Restructuring the U.S. Postal Service to Achieve Sustainable Financial Viability
Amid challenging economic conditions, a changing business environment, and declining mail volumes, the U.S. Postal Service (USPS) is facing a deteriorating financial situation in which it does not have sufficient revenues to cover its expenses and financial obligations.
Mail volume has declined from 213 billion pieces in fiscal year 2006 to about 160 billion pieces in fiscal year 2012. USPS has projected that volume will decline to about 144 billion pieces by 2016. Further, volume for First-Class Mail, USPSs most profitable product, has declined by 30 percent since 2006 and USPS has projected that it will decline by another 23 percent by 2016. This trend exposes weaknesses in USPSs business model, which has relied on mail volume growth to help cover USPS expenses. USPS actions to improve its financial condition have been limited in part by legal requirements, such as those related to changing the frequency of mail delivery and closing unneeded facilities. Unless USPS can move more aggressively to reduce the gap between its costs and revenues, its financial losses will continue to grow as its viability becomes more difficult to manage. In July 2009, GAO added USPSs financial condition to the list of high-risk areas needing attention by Congress and the executive branch to achieve broad-based restructuring.
USPS cannot fund its current level of service and operations from its revenues; has a retiree health benefit liability of about $94 billion; and did not have sufficient cash or borrowing authority to make retiree health benefit prefunding payments totaling $11.1 billion for the last 2 years, which contributed to a net loss of almost $16 billion for fiscal year 2012. Although USPS has reduced its expenses, it has not been able to cut costs fast enough to offset the large decline in mail volume and revenue. Further, although USPS has generated new revenue, primarily from package delivery services, its total revenue continues to decline. USPS reached its $15 billion borrowing limit in fiscal year 2012, thus risking a lack of liquidity. USPS urgently needs to restructure to reflect changes in its customers use of the mail, to align its costs with revenues, generate sufficient funding for capital investment, and manage its debt (see table 4).
Table 4: USPS Financial Results, Fiscal Years 2006 through 2012
|Numbers in billions|
Total mail volume
Note: Congress reduced USPSs retiree health benefit prefunding payment by $4 billion in fiscal year 2009, and delayed its $5.5 billion prefunding payment for fiscal year 2011 until August 2012. USPS did not make the prefunding payments totaling $11.1 billion for fiscal years 2011 and 2012.
In February 2012, USPS issued a 5-year plan with specific actions to close a projected $21 billion gap between its costs and revenues by 2016 and took actions to implement parts of the plan that did not require congressional approval. These actions included reducing its career workforce by over 55,000 employees and closing 111 mail processing facilities. USPS has also asked Congress to restructure the funding of its pension and retiree health benefit obligations and allow it to reduce the frequency of mail delivery from 6 to 5 days per week. Both the Senate and House of Representatives considered several bills with different approaches to addressing USPSs financial problems, and by the end of 2012, the Senate had passed postal reform legislation, but the House had not. The Presidents fiscal year 2013 budget request also proposed postal reforms, including restructuring USPS pension and retiree health benefit funding and giving USPS the authority to reduce mail delivery frequency from 6 to 5 days.
GAO has issued a number of reports on strategies and options for USPS to generate revenues, reduce costs, increase efficiency by optimizing its workforce and networks, and restructure the funding of USPS pension and retiree health obligations. GAO has also reported that USPSs actions alone under its existing authority will not be sufficient to achieve sustainable financial viability and that comprehensive legislation is urgently needed.
Congress needs to approve a comprehensive package of actions to improve USPSs financial viability by (1) modifying its retiree health benefit payments in a fiscally responsible manner; (2) facilitating USPS cost reduction so that USPS can reduce excess capacity, consolidate its networks and workforce, and close redundant facilities; and (3) requiring any binding arbitration in the negotiation process for USPS labor contracts to take USPSs financial condition into account. USPS needs to continue taking action to reduce costs related to its operations, workforce, and facilities as well as increase revenues so that it can eliminate its net losses, repay its debt, and generate capital for investments, such as replacing its aging vehicle fleet.