federal government provided postal services via the U.S. Post Office Department (USPOD), a government agency that received annual appropriations from Congress. Members of Congress were involved in many aspects of the USPOD's operations, including the selection of managers (e.g., postmasters) and the pricing of postal services. In 1971, Congress enacted the Postal Reorganization Act (PRA; P.L. 91-375; 84 Stat. 725), which replaced USPOD with the USPS, an "independent establishment of the executive branch" (39 U.S.C. 201). The USPS is a marketized government agency that was designed to cover its operating costs with revenues generated through the sales of postage and related products and services. Although the USPS does receive an annual appropriation, the agency does not rely on appropriations. Its appropriation is about $100 million per year, about 0.1% of the USPS's $75 billion operating budget. Congress provides this appropriation to compensate the USPS for the revenue it forgoes in providing, at congressional direction, free mailing privileges to blind persons and overseas voters. The Postal Service Fund, which the USPS uses for most of its financial transactions, is off-budget, and therefore not subject to the congressional controls of the Congressional Budget and Impoundment Control Act of 1974 ( P.L. 93-344 ; 88 Stat. 297; 2 U.S.C. 621). However, the Postal Service Retiree Health Benefits Fund (RHBF), which was established by the Postal Accountability and Enhancement Act of 2006 (PAEA; P.L. 109-435 , §803; 120 Stat. 3251), is on-budget. (The RHBF is addressed further below.) The USPS can and does borrow money from the U.S. Treasury via the Federal Financing Bank. Federal statute limits the USPS's annual debt increases to $3 billion, and the USPS's total debt to $15 billion (39 U.S.C. 2005(a)). After running modest profits from FY2004 through FY2006, the USPS lost $25.4 billion between FY2007 and FY2011. Were it not for congressional action to reduce a statutorily required payment to the RHBF, the USPS would have lost an additional $9.5 billion. (On congressional actions to reduce and delay RHBF payments, see below.) As the USPS's finances have deteriorated, its ability to absorb operating losses has been diminished. Between FY2005 and FY2011, the USPS's debt rose from $0 to $13 billion. (The agency's statutory debt limit is $15 billion (39 U.S.C. 2005(a)(2)(C)).) In July 2009, the GAO added the USPS's financial condition "to the list of high-risk areas needing attention by the Congress and the executive branch." Many media headlines have characterized the USPS's recent deficits as the result of a drop in mail volume and attendant postage purchase revenue. This is not entirely accurate. Mail volumes slid from a peak of 213.1 billion mail pieces in FY2006 to 212.2 billion in FY2007, and dropped to 202.7 billion in FY2008. Despite the drop in mail pieces, the USPS's revenues actually held steady during those years—$72.7 billion, $74.8 billion, and $74.9 billion—largely due to postage increases. However, between FY2009 and FY2011 mail volume declined further. Since FY2008, mail volume has fallen 17.7%, from 202.7 billion to 167.9 billion mail pieces ( Figure 1 ), and operating revenues have declined 12.3%, from $74.9 billion to $65.7 billion ( Figure 2 ). During this same period, the USPS has significantly increased operating expenses. A great deal of the rise in costs is attributable in part to the Postal Accountability and Enhancement Act (PAEA). The PAEA established the RHBF and requires the USPS to prefund its future retirees' health benefits at a cost of approximately $5.6 billion per year ( Table 1 ) for 10 years. (Any remaining obligation is to be amortized over the subsequent 40-year period.) In doing this, the PAEA moved the USPS from funding its retirees' health care costs out-of-pocket annually to prefunding these obligations. Using the Office of Personnel Management's (OPM's) valuation methodology, the USPS reported that the unfunded obligation was $46.2 billion as of the end of FY2011. (As noted later in this report, there has been disagreement as to the size of the USPS's unfunded obligation.) As Figure 3 shows, the USPS's operating expenses spiked after the USPS began paying into the RHBF in FY2007. Initially, the effects of the PAEA's mandatory payments to the Postal Service Health Benefits Fund on the USPS's profitability were considerable. This may be illustrated with a hypothetical—if the USPS did not have to pay into this fund each year, it would have experienced no operating losses until FY2009. Figure 4 reproduces Figure 3 with the annual PAEA payments subtracted from the annual operating expenses. However, despite Congress's reduction of the RHBF payment owed in FY2009 and its delay of the RHBF payment owed in FY2011, the USPS's expenses exceeded its revenues these years. At the conclusion of FY2011, the USPS had $1.5 billion in cash, which is a low level for an agency with an average weekly operating expense of nearly $1.4 billion. To conserve cash, the USPS suspended its biweekly $114 million contribution to the Federal Employee Retirement System (FERS) on June 24, 2011. After seeking an opinion from the Department of Justice on the legality of this action, the USPS reported on November 15, 2011, that it "expected" to resume paying the bi-weekly FERS payment, and that it owed $911 million as of September 30, 2011. One positive development was that the USPS was able to make its $1.3 billion payment to the Department of Labor for worker's compensation in October 2011. In its FY2011, third quarter financial statement, the USPS had expressed concern that it might not be able to do so, a default that would have had significant negative impact on the worker's compensation fund. In the first three quarters of FY2012, the USPS had an operating loss of $11.5 billion, which included an $11.1 billion charge for payments due to the RHBF in FY2012. The agency had $12.6 billion in debt, and a relatively weak cash position of $893 million. By law, the USPS's total debt may not exceed $15 billion—so, the USPS may borrow only $2.0 billion more from the Federal Financing Bank (FFB). The USPS did not have sufficient cash to make a $5.5 billion payment to its Retiree Health Benefits Fund (RHBF) that was due on August 1, 2012. The USPS is unlikely to have sufficient liquidity to make a $5.6 billion RHBF payment due on September 30, 2012. The USPS reports that current projections indicate that the Postal Service will have a low level of cash and liquidity at September 30, 2012. This position will worsen in October of 2012, when the Postal Service is required to make its annual reimbursement payment of approximately $1.4 billion to the Department of Labor ... for worker's compensation, in addition to paying its normal operating expenses. The USPS may suffer a liquidity shortfall in October, meaning it temporarily would not have sufficient cash in hand to cover its operating costs. However, the USPS has not suggested that a short-term, zero-cash scenario would produce a suspension of operations this autumn. Postmaster General Patrick Donahoe stated in an interview that the USPS could preserve sufficient cash to maintain operations until "late next year," although he did not clarify whether he was referring to calendar or fiscal year 2013. The USPS will report its FY2012 year-end financial results in early November 2012. On September 30, 2009, the last day of FY2009, Congress alleviated the USPS's cash shortage when it enacted H.R. 2918 , the Legislative Branch Appropriations Act [of] 2010. President Barack Obama signed the bill into law the next day ( P.L. 111-68 ). Section 164 of the law provided the USPS with an immediate reduction of $4 billion in operating expenses by reducing the USPS's FY2009 payment to the Postal Retiree Health Benefits Fund from $5.4 billion to $1.4 billion. The legislation did not relieve the USPS of this $4 billion obligation; rather, it deferred the USPS's payment. Come FY2017, the $4 billion will be added to whatever remaining outstanding health care obligation may exist, and amortized over a 40-year period. In autumn 2011, Congress again aided the USPS. Congress delayed the due date of the FY2011 payment ($5.5 billion) to October 4, 2011 ( P.L. 112-33 , §124), November 18, 2011 ( P.L. 112-36 , §124), to December 16, 2011 ( P.L. 112-55 , §101), and then August 1, 2012 ( H.Rept. 112-331 ). The USPS's financial challenges raise difficult questions: Did the USPS simply suffer from a "perfect storm" of high retiree health benefits payments and declining revenue?