Key Issues > High Risk > USPS Financial Viability
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USPS Financial Viability

Comprehensive legislative reform and additional cost-cutting are needed for the U.S. Postal Service (USPS) to achieve sustainable financial viability.

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USPS’s financial viability has been on our High-Risk List due to the need for action to address USPS’s poor financial condition. In July 2009, we reported that USPS’s financial condition needed attention by Congress and the executive branch to achieve broad-based restructuring. Currently one open Matter for Congressional Consideration is related to this high-risk area.

USPS financial viability continues to be high-risk because USPS cannot fund its current level of services and financial obligations from its revenues. As an independent establishment in the executive branch, USPS has long been expected to provide affordable, quality, and universal postal service to all parts of the country while remaining self-financing. Specifically, USPS is expected to be financially self-sufficient by covering its expenses through revenues generated from the sale of its products and services.

However, USPS is no longer able to do so. USPS’s most profitable product—First-Class Mail—is expected to continue declining for the foreseeable future, and USPS faces increasing competition in its less profitable package shipping business. Meanwhile, key costs, such as compensation and benefits, are rising.

Restructuring the U.S. Postal Service to Achieve Sustainable Financial Viability

Since our 2017 High-Risk Report, ratings for one criterion improved, one regressed, and three remain unchanged. The monitoring progress criterion is now met, but the demonstrated progress criterion regressed to not met.

Removal of USPS’s financial viability from the High-Risk List would require fundamental changes. Both Congress and USPS need to act to put it on a sustainable financial footing. USPS has lost $69.0 billion over the past 11 fiscal years—including $3.9 billion in fiscal year 2018—and has budgeted for a $6.6 billion net loss in fiscal year 2019.

Leadership commitment: partially met. USPS continues to seek some legislative changes intended to improve its financial condition. For example, USPS has sought legislation that would integrate its retiree health program with Medicare, which would significantly reduce its total unfunded liabilities. USPS also has sought legislation that would require a rate increase for most mail. Further, USPS is seeking the elimination of the price cap that generally limits rate increases for most mail to the rate of inflation.

USPS has implemented limited initiatives to manage its labor costs, such as a small reduction to its workforce in fiscal year 2018 through attrition. USPS has stated that opportunities for further cost savings are limited under the existing legal framework and would do little to close its financial gap.

Capacity: partially met. USPS plans to increase capital spending in the coming decade to replace and modernize its infrastructure after years of reduced capital investment. For example, USPS plans to replace its aging fleet of delivery vehicles, which is intended to increase its capacity to deliver mail and packages in a more cost-efficient manner.

However, given the uncertainty of USPS’s financial situation, the ability to carry out this spending may require tradeoffs with other commitments. USPS is only able to make capital investments and pay for its ongoing operations by not making certain required federal payments to fund accrued retirement benefits.

Action plan: partially met. USPS issued its 5-year strategic plan for fiscal years 2017 to 2021 outlining its strategy for making progress towards financial viability, and developed annual performance plans that specify goals for each fiscal year. However, these plans fall short of maximizing what USPS can do within its existing authority to operate more efficiently and reduce its costs. For example, USPS has no plans to resume consolidating its processing facilities, recognizing that actions such as this would likely face stakeholder resistance.

Monitoring: met. USPS regularly monitors its financial condition and issues quarterly and independently-audited annual financial reports. The independent audits have consistently found that USPS’s financial statements conform with U.S. generally accepted accounting principles and fairly present, in all material aspects, USPS’s financial position at the end of each fiscal year, as well as the results of its operations and cash flows. USPS’s quarterly and annual financial reports provide information on key trends and measures, such as (1) revenues and expenses; (2) unfunded liabilities; and (3) debt obligations. USPS publishes the reports on its public website and provides quarterly public webcasts on its financial results.

Demonstrated progress: not met. USPS’s overall financial condition is deteriorating and unsustainable. The savings from USPS cost-reduction efforts have dwindled in recent years and although USPS has stated it will aggressively reduce costs within its control, USPS’s plans will not achieve the kind of savings necessary to significantly reduce current operating costs. USPS expenses are now growing faster than its revenues, in part due to rising compensation and benefits costs combined with continuing declines in First-Class Mail. Further, USPS’s total unfunded liabilities and debt were $143 billion at the end of fiscal year 2018, an amount double its annual revenue.

As we testified in February 2017, a comprehensive package of legislative actions is needed to improve USPS’s financial viability. In that testimony, we also stated that USPS’s financial situation leaves Congress with difficult choices and trade-offs to achieve the broad-based restructuring that will be necessary for USPS to become financially sustainable.

In addition, USPS has missed $48.2 billion in required payments for postal retiree health and pension benefits through fiscal year 2018, including $42.6 billion in missed payments for retiree health benefits since fiscal year 2010, and $5.6 billion for pension benefits since fiscal year 2014. USPS has stated that it missed these payments to minimize the risk of running out of cash, citing its precarious financial condition and the need to cover current and anticipated costs and any contingencies.

USPS appears likely to miss required payments for retiree health benefits for the foreseeable future. Based on Office of Personnel Management projections, the fund supporting postal retiree health benefits would be depleted in fiscal year 2030 if USPS continues to miss all payments. If the fund is depleted, USPS would be required by law to make the payments necessary to cover its share of health benefits premiums for postal retirees. However, current law does not address what would happen if USPS misses those payments. Depletion of the fund, together with USPS’s potential inability to make remaining contributions, could affect postal retirees as well as USPS, customers, and other stakeholders, including the federal government.

As USPS has stated, it needs to aggressively pursue additional cost-reduction initiatives in areas in which it has managerial discretion. Because USPS actions under its existing authority will be insufficient to restore its financial viability, a balanced package of legislative reform continues to be needed.

Congressional Actions Needed

Congress should consider a comprehensive package of legislative actions to improve USPS ’s financial viability, including (1) facilitating USPS’s ability to better align costs with revenues; (2) putting postal retiree health benefits on a more sustainable financial footing; and (3) requiring any binding arbitration in the negotiation process for USPS labor contracts to take USPS’s financial condition into account. Congress should consider various options to better align USPS costs with revenues, and address constraints and legal restrictions that limit USPS's ability to reduce costs and improve efficiency.

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