U.S. Postal Service:

Strategies and Options to Facilitate Progress toward Financial Viability

GAO-10-455: Published: Apr 12, 2010. Publicly Released: Apr 12, 2010.

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Phillip R. Herr
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The Postal Accountability and Enhancement Act of 2006 required GAO to evaluate strategies and options for reforms of the United States Postal Service (USPS). USPS's business model is to fulfill its mission through self-supporting, businesslike operations; however, USPS has experienced increasing difficulties. Due to volume declines, losses, a cash shortage, and rising debt, GAO added USPS's financial condition to its high-risk list in July 2009. GAO's objectives were to assess (1) the viability of USPS's business model, (2) strategies and options to address challenges to its business model, and (3) actions Congress and USPS need to take to facilitate progress toward financial viability. GAO primarily drew on its past work; other studies; USPS data; interviews with USPS, unions, management associations, Postal Regulatory Commission, and mailing industry officials; and stakeholder input.

USPS's business model is not viable due to USPS's inability to reduce costs sufficiently in response to continuing mail volume and revenue declines. Mail volume declined 36 billion pieces (17 percent) over the last 3 fiscal years (2007 through 2009) with the recession accelerating shifts to electronic communications and payments. USPS lost nearly $12 billion over this period, despite achieving billions in cost savings by reducing its career workforce by over 84,000 employees, reducing capital investments, and raising rates. However, USPS had difficulty in eliminating costly excess capacity, and its revenue initiatives have had limited results. USPS also is nearing its $15 billion borrowing limit with the U.S. Treasury and has unfunded pension and retiree health obligations and other liabilities of about $90 billion. In 2009, Congress reduced USPS's retiree health benefit payment by $4 billion to address a looming cash shortfall, but USPS still recorded a loss of $3.8 billion. Given its financial problems and outlook, USPS cannot support its current level of service and operations. USPS projects that volume will decline by about 27 billion pieces over the next decade, while revenues will stagnate; costs will rise; and, without major changes, cumulative losses could exceed $238 billion. This report groups strategies and options that can be taken to address challenges in USPS's business model by better aligning costs with revenues (see table on next page). USPS may be able to improve its financial viability if it takes more aggressive action to reduce costs, particularly compensation and benefit costs that comprise 80 percent of its total costs, as well as increasing revenues within its current authority. However, it is unlikely that such changes would fully resolve USPS's financial problems, unless Congress also takes actions to address constraints and legal restrictions. Action by Congress and USPS is urgently needed to (1) reach agreement on actions to achieve USPS's financial viability, (2) provide financial relief through deferral of costs by revising USPS retiree health benefit funding while continuing to fund these benefits over time to the extent that USPS's finances permit, and (3) require that any binding arbitration resulting from collective bargaining would take USPS's financial condition into account. Congress may also want assurance that any financial relief it provides is met with aggressive actions by USPS to reduce its costs and increase revenues, and that USPS is making progress toward addressing its financial problems. USPS's new business plan recognizes immediate actions are needed, but USPS has made limited progress on some options, such as closing facilities. If no action is taken, risks of larger USPS losses, rate increases, and taxpayer subsidies will increase. To facilitate progress in these difficult areas, Congress could set up a mechanism, such as one similar to the military Base Realignment and Closure Commission, where independent experts could recommend a package of actions with time frames. Key issues also need to be addressed related to what changes, if any, should be made to delivery or retail services; to allow USPS to provide new products or services in nonpostal areas; and to realign USPS operations, networks, and workforce.

Matters for Congressional Consideration

  1. Status: Open

    Comments: Several bills are pending in the 112th Congress that include provisions related to modifying USPS's retiree health benefit cost structure; revising the statutory framework related to collective bargaining, mediation, and binding arbitration; and facilitating cost reductions by restructuring postal networks. The Senate passed S. 1789 on 4/25/12, which included provisions to 1)give USPS access to surpluses in its retirement funds for retirement incentives to eligible employees, 2)reduce USPS's funding requirements for its retiree health benefits, 3)expand the alternatives USPS must consider before closing a post office, 4) require an arbitrator to consider the Postal Service's financial condition in rendering decisions about collective bargaining agreements, and 5)allow the Postal Service to offer nonpostal products and services that are in the public interest. The House is planning to vote on H.R. 2309, which would establish a BRAC-type Commission to provide Congress with a plan for consolidating and closing retail and mail processing facilities to achieve $2 billion in cost savings over 2 years and also to reduce area and district offices by 30 percent. USPS would implement the plan unless Congress disapproves it in a Joint Resolution. The Issa bill would also allow USPS to increase its net revenues through specifically authorized nonpostal products and services and by raising rates on products and services that do not cover their attributable costs.

    Matter: To address USPS's financial viability in the short term, Congress may wish to consider providing financial relief to USPS, including modifying its retiree health benefit cost structure in a fiscally responsible manner. Congress may also wish to consider any and all options available to reduce USPS costs, including revising the statutory framework for collective bargaining to ensure that binding arbitration takes its financial condition into account. At the same time, to facilitate making progress in difficult areas, Congress may wish to consider establishing (1) a panel of independent experts, similar to a BRAC-like commission, to coordinate with USPS and stakeholders to develop a package of proposed legislative and operational changes needed to reduce costs and address challenges to USPS's business model and (2) procedures for the review and approval of these proposals by the President and Congress. These proposals could focus on adapting delivery and retail services to declining mail volumes; making postal operations, networks, and workforce more cost-efficient; and generating new revenue.

  2. Status: Open

    Comments: He House plans to vote on H.R.2309 which includes 2 provisions that would enhance USPS annual reporting related to costs and revenues. First, sec. 113 would require USPS to include the overall change in productivity and the resulting effect on overall postal costs in its annual report to the Postal Regulatory Commission. Second, sec. 407 would also require USPS's annual report to the Commission to include an analysis of the costs, revenues, rates and quality of service for nonpostal services related to services provided for agencies of State governments and other government agencies. This information would be considered by the Commission in its annual report to the Congress and President on the Postal Service's compliance with applicable requirements.

    Matter: Congress may also wish to consider requiring USPS to provide regular reports to Congress to ensure that USPS is making progress to improve its financial condition. These reports could include the actions taken to reduce costs and increase revenues, the results of these actions, and progress toward addressing financial problems.


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