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entitled 'U.S. Postal Service: Mail Trends Highlight Need to 
Fundamentally Change Business Model' which was released on October 20, 
2011. 

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GAO-12-159SP: 

United States Government Accountability Office: 
Washington, DC 20548: 

October 14, 2011: 

The Honorable Joseph I. Lieberman: 
Chairman: 
The Honorable Susan M. Collins: 
Ranking Member: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate: 

Subject: U.S. Postal Service: Mail Trends Highlight Need to 
Fundamentally Change Business Model: 

This report formally transmits a summary of our findings regarding 
changing mail trends and the actions and decisions needed to 
restructure USPSís business model (see attachment). Our report is in 
response to your September 21, 2011 request letter and it contains 
information that was used to brief your staff on October 7, 2011. As 
agreed with your offices, unless you publicly announce the contents of 
this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies to the 
Postmaster General, other congressional committees, and interested 
parties. In addition, this report will be available at no charge on 
the GAO website at [hyperlink, http://www.gao.gov]. 

If you or your staffs have any questions regarding this report, please 
contact me at (202) 512-2834 or herrp@gao.gov. Key contributors to 
this report were Teresa Anderson (Assistant Director), Tida Barakat, 
Erin Cohen, Bess Eisenstadt, Colin Fallon, Aaron Kaminsky, and Crystal 
Wesco. 

Signed by: 

Phillip R. Herr: 
Director, Physical Infrastructure Issues: 

Attachment: 

[End of section] 

GAO Highlights: 

Highlights of GAO-12-159SP, a report to the Committee on Homeland 
Security and Governmental Affairs, U.S. Senate. 

Why GAO Did This Study: 

By the end of fiscal year 2011, with a projected net loss of about $10 
billion, the U.S. Postal Service (USPS) was expected to become 
insolvent. To mitigate this, Congress temporarily deferred USPSís 
required $5.5 billion retiree health benefit payment. Over the 
previous 4 years, USPS experienced a cumulative net loss of just over 
$20 billion. USPS expects its revenue to decline further as First-
Class Mail is projected to decline nearly 7 percent annually through 
2020. Consequently, decisions need to be made to determine how USPS 
should be restructured to put it on a path to financial viability. GAO 
was asked to summarize (1) long-term trends related to the demand for 
and use of mail, and (2) options for restructuring USPSís business 
model to adjust to changing mail trends. This summary is based on 
GAOís past work, including GAO-11-278 (High-Risk Series: An Update) 
and GAO-10-455 (USPS: Strategies and Options to Facilitate Progress 
toward Financial Viability), both of which found that USPS urgently 
needs to restructure its networks and workforce to achieve and sustain 
financial viability. In addition, GAO also used data and related 
studies from USPS. GAO performed this work from September 2011 to 
October 2011 in accordance with generally accepted government auditing 
standards. GAO provided a draft of this report to USPS for comment and 
incorporated technical comments provided by USPS as appropriate. 

What GAO Found: 

Long-term trends-óhighlighted in the data below-óstrongly suggest that 
the use of mail will continue to diminish as online communication and 
e-commerce expand. By 2020, USPS projects mail volume will decline to 
levels not seen since the 1980s: Total mail volume is projected to 
decrease by 25 percent, First-Class Mail is expected to decrease by 50 
percent, and Standard Mail volume is projected to remain flat. While 
dire, USPSís projections could prove optimistic if communication 
continues to move to digital technologies as quickly as in the recent 
past. For the first time, in 2010, fewer than 50 percent of all bills 
were paid by mail. These trends underscore the need for USPSís 
business model to undergo fundamental changes to reduce personnel and 
network-related costs. 

Table 1: Key Statistics on USPSís Operations from Fiscal Years 1980 
through 2020: 

Total mail volume (billions of pieces): 
1980: 106; 
1990: 166; 
2000: 208; 
2010: 171; 
2020 (projected): 127. 

Total revenue (dollars in billions): 
1980: $19; 
1990: $40; 
2000: $65; 
2010: $67; 
2020 (projected): $59. 

Total employees: 
1980: 667,000; 
1990: 843,000; 
2000: 901,000; 
2010: 672,000; 
2020 (projected): 425,000. 

Total facilities: 
1980: 39,486; 
1990: 40,067; 
2000: 38,060; 
2010: 36,750; 
2020 (projected): 20,200. 

Source: USPS. 

[End of table] 

As shown in the chart, almost 60 percent of mail received by 
households in 2010 was advertising, while bills and financial 
statements comprised 22 percent. 

Figure: USPS Mail Volume and Mix: 

[Refer to PDF for image: stacked vertical bar graph and pie-chart] 

Volume in billions: 

Fiscal year: 1980; 
First-class mail: 60 billion; 
Standard mail: 30 billion; 
All other: 15 billion; 
Total: 106 billion. 

Fiscal year: 1990; 
First-class mail: 89 billion; 
Standard mail: 64 billion; 
All other: 13 billion; 
Total: 166 billion. 

Fiscal year: 2000; 
First-class mail: 104 billion; 
Standard mail: 91 billion; 
All other: 13 billion; 
Total: 208 billion. 

Fiscal year: 2010; 
First-class mail: 78 billion; 
Standard mail: 83 billion; 
All other: 10 billion; 
Total: 171 billion. 

Fiscal year: 2020 projected; 
First-class mail: 39 billion; 
Standard mail: 81 billion; 
All other: 7 billion; 
Total: 127 billion. 

Mix: 

Advertising: 59%; 
Bills/Financial: 22%; 
Correspondence: 9%; 
Other: 10%. 

Source: GAO analysis of USPS data. 

[End of figure] 

Restructuring USPSís business model to adapt to decreased mail use 
could follow one of three primary models: a government-subsidized 
federal agency, the current structure with additional flexibility, or 
a private-sector business. See table 2 for key actions and decisions 
associated with each model. 

Table 2: Actions and Decisions Needed to Restructure USPSís Business 
Model: 

Universal service obligation: 
Government-subsidized federal agency: Determine whether or not the 
universal service obligation should be revised to reflect changing 
mail use, affordability, access to services, and the level of subsidy 
needed; 
Current structure with additional flexibility: Determine whether or 
not the universal service obligation should be revised to reflect 
changing mail use, affordability, and access to services; 
Private-sector business(es): Determine how to ensure, and in what 
form, universal service would be provided. 

Role in providing delivery and retail services: 
Government-subsidized federal agency: Determine the level of federal 
subsidy needed to provide agreed-on delivery and retail services; 
Current structure with additional flexibility: Give USPS greater 
flexibility to partner and compete with private firms in providing 
delivery and retail services; 
Private-sector business(es): Allow private firms to provide delivery 
and retail services while preserving the universal service obligation. 

Governance and regulation: 
Government-subsidized federal agency: Revise governance and regulatory 
structures to be consistent with administration and congressional 
oversight, and related changes; 
Current structure with additional flexibility: Revise governance, 
regulatory oversight, and reporting requirements to be consistent with 
other changes made, such as pricing flexibility and network changes; 
Private-sector business(es): Revise governance, regulatory oversight 
structures, and reporting requirements to reflect those applicable to 
industries, subject to universal service provisions. 

Monopolies: 
Government-subsidized federal agency: Continue the letter and mailbox 
monopolies; 
Current structure with additional flexibility: Determine whether the 
letter or mailbox monopoly should be changed; 
Private-sector business(es): Phase out or eliminate the letter and 
mailbox monopolies. 

Pricing and products: 
Government-subsidized federal agency: Determine whether to retain 
price caps and subsidies for certain mail classes, and how much 
pricing and product flexibility USPS should have to develop new 
products and services; 
Current structure with additional flexibility: Determine whether to 
retain price caps and subsidies for certain mail classes, product 
flexibility, and ensure products cover their costs; 
Private-sector business(es): Provide flexibility to develop new 
products and base prices on market conditions; eliminate price caps 
and subsidies. 

Borrowing authority: 
Government-subsidized federal agency: Determine how the current $15 
billion debt to the U.S. Treasury will be repaid and whether the $15 
billion debt limit should be changed; 
Current structure with additional flexibility: Determine how the 
current $15 billion debt to the U.S. Treasury will be repaid and 
whether the $15 billion debt limit should be changed; 
Private-sector business(es): Eliminate borrowing from the U.S. 
Treasury, repay debt to the U.S. Treasury, and require capital to be 
raised in private equity markets. 

Financial obligations: 
Government-subsidized federal agency: Allow USPS to fund its 
obligations like other federal agencies and eliminate prefunding for 
retiree health benefit obligations; 
Current structure with additional flexibility: Restructure funding for 
retiree health benefit obligations in a fiscally responsible manner; 
Private-sector business(es): Establish new pension, retiree health, 
and workersí compensation programs and determine obligations, in 
accordance with applicable laws and regulations. 

Networks and workforce: 
Government-subsidized federal agency: Optimize networks and workforce 
in accordance with service levels and subsidy; 
Current structure with additional flexibility: Optimize networks and 
workforce to match costs with declining volume and revenue; 
Private-sector business(es): Optimize networks and workforce in 
accordance with service obligations. 

Compensation and benefits: 
Government-subsidized federal agency: Revise compensation and benefit 
requirements to reflect those applicable to other federal employees; 
Current structure with additional flexibility: Revise compensation and 
benefit requirements to reflect either private-or public-sector 
standards, but not a hybrid of both; 
Private-sector business(es): Revise compensation and benefit structure 
to reflect private-sector practices. 

Labor-related requirements: 
Government-subsidized federal agency: Revise requirements to reflect 
those used by federal agencies; 
Current structure with additional flexibility: Require binding 
arbitration for labor contracts to consider USPSís financial condition; 
Private-sector business(es): Revise requirements to reflect those 
applicable to private firms. 

Source: Analysis of prior GAO work and USPS documents. 

[End of table] 

[End of section] 

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