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Testimony: 

Before the Subcommittee on Federal Workforce, Postal Service, and the 
District of Columbia, Committee on Oversight and Government Reform, 
House of Representatives: 

United States Government Accountability Office: 
GAO: 

For Release on Delivery: 
Expected at 10:00 a.m. EDT:
Wednesday, May 20, 2009: 

U.S. Postal Service: 

Network Rightsizing Needed to Help Keep USPS Financially Viable: 

Statement of Phillip Herr, Director: 
Physical Infrastructure Issues: 

GAO-09-674T: 

GAO Highlights: 

Highlights of GAO-09-674T, a hearing before the Subcommittee on Federal 
Workforce, Postal Service, and the District of Columbia, Committee on 
Oversight and Government Reform, House of Representatives. 

Why GAO Did This Study: 

The recession accelerated declines in mail volume in fiscal year 2008 
and flattened revenues despite postal rate increases. That year, mail 
volume fell by 9.5 billion pieces, or 4.5 percent, and resulted in a 
net loss of $2.8 billion as the U.S. Postal Serviceís (USPS) cost-
cutting did not close the gap between revenues and expenses. We 
testified this March before this subcommittee that USPSís financial 
condition has continued to deteriorate in the first 5 months of fiscal 
year 2009, with accelerating declines in mail volume and financial 
losses. USPS projected its financial condition to continue 
deteriorating for the rest of the fiscal year and to result in an 
unprecedented cash shortfall of $1.5 billion, assuming that ambitious 
cost-cutting targets are achieved. 

This testimony updates that information and focuses on (1) how USPSís 
financial viability is challenged given current economic conditions and 
whether USPS can cover its expenses and financial obligations, (2) USPSí
s opportunities to rightsize its retail and mail processing networks, 
and (3) what options and trade-offs need to be considered to address 
mail volume and revenue declines. It is based on GAOís past work and 
updated information on USPSís finances and networks. We asked USPS for 
comments on our statement. USPS generally agreed with the accuracy of 
our statement and provided technical comments, which we incorporated 
where appropriate. 

What GAO Found: 

USPS continues to project a mail volume decline of 10 to 12 percent for 
fiscal year 2009. As a result, USPS projects: 

* a financial gap of about $12 billion, which despite planned cost cuts 
of $5.9 billion, would result in a record annual loss of over $6 
billion, and; 

* an increase in outstanding debt by the annual statutory limit of $3 
billion, and, despite this step, an unprecedented $1.5 billion cash 
shortfall. 

For fiscal year 2010, USPS currently projects that mail volume will 
decline by an additional 10 billion pieces, leading to a financial loss 
similar to the loss in fiscal year 2009 and another possible cash 
shortfall. 

Maintaining USPSís financial viability as the provider of affordable, 
high-quality universal postal service will require actions in a number 
of areas, such as (1) rightsizing its retail and mail processing 
networks by consolidating operations and closing unnecessary facilities 
and (2) reducing the size of its workforce. USPS has made limited 
progress in rightsizing its networks, an action that is often 
controversial but necessary to address the unprecedented declines in 
mail volume and help close the large and growing gap between USPS 
revenues and expenses. Further, rightsizing USPSís retail and mail 
processing networks is needed to eliminate growing excess capacity and 
improve efficiencyóaction that is critical to maintaining affordable 
postal rates and streamlining USPSís workforce, which generates close 
to 80 percent of its costs. USPS has consolidated operations through 
attrition and currently has about 160,000 employees eligible for 
retirement. USPS can streamline its retail network by closing 
unnecessary facilities and promoting lower-cost alternatives such as 
purchasing stamps by mail, telephone, and the Internet, as well as at 
drug stores and supermarkets. USPS also has substantial excess capacity 
in its mail processing network and has proposed consolidating some 
processing operations at its 21 Bulk Mail Centers and other facilities. 
In the Postal Accountability and Enhancement Act of 2006, Congress 
recognized USPS has more facilities than it needs and strongly 
encouraged streamlining its networks. Rightsizing will require 
continued congressional support for necessary closures and USPS 
leadership to address resistance to change. 

Other options that could help USPS remain financially viable involve 
difficult trade-offs, including: 

* deferring USPS payments for retiree health benefits, which would 
increase the unfunded retiree health benefit obligation; 

* reducing the frequency of 6-day delivery, which would affect a key 
aspect of universal service and could further accelerate mail volume 
decline; 

* downgrading delivery standards, which could affect time-sensitive 
mail; 

* raising statutory debt limits, which could further exacerbate USPSís 
financial difficulties in the future; and; 

* providing direct appropriations, which would be contrary to the 
fundamental principle that USPS remain financially self-supporting. 

Finally, GAO is closely monitoring USPSís financial viability to 
determine whether to add USPSís need for restructuring to GAOís High-
Risk List. 

View [hyperlink, http://www.gao.gov/products/GAO-09-674T] or key 
components. For more information, contact Phillip Herr at (202) 512-
2834 or herrp@gao.gov. 

[End of section] 

Chairman Lynch, Ranking Member Chaffetz, and Members of the 
Subcommittee: 

I am pleased to be here today to participate in this oversight hearing 
on the U.S. Postal Service's (USPS) operations and network. My 
statement addresses the following questions: 

* How is USPS's financial viability challenged given current economic 
conditions and can USPS cover its expenses and financial obligations? 

* What opportunities does USPS have to rightsize its retail and mail 
processing networks? 

* What options and trade-offs need to be considered to address 
significant mail volume and revenue declines? 

My statement is based on our continuing monitoring of USPS's financial 
condition and outlook, and our past and continuing work on USPS network 
operations. We obtained updated information on USPS results for this 
fiscal year through the second quarter and USPS's outlook for fiscal 
years 2009 and 2010. We conducted this performance audit in accordance 
with generally accepted government auditing standards. Those standards 
require that we plan and perform the audit to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings and 
conclusions based on our audit objectives. We believe that the evidence 
obtained provides a reasonable basis for our findings and conclusions 
based on our audit objectives. 

USPS Financial Viability Is Threatened by Declining Mail Volume and 
Revenues: 

As of the end of the second quarter, USPS projects a mail volume 
decline of 10 to 12 percent for fiscal year 2009, more than double the 
4.5 percent total volume decline in fiscal year 2008 and the largest 
decline since the Great Depression. As a result, USPS is projecting the 
following: 

* a potential financial gap of about $12 billion between revenues and 
expenses, which USPS projects will be diminished by achieving cost 
savings of $5.9 billion--leading to a net loss of over $6 billion; 
[Footnote 1] 

* an increase in outstanding debt by the annual statutory limit of $3 
billion; and, despite this borrowing, 

* an unprecedented $1.5 billion cash shortfall. USPS has reported that 
it does not expect to generate sufficient cash from operations to fully 
fund its fiscal year 2009 obligations for workers' compensation (about 
$1.1 billion), due in September 2009, and future retiree health 
benefits ($5.4 billion) that is due by September 30, 2009. 

Fiscal year 2010 is also likely to be challenging. USPS is currently 
projecting that mail volume will decline by an additional 10 billion 
pieces, leading to a financial loss similar to the loss in fiscal year 
2009 and another possible cash shortfall. Under this scenario, USPS may 
increase its outstanding debt by an additional $3 billion, which would 
bring its total debt to $13.2 billion at the end of fiscal year 2010-- 
only $1.8 billion less than its $15 billion statutory limit. See 
appendix I for more detailed financial information. 

USPS's $5.9 billion cost-cutting target for this fiscal year is 
unusually ambitious in that it exceeds annual cost-cutting targets it 
has set since 2001, which ranged from nearly $900 million to $2 
billion. However, even if it achieves its cost-cutting target for 
fiscal year 2009, USPS projects cash shortfalls because it does not 
expect its cost-cutting efforts and rate increases will fully offset 
the impact of mail volume declines and other factors that increase 
costs--notably semiannual cost-of-living allowances (COLA) for postal 
employees covered by union contracts. Compensation and benefits 
constitute close to 80 percent of USPS costs--a percentage that has 
remained similar over the years despite major advances in technology 
and automating postal operations. Also, USPS continues to pay a higher 
share of employee health benefit premiums than other federal agencies. 
Further, USPS has high overhead (institutional) costs that are hard to 
change in the short term, such as providing universal service that 
includes 6-day delivery and a network of close to 37,000 post offices 
and retail facilities. 

Proposed legislation could help to maintain USPS's short-term solvency 
by reducing USPS payments for retiree health benefits by $2.0 billion 
in fiscal year 2009 and $2.3 billion in fiscal year 2010.[Footnote 2] 
As in prior testimony, we support providing 2 years of relief from 
these payments to assist USPS through its short-term difficulties while 
minimizing the impact on USPS's unfunded retiree health benefits 
obligation.[Footnote 3] We do not support the additional 6 years of 
relief that the proposed legislation would also provide, because it 
would lead to an estimated $75 billion (rather than $43 billion) in 
unfunded obligations for USPS retirees' health benefits in 2017. 
Further, we believe the proposed legislation does not address USPS's 
long-term problems related to declining mail volume, particularly in 
First-Class Mail, which covers most USPS overhead costs. 

Maintaining USPS's financial viability as the provider of affordable, 
high-quality universal postal service will require actions in a number 
of areas. The Postal Accountability and Enhancement Act of 2006 (PAEA) 
enabled USPS to retain earnings that can finance needed capital 
investments and repay debt. Although USPS is developing revenue 
initiatives from new flexibilities provided in the 2006 act, it does 
not expect these initiatives to generate much net revenue in the short 
term. Further, USPS has curtailed capital spending to conserve cash, an 
action that may be a necessary stopgap measure. However, this is not a 
sustainable long-term strategy because USPS will need to continue 
making investments to maintain and modernize its infrastructure, 
address its maintenance backlog, automate postal operations, replace 
aging vehicles, and cover expenses to consolidate operations and 
rightsize its retail and mail processing networks. 

Action Is Needed to Rightsize USPS Networks and Workforce: 

Network rightsizing by consolidating operations and closing unnecessary 
facilities is likely to be only one of many steps that USPS will need 
to take to remain financially viable in the long run. Rightsizing 
USPS's retail and mail processing networks is needed to eliminate 
excess capacity, improve efficiency that is critical to maintaining 
affordable postal rates, and facilitate streamlining USPS's workforce, 
which generates close to 80 percent of its costs. Excess capacity has 
grown with unprecedented declines of mail volume, which are projected 
to continue through fiscal year 2010. As we recently testified, as its 
mail volumes decline, USPS does not have sufficient revenues to cover 
the growing costs of providing service to new residences and businesses 
while also maintaining its large network of retail and processing 
facilities.[Footnote 4] 

We have reported since 2003 that USPS needs to realign its retail and 
processing networks and rightsize its workforce.[Footnote 5] In 2005, 
when mail volume was 212 billion pieces, we reported that excess 
capacity in USPS's retail and mail processing networks created 
opportunities for it to increase efficiency and reduce costs.[Footnote 
6] The recession has accelerated the decline in mail volume and 
revenues so that dramatic action--beyond USPS's incremental 
streamlining efforts--is needed. Closing postal facilities is often 
controversial but is necessary to streamline costs and eliminate excess 
capacity. 

USPS has made some limited progress in streamlining its mail processing 
network by closing smaller facilities such as Airport Mail Centers and 
Remote Encoding Centers and consolidating some operations through Area 
Mail Processing consolidations.[Footnote 7] However, USPS has closed 
only 1 of its approximately 400 major mail processing facilities. USPS 
has often faced resistance from employees, affected communities, and 
Members of Congress when it has attempted to consolidate its operations 
and networks. In enacting PAEA, Congress recognized USPS had more 
facilities than it needs and strongly encouraged streamlining its 
networks, noting this can pave the way for eliminating excess costs. 
Continued congressional support for necessary closures would be helpful 
to facilitate progress in this area. USPS has taken steps to address 
our recommendations that it enhance the transparency and strengthen the 
accountability of its realignment efforts and thus should be positioned 
to take action. 

Rightsizing postal retail and mail processing networks can eliminate 
costly excess capacity and enable USPS to continue streamlining its 
workforce through attrition. About 160,000 USPS employees will be 
eligible for retirement in fiscal year 2009 (not counting the 150,000 
employees offered early retirement). Further, nearly 130,000 additional 
USPS employees are expected to become newly eligible for retirement in 
fiscal years 2010 through 2013--including more than 30,000 employees in 
each of these fiscal years. As USPS consolidates its operations, it can 
reduce costs and operate more efficiently with fewer employees. Network 
rightsizing is likely to be only one of many steps that USPS will need 
to take to remain financially viable in the long run. Nevertheless, 
network rightsizing and reducing the size of its workforce are 
necessary to address the unprecedented declines in mail volume and help 
close the large and growing gap between USPS revenues and expenses. 

We recognize that USPS faces formidable resistance to closing and 
consolidating facilities because of concerns about the effects of such 
actions on service, employees, and local communities. Retail 
alternatives may be more convenient and cost-effective, but customers 
could resist changing long-standing habits. However, other businesses 
have successfully shifted many customer activities to self-service, 
including check-in at airports, checkout at grocery stores, self- 
service at gas stations, and automated teller machines at financial 
institutions. It is preferable for USPS to take action now rather than 
hoping that mail volume will revive sufficiently when the economy 
recovers. The outlook for USPS's core business of First-Class Mail-- 
which covered nearly two-thirds of USPS overhead costs in fiscal year 
2008--is for declines to continue for the foreseeable future as 
communications and payments continue to shift to electronic 
alternatives. 

USPS senior management will need to provide leadership and work with 
stakeholders to overcome resistance to streamlining its retail and mail 
processing facilities for such actions to be successfully implemented. 
USPS must explain its plans in an open and transparent manner; engage 
with its unions, management associations, the mailing industry, and 
political leaders; and then demonstrate results of actions. In turn, 
these stakeholders need to recognize that major change is urgently 
needed if USPS is to remain financially viable. 

USPS Can Streamline Its Retail Network while Improving Access: 

USPS can streamline its retail network while improving access by 
closing unnecessary retail facilities and promoting lower-cost 
alternatives such as purchasing stamps by mail, telephone, and the 
Internet, as well as carrier pickup of packages. USPS has long 
recognized the need to adjust its retail network to provide optimal 
service at the lowest possible cost and has worked to expand low-cost 
alternatives. Alternative retail options currently generate about a 
quarter of USPS's retail revenue. USPS continues to rely on providing 
service at traditional post offices, branches, and stations and has not 
significantly downsized its retail operations in recent years (see fig. 
1). Opportunities to reduce retail facilities are particularly evident 
in urban and suburban areas, where USPS retail locations are close to 
one another, customers have more options, and facilities are expensive 
to operate and maintain. 

Figure 1: USPS Retail Facilities, Fiscal Years 2003 and 2008: 

[Refer to PDF for image: vertical bar graph] 

Number of facilities, total: 
Fiscal year 2003: 37,579; 
Fiscal year 2008: 36,723. 

Facilities operated by USPS employees: Post Offices: 
Fiscal year 2003: 27,556; 
Fiscal year 2008: 27,232. 

Facilities operated by USPS employees: Classified branches, stations,
and carrier annexes: 
Fiscal year 2003: 5,796; 
Fiscal year 2008: 5,509. 

Contract facilities: Contract branches, stations, and Community
Post Offices: 
Fiscal year 2003: 4,227; 
Fiscal year 2008: 3,982. 

Source: USPS. 

[End of figure] 

Retail Alternatives Have Expanded but Generate Only a Quarter of Retail 
Revenue: 

USPS has made progress in expanding the alternatives to traditional 
post offices and postal retail facilities. In 2008, customers could 
access postal services at more than 70,000 physical locations as well 
as other options to purchase stamps and mail packages (see table 1). 
Some postal services, such as stamp sales, are provided at alternative 
locations (e.g., drug stores and supermarkets). In addition, self-
service options such as Automated Postal Centers are located in postal 
retail facilities. 

Table 1: Alternative USPS Retail Options and Number of Locations, 
February 2008: 

Partner programs: 

Alternative retail options: Stamps on Consignment; 
Description: Grocery and convenience stores and bank automated teller 
machines that sell stamps; 
Number of locations: 53,196. 

Alternative retail options: Contract Postal Units; 
Description: Contracted locations that offer full-service retail, but 
are not owned or staffed by USPS; 
Number of locations: 4,510. 

Alternative retail options: Approved Shipper; 
Description: Independent companies that offer USPS services along with 
competitor products; 
Number of locations: 1,914. 

Self-service: 

Alternative retail options: Automated Postal Centers; 
Description: Kiosks that support the majority of transactions of a full-
service retail counter; 
Number of locations: 2,496. 

Alternative retail options: Vending machines; 
Description: Machines that allow purchase of stamps for cash, which are 
being removed from many locations; 
Number of locations: 9,439. 

Alternative retail options: Stamps by mail and telephone; 
Description: Customers can order stamps that are delivered to their 
address; 
Number of locations: Not applicable. 

Alternative retail options: The Postal Store (USPS Web site); 
Description: Customers can purchase stamps and postal-related 
merchandise and online postage for Express Mail and Priority Mail at a 
reduced rate; 
Number of locations: Not applicable. 

Alternative retail options: Click-N-Ship; 
Description: Online service enables customers to print postage labels 
and arrange to send packages; 
Number of locations: Not applicable. 

Total locations: 71,555. 

Source: USPS. 

[End of table] 

USPS has also been expanding its self-service options to provide 
customers access to its services without visiting a physical location. 
For example, USPS has sold stamps by phone and mail for several years, 
and customers can purchase stamps at the USPS Web site. Further, USPS 
has introduced Click-N-Ship, which enables customers to use its Web 
site to print postage labels, including for Priority Mail, Express 
Mail, and international mail, and schedule package pickup, saving a 
trip to a post office. USPS has reported that use of its Web site 
continues to grow, both in number of transactions and revenue 
generated, and has plans to continue upgrading its Web site. 

USPS Needs to Rightsize Its Network of Postal Retail Facilities: 

USPS can streamline its network of close to 37,000 post offices, 
branches, and stations--a network that has remained largely static 
despite expanding use of retail alternatives and shifts in population. 
In December 2007, we reported that USPS had not achieved a goal 
established in its 2002 Transformation Plan of proactively identifying 
unneeded retail facilities in overserved areas consistent with leading 
federal practices.[Footnote 8] USPS actions to align retail access were 
limited to closing some vacated facilities through "emergency 
suspensions" and reducing staff by curtailing operations at some other 
facilities.[Footnote 9] We noted in our 2007 report that leading 
federal practices identify criteria for rightsizing facility networks-
-such as considering facilities' importance and utilization--but USPS 
did not consider these criteria. Our analysis showed wide variation in 
the number of postal retail facilities among comparable counties in 
urban areas, and a number of facilities we visited for that work 
appeared to merit consideration for closure based on one or more of the 
federal criteria. 

We also found that USPS has a maintenance backlog for its retail 
facilities, including facilities that we visited which had chronically 
leaking roofs and visible interior and exterior damage. USPS officials 
stated that USPS has historically underfunded its maintenance needs and 
insufficient funding has caused USPS to focus on reactive maintenance-
-that is, "emergency" and "urgent" repairs--at the expense of routine 
maintenance to prevent problems. Since our 2007 report was issued, USPS 
has limited its capital expenditures to help conserve cash, an action 
that may affect its ability to make progress on its maintenance 
backlog. One way to minimize maintenance costs is to reduce the number 
of facilities that must be maintained. 

USPS Needs to Streamline Its Mail Processing Network to Reduce Excess 
Capacity: 

We reported in 2005 that USPS had substantial excess capacity in its 
mail processing network.[Footnote 10] Long-term trends have further 
increased excess capacity in the processing network such as continuing 
automation, declining volume of single-piece First-Class Mail (e.g., 
bill payments and personal correspondence), and destination entry of 
Standard Mail (e.g., mail that is transported by mailers to USPS 
facilities that are generally closer to where the mail is delivered) 
that reduces the need for USPS mail processing and long-distance 
transportation of mail. Trends contributing to excess capacity in the 
USPS processing and transportation networks include the following: 

* Advances in automation--New automation equipment enables USPS to sort 
mail faster and more efficiently, a development that, with declining 
mail volumes, has resulted in more equipment downtime. In addition, new 
equipment, referred to as the Flats Sequencing System, will sort flat- 
sized mail (e.g., large envelopes, catalogs, and magazines) into 
delivery order, which is expected to reduce the need for space- 
intensive manual sorting at delivery units. Because delivery units are 
often colocated with post offices, branches, and stations, eliminating 
the excess space could involve relocating or consolidating retail 
activities. 

* Decline in single-piece First-Class Mail--The volume of this mail has 
declined from about 60 billion pieces in fiscal year 1990 to about 38.6 
billion pieces in fiscal year 2008, and is projected by USPS to decline 
to about 34.5 billion pieces in fiscal year 2009. Thus, there is less 
mail that is processed end to end through USPS's processing network. 

* Increases in destination-entered Standard Mail--Destination entry of 
Standard Mail has increased from 26 percent in fiscal year 1991, when 
destination entry discounts were introduced, to 80 percent in fiscal 
year 2008. About half of Standard Mail is destination-entered at the 
USPS processing facility closest to the final destination of the mail, 
thus entirely bypassing USPS's network of Bulk Mail Facilities. 
Conversely, Standard Mail entered at "origin" mail processing 
facilities has declined from 74 to 20 percent. 

The shift in how mailers use the USPS mail processing network provides 
opportunities to eliminate growing excess capacity. Last summer, we 
testified that USPS had taken steps to strengthen its processes for 
consolidating its Area Mail Processing (AMP) operations. [Footnote 11] 
Since then, USPS has initiated additional studies of proposed AMP 
consolidations, and the status of 33 recent AMP proposals is detailed 
in appendix II. Another major mail processing consolidation initiative 
that USPS has begun this year is realignment of its 21 Bulk Mail 
Centers and its Surface Transfer Centers into what is now referred to 
as Network Distribution Centers. It is important for USPS to make 
significant progress in consolidating its networks and reducing excess 
capacity or it may face more drastic cost-cutting options and have less 
time to achieve necessary cost reductions. 

Other Options to Help USPS Remain Financially Viable Involve Difficult 
Trade-offs: 

Besides the option to defer payments for retiree health benefits 
discussed earlier, there are other options, all of which are difficult 
and require trade-offs, including: 

* reducing the frequency of delivery from 6 days, 

* downgrading delivery standards, 

* allowing USPS to accumulate additional debt by raising statutory debt 
limits, and: 

* reverting to direct appropriations to help finance postal operations. 

Cutting delivery frequency would affect a key aspect of universal 
postal service and could further accelerate the decline in mail volume, 
thereby wiping out much or all of the potential savings from reducing 
delivery costs. Although USPS asked Congress in January 2009 to 
eliminate the long-standing appropriation provision mandating 6-day 
delivery, it has provided little information on how it would reduce 
delivery frequency and the potential impact on cost, volume, revenues, 
and customers. USPS estimated in 2008 that a year-round reduction in 
delivery frequency to 5 days a week could save $3.5 billion annually, 
assuming this reduction would have no effect on mail volume. The Postal 
Regulatory Commission (PRC) estimated in 2008 that USPS could annually 
save $1.9 billion by reducing delivery to 5 days, making some different 
assumptions, including assuming this would lead to a 2 percent volume 
decline. Thus, the USPS and PRC studies suggest that the potential 
savings from reducing delivery frequency is potentially sensitive to 
mailer response. Congress should have a more complete analysis of the 
trade-offs involved as it considers potential statutory changes in this 
area. 

Although USPS has the authority to downgrade delivery standards for 
timely delivery of mail, this could affect time-sensitive payments, 
correspondence, advertising, or packages. Should USPS downgrade 
standards on a nationwide or substantially nationwide basis, it would 
be required to request an advisory opinion from the PRC, which would 
lead to a public proceeding.[Footnote 12] This mechanism could also be 
used to explore the broader implications of reducing delivery 
frequency. 

An option that would provide USPS with stopgap relief would be to raise 
the statutory debt limits to keep USPS financially solvent. However, 
this could further exacerbate USPS's financial difficulties in the 
future, when USPS and its customers may have difficulty repaying a 
larger amount of debt through higher postal rates. Direct 
appropriations, another option, would be contrary to the fundamental 
principle that USPS remain financially self-supporting through 
efficient, businesslike operations. 

Finally, it is possible that USPS cost-cutting could affect service, 
particularly if USPS continues its incremental approach of reducing 
work hours through attrition while attempting to retain all of its 
major mail processing facilities. As USPS's Inspector General recently 
testified before this subcommittee, "if staff reductions are not 
coordinated with facility reductions, the Postal Service runs the risk 
of having protracted anemic staffing within an oversized network." 
[Footnote 13] To its credit, USPS has recently reported high levels of 
service performance for single-piece First-Class Mail despite its 
financial difficulties and cost-cutting efforts. However, it will be 
important for USPS to continue making progress on measuring and 
reporting the delivery performance for its major types of mail, as well 
as the effects of network changes. 

In closing, we are closely monitoring USPS's financial viability as 
USPS responds to unprecedented declines in mail volume and revenues. In 
2001, when we designated USPS's transformation efforts and long-term 
outlook as high-risk, USPS's financial outlook had deteriorated 
significantly and we were concerned that USPS had no comprehensive plan 
to address its financial, operational, and human capital 
challenges.[Footnote 14] In 2007, we removed this high-risk designation 
because USPS had developed and was implementing a Transformation Plan 
that addressed many of its challenges, and Congress had enacted 
comprehensive postal reform legislation giving USPS additional pricing 
flexibility and other mechanisms to help USPS remain competitive. 
[Footnote 15] At this point, it is not clear to what degree USPS's 
current financial difficulties are primarily tied to the current 
economic downturn--versus long-term trends such as changing use of the 
mail--and to what degree USPS's financial condition will improve when 
the economy recovers. Depending on how effectively USPS responds to 
mail volume and revenue trends, removes costs, and manages its cash 
flow, we may consider adding USPS's financial viability and need to 
restructure its operations to our High-Risk List.[Footnote 16] 

In commenting on a draft of this testimony, USPS generally agreed with 
the accuracy of our statement and provided technical comments, which we 
incorporated where appropriate. 

Mr. Chairman, this concludes my prepared statement. I would be pleased 
to answer any questions that you or the Members of the Subcommittee may 
have. 

Contact and Acknowledgments: 

For further information regarding this statement, please contact 
Phillip Herr at (202) 512-2834 or herrp@gao.gov. Individuals who made 
key contributions to this statement include Shirley Abel, Teresa 
Anderson, Keith Cunningham, Kenneth John, Emily Larson, Hannah Laufe, 
Susan Ragland, and Crystal Wesco. 

[End of section] 

Appendix I: USPS Mail Volumes and Revenues: 

Table 1: USPS Mail Volume: Results for Fiscal Year 2008 and Current 
USPS Projections for Fiscal Years 2009 and 2010: 

First-Class Mail[A]; 
Mail volume: (millions of pieces): 
Actual: 2008: 91,697; 
Projected: 2009: 83,649; 
Projected: 2010: 78,029; 
Mail volume: (percentage change from previous fiscal year): 
Actual: 2008: -4.8; 
Projected: 2009: -8.8; 
Projected: 2010: -6.7. 

Domestic: single-piece; 
Mail volume: (millions of pieces): 
Actual: 2008: 38,558; 
Projected: 2009: 34,455; 
Projected: 2010: 31,140; 
Mail volume: (percentage change from previous fiscal year): 
Actual: 2008: -8.8; 
Projected: 2009: -10.6; 
Projected: 2010: -9.6. 

Domestic: bulk; 
Mail volume: (millions of pieces): 
Actual: 2008: 52,719; 
Projected: 2009: 48,831; 
Projected: 2010: 46,560; 
Mail volume: (percentage change from previous fiscal year): 
Actual: 2008: -1.7; 
Projected: 2009: -7.4; 
Projected: 2010: -4.7. 

Standard Mail; 
Mail volume: (millions of pieces): 
Actual: 2008: 99,084; 
Projected: 2009: 85,820; 
Projected: 2010: 82,468; 
Mail volume: (percentage change from previous fiscal year): 
Actual: 2008: -4.3; 
Projected: 2009: -13.4; 
Projected: 2010: -3.9. 

Periodicals; 
Mail volume: (millions of pieces): 
Actual: 2008: 8,605; 
Projected: 2009: 7,785; 
Projected: 2010: 6,847; 
Mail volume: (percentage change from previous fiscal year): 
Actual: 2008: -2.2; 
Projected: 2009: -9.5; 
Projected: 2010: -12.0. 

Package Services; 
Mail volume: (millions of pieces): 
Actual: 2008: 846; 
Projected: 2009: 765; 
Projected: 2010: 723; 
Mail volume: (percentage change from previous fiscal year): 
Actual: 2008: -7.5; 
Projected: 2009: -9.6; 
Projected: 2010: -5.5. 

Subtotal: Market-Dominant Mail[B]; 
Mail volume: (millions of pieces): 
Actual: 2008: 201,128; 
Projected: 2009: 178,637; 
Projected: 2010: 168,719; 
Mail volume: (percentage change from previous fiscal year): 
Actual: 2008: -4.5; 
Projected: 2009: -11.2; 
Projected: 2010: -5.6. 

Competitive Mail; 
Mail volume: (millions of pieces): 
Actual: 2008: 1,575; 
Projected: 2009: 1,363; 
Projected: 2010: 1,282; 
Mail volume: (percentage change from previous fiscal year): 
Actual: 2008: -3.4; 
Projected: 2009: -13.5; 
Projected: 2010: -5.9. 

Grand Total; 
Mail volume: (millions of pieces): 
Actual: 2008: 202,703; 
Projected: 2009: 180,000; 
Projected: 2010: 170,000; 
Mail volume: (percentage change from previous fiscal year): 
Actual: 2008: -4.5; 
Projected: 2009: -11.2; 
Projected: 2010: -5.6. 

Source: USPS. 

[A] First-Class Mail includes domestic and international First-Class 
Mail. 

[B] Volume is not shown for small categories of market-dominant mail, 
including single-piece international First-Class Mail, USPS mail, and 
Free Mail for the Blind. 

[End of table] 

Table 2: USPS Revenues: Results for Fiscal Year 2008 and Current USPS 
Projections for Fiscal Years 2009 and 2010: 

First-Class Mail[A]; 
Revenue: (millions of dollars): 
Actual: 2008: $38,179; 
Projected: 2009: $35,824; 
Projected: 2010: $34,036; 
Revenue: (percentage change from previous fiscal year): 
Actual: 2008: -0.6; 
Projected: 2009: -6.2; 
Projected: 2010: -5.0. 

Domestic: single-piece; 
Revenue: (millions of dollars): 
Actual: 2008: $19,396; 
Projected: 2009: $17,878; 
Projected: 2010: $16,592; 
Revenue: (percentage change from previous fiscal year): 
Actual: 2008: -3.8; 
Projected: 2009: -7.8; 
Projected: 2010: -7.2. 

Domestic: bulk; 
Revenue: (millions of dollars): 
Actual: 2008: $17,880; 
Projected: 2009: $16,963; 
Projected: 2010: $16,526; 
Revenue: (percentage change from previous fiscal year): 
Actual: 2008: -2.7; 
Projected: 2009: -5.1; 
Projected: 2010: -2.6. 

Standard Mail; 
Revenue: (millions of dollars): 
Actual: 2008: $20,586; 
Projected: 2009: $18,183; 
Projected: 2010: $17,843; 
Revenue: (percentage change from previous fiscal year): 
Actual: 2008: -0.9; 
Projected: 2009: -11.7; 
Projected: 2010: -1.9. 

Periodicals; 
Revenue: (millions of dollars): 
Actual: 2008: $2,295; 
Projected: 2009: $2,114; 
Projected: 2010: $1,917; 
Revenue: (percentage change from previous fiscal year): 
Actual: 2008: 4.9; 
Projected: 2009: -7.9; 
Projected: 2010: -9.3. 

Package Services; 
Revenue: (millions of dollars): 
Actual: 2008: $1,845; 
Projected: 2009: $1,743; 
Projected: 2010: $1,662; 
Revenue: (percentage change from previous fiscal year): 
Actual: 2008: 1.8; 
Projected: 2009: -5.5; 
Projected: 2010: -4.6. 

Subtotal: Market-Dominant Mail[B]; 
Revenue: (millions of dollars): 
Actual: 2008: $62,906; 
Projected: 2009: $57,864; 
Projected: 2010: $55,457; 
Revenue: (percentage change from previous fiscal year): 
Actual: 2008: -0.4; 
Projected: 2009: -8.0; 
Projected: 2010: -4.2. 

Market-Dominant Special Services; 
Revenue: (millions of dollars): 
Actual: 2008: $2,814; 
Projected: 2009: $2,805; 
Projected: 2010: $2,634; 
Revenue: (percentage change from previous fiscal year): 
Actual: 2008: 5.4; 
Projected: 2009: -0.3; 
Projected: 2010: -6.1. 

Competitive Mail and Services; 
Revenue: (millions of dollars): 
Actual: 2008: $8,382; 
Projected: 2009: $7,986; 
Projected: 2010: $7,544; 
Revenue: (percentage change from previous fiscal year): 
Actual: 2008: 6.4; 
Projected: 2009: -4.7; 
Projected: 2010: -5.5. 

Grand Total; 
Revenue: (millions of dollars): 
Actual: 2008: $74,968; 
Projected: 2009: $69,623; 
Projected: 2010: $66,652; 
Revenue: (percentage change from previous fiscal year): 
Actual: 2008: 0.0; 
Projected: 2009: -7.1; 
Projected: 2010: -4.3. 

Source: USPS. 

[A] First-Class Mail includes domestic and international First-Class 
Mail. 

[B] Revenue is not shown for small categories of market-dominant mail, 
including single-piece international First-Class Mail and First-Class 
Mail fees. Revenue other than revenue for market-dominant and 
competitive products and services is not shown, such as nonpostal 
products and services, real estate, appropriations, and investment 
income. 

[End of table] 

[End of section] 

Appendix II: Status of 2008-2009 Proposed Area Mail Processing 
Consolidations as of May 15, 2009: 

[End of section] 

Area Mail Processing (AMP) study initiated: 

Total AMP proposals: 33; 
Public meeting held: 12; 
AMP: not approved: 4; 
AMP: approved: 4. 

1. Aberdeen, SD, to Dakota Central, SD; 
Public meeting held: [Empty]; 
AMP: not approved: [Check]; 
AMP: approved: [Empty]. 

2. Athens, GA, to North Metro, GA; 
Public meeting held: [Check]; 
AMP: not approved: [Empty]; 
AMP: approved: [Empty]. 

3. Binghamton, NY, to Syracuse, NY; 
Public meeting held: [Empty]; 
AMP: not approved: [Empty]; 
AMP: approved: [Empty]. 

4. Bloomington, IN, to Indianapolis, IN; 
Public meeting held: [Empty]; 
AMP: not approved: [Empty]; 
AMP: approved: [Empty]. 

5. Bronx, NY, to Morgan, NY; 
Public meeting held: [Empty]; 
AMP: not approved: [Check]; 
AMP: approved: [Empty]. 

6. Canton, OH, to Akron, OH; 
Public meeting held: [Empty]; 
AMP: not approved: [Empty]; 
AMP: approved: [Check]. 

7. Cape Cod, MA, to Brockton, MA; 
Public meeting held: [Empty]; 
AMP: not approved: [Empty]; 
AMP: approved: [Empty]. 

8. Dallas, TX, to North Texas, TX; 
Public meeting held: [Empty]; 
AMP: not approved: [Empty]; 
AMP: approved: [Empty]. 

9. Detroit, MI, to Pontiac, MI; 
Public meeting held: [Check]; 
AMP: not approved: [Empty]; 
AMP: approved: [Empty]. 

10. Flint, MI, to Pontiac, MI; 
Public meeting held: [Check]; 
AMP: not approved: [Empty]; 
AMP: approved: [Empty]. 

11. Hattiesburg, MS, to Gulfport, MS; 
Public meeting held: [Check]; 
AMP: not approved: [Empty]; 
AMP: approved: [Empty]. 

12. Industry, CA, to Santa Ana, CA and/or Santa Clarita, CA; 
Public meeting held: [Empty]; 
AMP: not approved: [Empty]; 
AMP: approved: [Empty]. 

13. Kansas City, KS, to Kansas City, MO; 
Public meeting held: [Empty]; 
AMP: not approved: [Empty]; 
AMP: approved: [Check]. 

14. Lakeland, FL, to Tampa, FL; 
Public meeting held: [Empty]; 
AMP: not approved: [Empty]; 
AMP: approved: [Check]. 

15. Long Beach, CA, to Santa Ana, CA and/or Los Angeles, CA; 
Public meeting held: [Empty]; 
AMP: not approved: [Empty]; 
AMP: approved: [Empty]. 

16. Manasota, FL, to Tampa, FL; 
Public meeting held: [Empty]; 
AMP: not approved: [Empty]; 
AMP: approved: [Check]. 

17. Mansfield, OH, to Akron, OH; 
Public meeting held: [Check]; 
AMP: not approved: [Empty]; 
AMP: approved: [Empty]. 

18. New Castle, PA, to Pittsburgh, PA; 
Public meeting held: [Empty]; 
AMP: not approved: [Empty]; 
AMP: approved: [Empty]. 

19. Oxnard, CA, to Santa Clarita, CA; 
Public meeting held: [Empty]; 
AMP: not approved: [Empty]; 
AMP: approved: [Empty]. 

20. Plattsburgh, NY, to Burlington, VT; 
Public meeting held: [Empty]; 
AMP: not approved: [Check]; 
AMP: approved: [Empty]. 

21. Portsmouth, NH, to Manchester, NH; 
Public meeting held: [Check]; 
AMP: not approved: [Empty]; 
AMP: approved: [Empty]. 

22. Queens, NY, to Brooklyn, NY; 
Public meeting held: [Check]; 
AMP: not approved: [Empty]; 
AMP: approved: [Empty]. 

23. Quincy, IL, to Springfield, IL; 
Public meeting held: [Empty]; 
AMP: not approved: [Empty]; 
AMP: approved: [Empty]. 

24. Sioux City, IA, to Sioux Falls, SD; 
Public meeting held: [Empty]; 
AMP: not approved: [Check]; 
AMP: approved: [Empty]. 

25. South Florida, FL, to Ft. Lauderdale, FL, and Miami, FL; 
Public meeting held: [Check]; 
AMP: not approved: [Empty]; 
AMP: approved: [Empty]. 

26. Springfield, MA, to Hartford, CT; 
Public meeting held: [Empty]; 
AMP: not approved: [Empty]; 
AMP: approved: [Empty]. 

27. Staten Island, NY, to Brooklyn, NY; 
Public meeting held: [Check]; 
AMP: not approved: [Empty]; 
AMP: approved: [Empty]. 

28. Utica, NY, to Syracuse, NY; 
Public meeting held: [Empty]; 
AMP: not approved: [Empty]; 
AMP: approved: [Empty]. 

29. Watertown, NY, to Syracuse, NY; 
Public meeting held: [Empty]; 
AMP: not approved: [Empty]; 
AMP: approved: [Empty]. 

30. Western Nassau, NY, to Mid-Island, NY; 
Public meeting held: [Empty]; 
AMP: not approved: [Empty]; 
AMP: approved: [Empty]. 

31. Wilkes Barre, PA, to Scranton, PA, and Lehigh Valley, PA; 
Public meeting held: [Check]; 
AMP: not approved: [Empty]; 
AMP: approved: [Empty]. 

32. Winchester, VA, to Dulles, VA; 
Public meeting held: [Check]; 
AMP: not approved: [Empty]; 
AMP: approved: [Empty]. 

33. Zanesville, OH, to Columbus, OH; 
Public meeting held: [Check]; 
AMP: not approved: [Empty]; 
AMP: approved: [Empty]. 

Source: USPS. See [hyperlink, http://www.usps.com/all/amp.htm] for the 
current status of all proposed AMP consolidations. 

[End of table] 

[End of section] 

Footnotes: 

[1] USPS lost $2.8 billion in fiscal year 2008--its second-largest 
annual loss since 1971. 

[2] H.R. 22, 111th Cong. 

[3] GAO, U.S. Postal Service: Escalating Financial Problems Require 
Major Cost Reductions to Limit Losses, [hyperlink, 
http://www.gao.gov/products/GAO-09-475T] (Washington, D.C.: Mar. 25, 
2009); U.S. Postal Service: Deteriorating Postal Finances Require 
Aggressive Actions to Reduce Costs, [hyperlink, 
http://www.gao.gov/products/GAO-09-332T] (Washington, D.C.: Jan. 28, 
2009). 

[4] [hyperlink, http://www.gao.gov/products/GAO-09-332T]. 

[5] GAO, U.S. Postal Service: Key Postal Transformation Issues, 
[hyperlink, http://www.gao.gov/products/GAO-03-812T] (Washington, D.C.: 
May 29, 2003); U.S. Postal Service: Bold Action Needed to Continue 
Progress on Postal Transformation, [hyperlink, 
http://www.gao.gov/products/GAO-04-108T] (Washington, D.C.: Nov. 5, 
2003). 

[6] GAO, U.S. Postal Service: The Service's Strategy for Realigning Its 
Mail Processing Infrastructure Lacks Clarity, Criteria, and 
Accountability, [hyperlink, http://www.gao.gov/products/GAO-05-261] 
(Washington, D.C.: Apr. 8, 2005). 

[7] Remote encoding centers are separate plants established to apply 
address barcodes on letters that could not be read by the automated 
equipment in the mail processing plants. 

[8] GAO, U.S. Postal Service Facilities: Improvements in Data Would 
Strengthen Maintenance and Alignment of Access to Retail Services, 
[hyperlink, http://www.gao.gov/products/GAO-08-41] (Washington, D.C.: 
Dec. 10, 2007). 

[9] USPS is required to consider specific factors in making a 
determination to close a post office and to give persons served the 
opportunity to present their concerns regarding such proposals. 39 
U.S.C ß404(d). USPS also cannot close a small post office solely 
because it operates at a deficit. 39 U.S.C. ß101(b). 

[10] [hyperlink, http://www.gao.gov/products/GAO-05-261]. 

[11] GAO, U.S. Postal Service: USPS Has Taken Steps to Strengthen 
Network Realignment Planning and Accountability and Improve 
Communication, [hyperlink, http://www.gao.gov/products/GAO-08-1022T] 
(Washington, D.C.: July 24, 2008). 

[12] 39 U.S.C. ß3661. 

[13] USPS Office of the Inspector General, Oral Statement on the 
Financial Stability of the Postal Service (Arlington, Va.: Mar. 25, 
2009). 

[14] GAO, U.S. Postal Service: Transformation Challenges Present 
Significant Risks, [hyperlink, http://www.gao.gov/products/GAO-01-598T] 
(Washington, D.C.: Apr. 4, 2001). 

[15] GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-07-310] (Washington, D.C.: January 
2007). 

[16] Since 1990, GAO has identified federal programs and operations as 
"high risk" that, in some cases, need broad-based transformations to 
address major economy, efficiency, or effectiveness challenges. See 
GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-09-271] (Washington, D.C.: January 
2009). 

[End of section] 

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