U.S. Postal Service
Deteriorating Postal Finances Require Aggressive Actions to Reduce Costs Gao ID: GAO-09-332T January 28, 2009When Congress passed the Postal Accountability and Enhancement Act in December 2006, the U.S. Postal Service (USPS) had just completed fiscal year 2006 with its largest mail volume ever--213 billion pieces of mail and a net income of $900 million. Two years later, USPS's mail volume dropped almost 5 percent--the largest single-year decline. The Postmaster General testified last March before this subcommittee that USPS was facing a potential net loss of over $1 billion for fiscal year 2008. He noted that USPS anticipated continued deterioration due to the economic slowdown, as the financial, credit, and housing sectors are among its key business drivers. He also said that the shifts in transactions and messages from mail to electronic communications and from advertising mail to lower-cost electronic media have affected the USPS's financial situation. This testimony focuses on (1) USPS's financial condition and outlook and (2) options and actions for USPS to remain financially viable in the short and long term. It is based on GAO's past work and updated postal financial information. We asked USPS for comments on our statement. USPS generally agreed with the accuracy of our statement and provided technical corrections and some additional perspective, which we incorporated where appropriate.
USPS has reported that the declining economy accelerated declines in mail volume in fiscal year 2008 and flattened revenues despite postal rate increases. In fiscal year 2008, mail volume fell by 9.5 billion pieces, fuel prices increased costs by over $500 million, and cost-of-living allowances for postal employees increased costs by $560 million. Cutting costs by $2 billion--primarily by cutting over 50 million work hours--did not close the gap between revenues and expenses. Thus, USPS recorded a loss of $2.8 billion for fiscal year 2008. Its debt increased by $3 billion by the end of the year to $7.2 billion. USPS's outlook for fiscal year 2009 has become more pessimistic. USPS projects a volume decline of 10 billion to 15 billion pieces, another loss, and $3 billion more in debt. At this pace, USPS could reach its $15 billion statutory debt limit by fiscal year 2011. In the short term, several options could assist USPS through its difficulties, some of which would require congressional action. USPS has proposed that Congress give it immediate financial relief totaling about $25 billion over the next 8 years by changing the funding of its retiree health benefits. Although GAO recognizes the need to provide USPS with immediate financial relief, such relief is no substitute for aggressive USPS action to preserve its long-term viability. USPS projects an improvement in its financial condition in fiscal year 2010. Therefore, GAO believes it would be preferable to provide 2-year relief totaling $4.3 billion. This would have less impact on the retiree health benefits fund, and then Congress could revisit USPS's financial condition to determine whether additional relief is needed. In the long term, USPS action beyond its current cost-cutting efforts is urgently needed to reduce costs and improve efficiency. GAO agrees with the Postal Regulatory Commission that unfavorable mail volume and revenue trends may imperil USPS's financial viability and that USPS must dramatically reduce its costs to remain viable. Two areas for further action to reduce costs include compensation and benefits, which is close to 80 percent of its costs, and mail processing and retail networks. GAO previously reported that excess capacity in USPS's mail processing infrastructure has impeded efficiency gains. USPS has considered several options to realign its facility network, such as outsourcing operations in some mail processing facilities, but has taken only limited action. Another option would be for USPS to close unnecessary retail facilities and thereby reduce its large maintenance backlog. While it has been difficult for USPS to take action in these areas, Congress encouraged USPS to expeditiously move forward in its streamlining efforts in the postal reform act of 2006. GAO recommended that USPS enhance transparency and strengthen accountability of its realignment efforts to assure stakeholders that realignment would be implemented fairly and achieve the desired results, and it has made improvements in this area. Accelerated volume declines and changes in the public's use of mail indicate that USPS needs to move beyond incremental efforts and take aggressive action to streamline its workforce and network costs to assure its long-term viability.
GAO-09-332T, U.S. Postal Service: Deteriorating Postal Finances Require Aggressive Actions to Reduce Costs
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Testimony:
Before the Subcommittee on Federal Financial Management, Government
Information, Federal Services, and International Security, Committee on
Homeland Security and Governmental Affairs, U.S. Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 2:30 p.m. EST:
Wednesday, January 28, 2009:
U.S. Postal Service:
Deteriorating Postal Finances Require Aggressive Actions to Reduce
Costs:
Statement of Phillip Herr, Director:
Physical Infrastructure:
U.S. Postal Service:
GAO-09-332T:
GAO Highlights:
Highlights of GAO-09-332T, a hearing before the Subcommittee on Federal
Financial Management, Government Information, Federal Services, and
International Security, Committee on Homeland Security and Governmental
Affairs, U.S. Senate.
Why GAO Did This Study:
When Congress passed the Postal Accountability and Enhancement Act in
December 2006, the U.S. Postal Service (USPS) had just completed fiscal
year 2006 with its largest mail volume ever”213 billion pieces of mail
and a net income of $900 million. Two years later, USPS‘s mail volume
dropped almost 5 percent”the largest single-year decline. The
Postmaster General testified last March before this subcommittee that
USPS was facing a potential net loss of over $1 billion for fiscal year
2008. He noted that USPS anticipated continued deterioration due to the
economic slowdown, as the financial, credit, and housing sectors are
among its key business drivers. He also said that the shifts in
transactions and messages from mail to electronic communications and
from advertising mail to lower-cost electronic media have affected the
USPS‘s financial situation.
This testimony focuses on (1) USPS‘s financial condition and outlook
and (2) options and actions for USPS to remain financially viable in
the short and long term. It is based on GAO‘s past work and updated
postal financial information. We asked USPS for comments on our
statement. USPS generally agreed with the accuracy of our statement and
provided technical corrections and some additional perspective, which
we incorporated where appropriate.
What GAO Found:
USPS has reported that the declining economy accelerated declines in
mail volume in fiscal year 2008 and flattened revenues despite postal
rate increases. In fiscal year 2008, mail volume fell by 9.5 billion
pieces, fuel prices increased costs by over $500 million, and cost-of-
living allowances for postal employees increased costs by $560 million.
Cutting costs by $2 billion”primarily by cutting over 50 million work
hours”did not close the gap between revenues and expenses. Thus, USPS
recorded a loss of $2.8 billion for fiscal year 2008. Its debt
increased by $3 billion by the end of the year to $7.2 billion. USPS‘s
outlook for fiscal year 2009 has become more pessimistic. USPS projects
a volume decline of 10 billion to 15 billion pieces, another loss, and
$3 billion more in debt. At this pace, USPS could reach its $15 billion
statutory debt limit by fiscal year 2011.
In the short term, several options could assist USPS through its
difficulties, some of which would require congressional action. USPS
has proposed that Congress give it immediate financial relief totaling
about $25 billion over the next 8 years by changing the funding of its
retiree health benefits. Although GAO recognizes the need to provide
USPS with immediate financial relief, such relief is no substitute for
aggressive USPS action to preserve its long-term viability. USPS
projects an improvement in its financial condition in fiscal year 2010.
Therefore, GAO believes it would be preferable to provide 2-year relief
totaling $4.3 billion. This would have less impact on the retiree
health benefits fund, and then Congress could revisit USPS‘s financial
condition to determine whether additional relief is needed.
In the long term, USPS action beyond its current cost-cutting efforts
is urgently needed to reduce costs and improve efficiency. GAO agrees
with the Postal Regulatory Commission that unfavorable mail volume and
revenue trends may imperil USPS‘s financial viability and that USPS
must dramatically reduce its costs to remain viable. Two areas for
further action to reduce costs include compensation and benefits, which
is close to 80 percent of its costs, and mail processing and retail
networks. GAO previously reported that excess capacity in USPS‘s mail
processing infrastructure has impeded efficiency gains. USPS has
considered several options to realign its facility network, such as
outsourcing operations in some mail processing facilities, but has
taken only limited action. Another option would be for USPS to close
unnecessary retail facilities and thereby reduce its large maintenance
backlog. While it has been difficult for USPS to take action in these
areas, Congress encouraged USPS to expeditiously move forward in its
streamlining efforts in the postal reform act of 2006. GAO recommended
that USPS enhance transparency and strengthen accountability of its
realignment efforts to assure stakeholders that realignment would be
implemented fairly and achieve the desired results, and it has made
improvements in this area. Accelerated volume declines and changes in
the public‘s use of mail indicate that USPS needs to move beyond
incremental efforts and take aggressive action to streamline its
workforce and network costs to assure its long-term viability.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-09-332T]. For more
information, contact Phillip Herr at (202) 512-2834 or herrp@gao.gov.
[End of section]
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to participate in this oversight hearing
on the state of the U.S. Postal Service (USPS). As requested, my
statement addresses the following:
1. USPS's financial condition and outlook.
2. Options or actions available for USPS to remain financially viable
in the short and long term.
My statement is based on our prior work and updated information on
USPS's financial condition and outlook. We reviewed USPS's budget for
fiscal year 2009 and preliminary information on results for the first
quarter of the fiscal year and met with the Chief Financial Officer and
other postal officials. We conducted this performance audit in
accordance with generally accepted government auditing standards. These
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's Current Financial Condition and Outlook Have Deteriorated:
USPS's financial condition deteriorated in fiscal year 2008. According
to USPS, this was due largely to declines in the economy--particularly
in the financial and housing sectors--that were reflected in a 4.5
percent decline in total mail volumes and flattened revenues despite
rate increases. In addition, fuel prices increased costs by over $500
million, and cost-of-living allowances provided to postal employees
increased costs by about $560 million. Even after reducing over $2
billion in costs, primarily by cutting more than 50 million work hours,
USPS was not able to close the gap between revenues and expenses. Thus,
USPS finished fiscal year 2008 with a $2.8 billion loss--the second-
largest loss since 1971 (see app. I). [Footnote 1]
Further, USPS productivity decreased 0.5 percent in fiscal year 2008,
which was the first decline since fiscal year 1999. According to USPS,
productivity declined because its cost-cutting efforts were not
sufficient to offset the impact of declining mail volume. USPS debt
increased by $3 billion in fiscal year 2008--the annual statutory
limit--and reached $7.2 billion in total outstanding debt at the end of
the fiscal year, or nearly half of the $15 billion statutory debt
limit. At the end of fiscal year 2005, USPS had no outstanding debt. At
this pace, USPS would be constrained at the end of fiscal year 2011 by
the $15 billion statutory debt limit.
Rate Increases and Cost-Cutting Efforts are Insufficient to Offset the
Impact of Volume Declines:
As USPS has reported, it experienced the single largest volume drop in
its history in fiscal year 2008 when mail volume fell by 9.5 billion
pieces (see app. II). First-Class Mail volume (e.g., correspondence,
bills, payments, and statements) declined 4.8 percent, while Standard
Mail (primarily advertising) declined 4.3 percent. Volume declines
accelerated during fiscal year 2008 (see fig. 1). Preliminary results
for the first quarter of fiscal year 2009 indicate that the trend of
accelerating volume declines is continuing.
Figure 1: Quarterly Changes in the Volume of First-Class Mail and
Standard Mail, Fiscal Years 2005 through 2008:
This figure is a combination line graph showing quarterly changes in
the volume of first-class mail and standard mail, fiscal years 2005
through 2008. One line represents standard mail volume, and the other
represents first-class volume.
Standard mail volume First-Class mail volume
Q1 2005;
Standard Mail volume: 9.27;
First-Class Mail volume: 2.09.
Q2 2005;
Standard Mail volume: 4.08;
First-Class Mail volume: -1.26.
Q3 2005;
Standard Mail volume: 4.61;
First-Class Mail volume: 0.29.
Q4 2005;
Standard Mail volume: 4.41;
First-Class Mail volume: -0.64.
Q1 2006;
Standard Mail volume: 0.46;
First-Class Mail volume: -4.01.
Q2 2006;
Standard Mail volume: 2.66;
First-Class Mail volume: 1.59.
Q3 2006;
Standard Mail volume: 2.84;
First-Class Mail volume: 1.15.
Q4 2006;
Standard Mail volume: 0.24;
First-Class Mail volume: -0.87.
Q1 2007;
Standard Mail volume: 4.95;
First-Class Mail volume: -0.08.
Q2 2007;
Standard Mail volume: 1.26;
First-Class Mail volume: -2.52.
Q3 2007;
Standard Mail volume: -0.92;
First-Class Mail volume: -1.35.
Q4 2007;
Standard Mail volume: -1.44;
First-Class Mail volume: -2.59.
Q1 2008;
Standard Mail volume: -2.73;
First-Class Mail volume: -3.92.
Q2 2008;
Standard Mail volume: -3.01;
First-Class Mail volume: -3.13.
Q3 2008;
Standard Mail volume: -5.56;
First-Class Mail volume: -5.46.
Q4 2008;
Standard Mail volume: -6.05;
First-Class Mail volume: -6.97.
[Refer to PDF for image]
Source: USPS.
Note: Quarterly changes are from the same quarter of the prior fiscal
year. First-Class Mail volume does not include International First-
Class Mail.
[End of figure]
According to USPS, difficulties faced by the hard-hit financial and
housing sectors, which are major mail users, contributed to mail volume
declines in fiscal year 2008. Advertising mail was adversely affected,
particularly credit card, mortgage, and home equity solicitations.
Volume declines also came from catalogue retailers, the printing and
publishing business, and the services sector. Mail volume in fiscal
year 2008 was also affected by the continuing shift of mail to
electronic communication and payment alternatives. The accelerating
declines in mail volumes resulted in a similar trend for total USPS
revenues.
USPS stepped up cost-cutting efforts during fiscal year 2008 but did
not cut costs sufficiently to offset the impact of declining mail
volumes. USPS has large overhead (institutional) costs that are hard to
change in the short term, including providing 6-day delivery and retail
services at close to 37,000 post offices and retail facilities across
the country. Compensation and benefits for USPS's workforce, which was
about 663,000 career employees and nearly 102,000 noncareer employees
at the end of fiscal year 2008, generated close to 80 percent of USPS
costs. USPS has collective bargaining agreements with its four largest
unions that expire in 2010 and 2011. These agreements include layoff
protections, as well as work rules that constrain USPS's flexibility.
They also include semiannual cost-of-living allowances (COLA) linked to
the Consumer Price Index (CPI). In addition, the agreements cover many
benefits, such as the employer and employee contributions to health
benefits premiums. Under the current collective bargaining agreements,
USPS's share of the employee health benefit premiums was 85 percent in
fiscal year 2007 and will decrease by 1 percent each year beginning in
fiscal year 2008 or 2009 through 2011 or 2012, depending on the terms
of the agreements with the unions. USPS's share of the premiums in
fiscal year 2007 was about 13 percent more than for most other federal
agencies.
USPS's Fiscal Year 2009 Outlook Has Become More Pessimistic:
According to USPS officials, USPS's financial outlook has continued to
deteriorate based on preliminary results for the first quarter of
fiscal year 2009, as well as updated projections for mail volume and
revenue. Preliminary first quarter results indicate that USPS incurred
a deficit, as expense reductions did not fully offset large declines in
volume and revenue. In response, USPS has cut work hour targets for its
field operations for the rest of the fiscal year. However, USPS
officials told us these targets could be difficult to achieve, and they
expect the net loss for fiscal year 2009 to exceed last year's net
loss. In light of these results and updated projections, USPS officials
told us this month that they expect fiscal year 2009 mail volume to
decline by 10 billion to 15 billion pieces. USPS officials project
revenues to fall below the target in USPS's original budget and for
debt to increase by $3 billion.
USPS officials said they expect to have sufficient cash reserves to
make mandated year-end payments for retiree health benefits and
workers' compensation, unless the USPS net loss for fiscal year 2009
exceeds $5 billion. Given difficult and uncertain economic conditions,
it will be important for USPS to continue providing Congress and
stakeholders with timely and sufficiently detailed information to
understand USPS's current financial situation and outlook.
Aggressive USPS Action Is Needed to Preserve USPS's Financial
Viability:
Various options or actions are available for USPS to remain financially
viable in the short and long term. In the short term, USPS has asked
Congress to consider its proposal for immediate financial relief. In
the long term, aggressive USPS action beyond its current cost-cutting
efforts is urgently needed to reduce costs and improve efficiency,
particularly in light of accelerated declines in mail volume and
changes in the public's use of mail. We agree with the Postal
Regulatory Commission (PRC) that unfavorable mail volume and revenue
trends may imperil USPS's financial viability and that USPS must
dramatically reduce its costs to remain viable.[Footnote 2]
As the PRC has noted, current pressures from declining revenue and
volume do not appear to be abating, but rather seem to be increasing.
During the economic downturn, there has been accelerated diversion of
business and individual mail, and some mailers have left the market
entirely. An economic recovery may not bring a corresponding recovery
in mail volume due to continuing social and technological trends that
have changed the way that people communicate and use the mail.
Specifically:
* First-Class Mail volume has declined in recent years and is expected
to decline for the foreseeable future as businesses, nonprofit
organizations, governments, and households continue to move their
correspondence and transactions to electronic alternatives, such as
Internet bill payment, automatic deduction, and direct deposit. USPS
analysis has found that electronic diversion is associated with the
growing adoption of broadband technology. As PRC reported, available
alternatives to mail eventually result in substitution effects.
* It is unclear whether Standard Mail will continue to grow with an
economic recovery. Standard Mail now faces growing competition from
electronic alternatives, such as Internet-based search engine
marketing, e-mail offers, and advertisements on Web sites. In addition,
Standard Mail is price-sensitive, as was demonstrated when catalog
advertising declined in response to the 2007 postal rate increase.
Although Standard Mail rate increases are limited by the price
cap,[Footnote 3] future rate increases will likely have some impact on
volume.
* Periodicals (e.g., mailed newspapers and magazines) volume has been
declining due to changing reading preferences and these declines are
expected to continue. Overall newspaper readership is falling. Also,
the Christian Science Monitor and U.S. News and World Report recently
announced that they would discontinue their printed editions.
Businesses and consumers are becoming more likely to obtain news and
information from the Internet, a trend that is particularly evident
among young people.
Options to Assist USPS through Its Short Term Difficulties:
Several options could assist USPS through its short-term difficulties,
some of which would require congressional action. Although we recognize
the need to provide USPS with immediate financial relief, such relief
should meet its short-term needs and is no substitute for aggressive
USPS action to preserve its long-term viability. Key options include
the following:
* Reduce USPS payments for retiree health benefits for 8 years.
USPS has proposed that Congress give it immediate financial relief by
reducing its retiree health benefits payments by an estimated $25
billion from 2009 through 2016.[Footnote 4] Specifically, USPS has
proposed that Congress change the statutory obligation to pay retiree
health benefits premiums for current retirees from USPS to the Postal
Service Retiree Health Benefits Fund (Fund) for the next 8
years.[Footnote 5] Because the Fund would pay the estimated $25 billion
in premium payments over the next 8 years, this would decrease the Fund
by approximately $32 billion (including interest charges) as of 2017.
With this option, starting in fiscal year 2017, USPS would have a total
unfunded retiree health benefits obligation currently estimated at
about $75 billion, rather than an estimated $43 billion, that would
then need to be amortized in future years. In the long term, the large
impact this unfunded obligation would have on the Fund would create the
risk that USPS would have difficulty making future payments,
particularly considering mail volume trends and the impact of payments
on postal rates if mail volume declines continue. USPS's proposal would
also shift responsibility for paying the benefits of postal employees
from current rate payers to future rate payers. USPS would continue to
make annual payments ranging from $5.4 billion to $5.8 billion from
fiscal years 2009 through 2016 (as shown in Table 1) for its obligation
for future retiree health benefits, as required by PAEA. Thus, under
USPS's proposal, it would save $2 billion in fiscal year 2009.
Table 1: USPS Proposal to Revise Funding of Its Retiree Health Benefits
Premium Payments:
Dollars in billions.
Fiscal year: 2009;
Payment for future retiree health benefits obligation: $5.4;
Payment for current retiree health benefits premiums: $2.0;
Total: $7.4.
Fiscal year: 2010;
Payment for future retiree health benefits obligation: 5.5;
Payment for current retiree health benefits premiums: 2.3;
Total: 7.8.
Fiscal year: 2011;
Payment for future retiree health benefits obligation: 5.5;
Payment for current retiree health benefits premiums: 2.6;
Total: 8.1.
Fiscal year: 2012;
Payment for future retiree health benefits obligation: 5.6;
Payment for current retiree health benefits premiums: 2.9;
Total: 8.5.
Fiscal year: 2013;
Payment for future retiree health benefits obligation: 5.6;
Payment for current retiree health benefits premiums: 3.2;
Total: 8.8.
Fiscal year: 2014;
Payment for future retiree health benefits obligation: 5.7;
Payment for current retiree health benefits premiums: 3.5;
Total: 9.2.
Fiscal year: 2015;
Payment for future retiree health benefits obligation: 5.7;
Payment for current retiree health benefits premiums: 3.9;
Total: 9.6.
Fiscal year: 2016;
Payment for future retiree health benefits obligation: 5.8;
Payment for current retiree health benefits premiums: 4.2;
Total: 10.0.
Fiscal year: Total;
Payment for future retiree health benefits obligation: $44.8;
Payment for current retiree health benefits premiums: $24.6;
Total: $69.4.
Source: USPS.
Note: USPS has proposed amending the statute so that payments for
current retiree health benefit premiums would be paid from the Postal
Service Retiree Health Benefits Fund, which would reduce the Fund by a
total of $24.6 billion over 8 years. USPS would continue to make the
annual statutory payments for future retiree health benefit
obligations.
[End of table]
* Reduce USPS payments for retiree health benefits for 2 years.
Another option would be for Congress to provide USPS with 2-year relief
for retiree health benefits premium payments, totaling about $4.3
billion, which would be consistent with providing immediate financial
relief, while having much less impact on the Fund than USPS's proposal.
Specifically, Congress could revise USPS's statutory obligation so that
it would not pay for current retiree health benefits for fiscal years
2009 and 2010. USPS has provided information related to its financial
situation for fiscal years 2009 and 2010 which projected that its
financial condition would improve beginning in 2010. Therefore, we
believe that the option to provide 2-year relief totaling $4.3 billion
would be preferable to USPS's proposal. Under this short-term option
Congress could revisit USPS's financial condition to determine whether
further relief is needed and also review what actions USPS has taken to
assure its long-term financial viability.
* Work with unions to modify work rules.
One option that would not require congressional action is similar to
actions taken by other financially stressed entities, whereby USPS and
its unions could agree on ways to achieve additional short-term
savings, such as by modifying work rules to facilitate reducing work
hours. For example, USPS and the National Association of Letter
Carriers recently agreed on a new procedure to expedite the evaluation
and adjustment of city delivery carrier routes. According to USPS
officials, this new process is aimed at enhancing USPS's ability to
respond to declining mail volumes[Footnote 6] and is expected to make a
key contribution to the budgeted savings of $1.3 billion in city
delivery costs in fiscal years 2009 and 2010.
Other options are based on provisions in the statute and could include
1) seeking regulatory approval for an exigent rate increase and 2)
increasing USPS's annual borrowing limit. USPS could request PRC
approval for an exigent rate increase that would increase rates for
market-dominant classes of mail[Footnote 7] above the statutory price
cap.[Footnote 8] Mailers have voiced strong concern about the potential
impact of an exigent rate increase on their businesses. In our view,
this option should be a last resort. Such an increase could be self-
defeating for USPS in both the short and long term because it could
increase incentives for mailers to further reduce their use of the
mail.
Congress could also temporarily expand the statutory $3 billion annual
limit on increases in USPS debt, which would provide USPS with access
to funding if it has difficulty making mandated year-end payments.
Raising USPS's annual debt limit could address a cash shortage and
would be preferable to an exigent rate increase. However, it is unclear
when USPS would repay any added debt, which would move USPS closer to
the $15 billion statutory debt limit. In our view, this option should
be regarded only as an emergency stopgap measure.
Comprehensive Action Is Needed to Help Keep USPS Financially Viable in
the Long-Term:
Action is urgently needed to streamline USPS costs in two areas where
it has been particularly difficult--the compensation and benefits area,
which generates close to 80 percent of its costs, and USPS's mail
processing and retail networks. As USPS's mail volumes decline, it does
not have sufficient revenue to cover the growing costs of providing
service to new residences and businesses, while also maintaining its
large network of processing and retail facilities. We have reported for
many years that USPS needs to rightsize its workforce and realign its
network of mail processing and retail facilities. USPS has made some
progress, particularly by reducing its workforce by more than 100,000
employees with no layoffs and by closing some smaller mail processing
facilities. Yet, more will need to be done.
USPS has several options for realigning its mail processing operations
to eliminate excess capacity and costs, but has taken only limited
action. In 2005, we reported that according to USPS officials,
declining mail volume, worksharing,[Footnote 9] and the evolution of
mail processing operations from manual to automated equipment led to
excess capacity that has impeded efficiency gains.[Footnote 10] While
USPS has terminated operations at 54 Airport Mail Centers in fiscal
years 2006 through 2008, it has closed only one of over 400 major mail
processing facilities as a result of consolidating its mail processing
operations.[Footnote 11] Another realignment option USPS is considering
is outsourcing operations in its network of 21 bulk mail processing
centers.[Footnote 12]
Another option we reported on would be for USPS to close unnecessary
retail facilities, and by reducing the number of facilities, USPS could
lower the costs of maintaining its network of facilities.[Footnote 13]
USPS's network of retail facilities has been largely static despite
population shifts and changes in mailing behavior. In considering
options to provide retail services at a lower cost, it is important to
note that large retail facilities--generally located in large urban
areas--generate much larger costs for the retail network than the
smallest rural facilities and may therefore potentially generate more
cost savings.
Closing postal facilities is often controversial but is necessary to
streamline costs. Congress encouraged USPS to expeditiously move
forward in its streamlining efforts in PAEA. We recommended that USPS
enhance transparency and strengthen accountability of its realignment
efforts to assure stakeholders that realignment would be implemented
fairly and achieve the desired results. USPS has taken steps to address
our recommendations and thus should be positioned to take action.
Other long-term options for reducing costs include more fundamental
changes that would have public policy implications for Congress to
consider--such as potential changes in USPS's universal service from 6
to 5 delivery days per week as discussed in a recent PRC study, and
potential changes to USPS's business model, which we will be discussing
in a PAEA-required report that will be issued by December 2011. These
studies will provide Congress with information about how to address
challenges for USPS to meet the changing needs of mailers and the
public.
We asked USPS to comment on a draft of our testimony. USPS generally
agreed with the accuracy of our statement and provided technical
corrections and some additional perspective, which we incorporated
where appropriate. USPS reiterated its position regarding the funding
of retiree health benefits and the difficulties related to its cost-
cutting efforts.
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, Joshua Bartzen, Heather Frevert, David Hooper, Kenneth John,
Emily Larson, Susan Ragland, and Crystal Wesco.
[End of section]
Appendix I: USPS Financial Information for Fiscal Years 1972 through
2008:
Dollars in millions.
Fiscal year: 1972;
Net Income (Loss): $(175);
Total Revenues: $9,354;
Total Expenses: $9,529;
Outstanding debt: $250.
Fiscal year: 1973;
Net Income (Loss): (13);
Total Revenues: 9,931;
Total Expenses: 9,944;
Outstanding debt: 250.
Fiscal year: 1974;
Net Income (Loss): (439);
Total Revenues: 10,875;
Total Expenses: 11,314;
Outstanding debt: 765.
Fiscal year: 1975;
Net Income (Loss): (989);
Total Revenues: 11,662;
Total Expenses: 12,650;
Outstanding debt: 1,783.
Fiscal year: 1976;
Net Income (Loss): (1,176);
Total Revenues: 12,915;
Total Expenses: 14,090;
Outstanding debt: 3,030.
Fiscal year: 1976 TQ[A];
Net Income (Loss): 15;
Total Revenues: 3,462;
Total Expenses: 3,446;
Outstanding debt: 3,530.
Fiscal year: 1977;
Net Income (Loss): (687);
Total Revenues: 14,842;
Total Expenses: 15,530;
Outstanding debt: 2,468.
Fiscal year: 1978;
Net Income (Loss): (380);
Total Revenues: 16,031;
Total Expenses: 16,410;
Outstanding debt: 2,405.
Fiscal year: 1979;
Net Income (Loss): 470;
Total Revenues: 18,174;
Total Expenses: 17,704;
Outstanding debt: 1,888.
Fiscal year: 1980;
Net Income (Loss): (306);
Total Revenues: 19,253;
Total Expenses: 19,559;
Outstanding debt: 1,841.
Fiscal year: 1981;
Net Income (Loss): (588);
Total Revenues: 20,898;
Total Expenses: 21,486;
Outstanding debt: 1,608.
Fiscal year: 1982;
Net Income (Loss): 802;
Total Revenues: 23,727;
Total Expenses: 22,925;
Outstanding debt: 1,536.
Fiscal year: 1983;
Net Income (Loss): 616;
Total Revenues: 24,790;
Total Expenses: 24,173;
Outstanding debt: 1,464.
Fiscal year: 1984;
Net Income (Loss): 118;
Total Revenues: 26,557;
Total Expenses: 26,440;
Outstanding debt: 1,465.
Fiscal year: 1985;
Net Income (Loss): (251);
Total Revenues: 29,016;
Total Expenses: 29,267;
Outstanding debt: 2,075.
Fiscal year: 1986;
Net Income (Loss): 304;
Total Revenues: 31,135;
Total Expenses: 30,830;
Outstanding debt: 3,234.
Fiscal year: 1987;
Net Income (Loss): (223);
Total Revenues: 32,505;
Total Expenses: 32,728;
Outstanding debt: 4,728.
Fiscal year: 1988;
Net Income (Loss): (597);
Total Revenues: 35,939;
Total Expenses: 36,536;
Outstanding debt: 5,880.
Fiscal year: 1989;
Net Income (Loss): 61;
Total Revenues: 38,920;
Total Expenses: 38,859;
Outstanding debt: 6,476.
Fiscal year: 1990;
Net Income (Loss): (874);
Total Revenues: 40,074;
Total Expenses: 40,948;
Outstanding debt: 6,971.
Fiscal year: 1991;
Net Income (Loss): (1,469);
Total Revenues: 44,203;
Total Expenses: 45,672;
Outstanding debt: 8,440.
Fiscal year: 1992;
Net Income (Loss): (536);
Total Revenues: 47,105;
Total Expenses: 47,641;
Outstanding debt: 9,924.
Fiscal year: 1993;
Net Income (Loss): (1,765);
Total Revenues: 47,986;
Total Expenses: 49,751;
Outstanding debt: 9,748.
Fiscal year: 1994;
Net Income (Loss): (914);
Total Revenues: 49,576;
Total Expenses: 50,489;
Outstanding debt: 8,988.
Fiscal year: 1995;
Net Income (Loss): 1,770;
Total Revenues: 54,509;
Total Expenses: 52,739;
Outstanding debt: 7,280.
Fiscal year: 1996;
Net Income (Loss): 1,567;
Total Revenues: 56,544;
Total Expenses: 54,977;
Outstanding debt: 5,919.
Fiscal year: 1997;
Net Income (Loss): 1,264;
Total Revenues: 58,331;
Total Expenses: 57,067;
Outstanding debt: 5,872.
Fiscal year: 1998;
Net Income (Loss): 550;
Total Revenues: 60,116;
Total Expenses: 59,566;
Outstanding debt: 6,421.
Fiscal year: 1999;
Net Income (Loss): 363;
Total Revenues: 62,755;
Total Expenses: 62,392;
Outstanding debt: 6,917.
Fiscal year: 2000;
Net Income (Loss): (199);
Total Revenues: 64,581;
Total Expenses: 64,780;
Outstanding debt: 9,316.
Fiscal year: 2001;
Net Income (Loss): (1,680);
Total Revenues: 65,869;
Total Expenses: 67,549;
Outstanding debt: 11,315.
Fiscal year: 2002;
Net Income (Loss): (676);
Total Revenues: 66,688;
Total Expenses: 67,364;
Outstanding debt: 11,115.
Fiscal year: 2003;
Net Income (Loss): 3,868;
Total Revenues: 68,764;
Total Expenses: 64,896;
Outstanding debt: 7,273.
Fiscal year: 2004;
Net Income (Loss): 3,065;
Total Revenues: 69,029;
Total Expenses: 65,964;
Outstanding debt: 1,800.
Fiscal year: 2005;
Net Income (Loss): 1,445;
Total Revenues: 69,993;
Total Expenses: 68,548;
Outstanding debt: 0.
Fiscal year: 2006;
Net Income (Loss): 900;
Total Revenues: 72,817;
Total Expenses: 71,917;
Outstanding debt: 2,100.
Fiscal year: 2007;
Net Income (Loss): (5,142);
Total Revenues: 74,973;
Total Expenses: 80,115;
Outstanding debt: 4,200.
Fiscal year: 2008;
Net Income (Loss): (2,806);
Total Revenues: 74,968;
Total Expenses: 77,774;
Outstanding debt: 7,200.
Source: GAO analysis of U.S. Postal Service data.
Note: Totals may not add due to rounding.
[A] TQ represents transition quarter, a period beginning July 1, 1976,
and ending September 30, 1976. In a change taking effect October 1,
1976, the U.S. government changed its fiscal year from a period ending
June 30 to a period beginning each October 1 and ending the following
September 30.
[End of table]
[End of section]
Appendix II: Mail Volume, Fiscal Years 1990 through 2008:
Fiscal year: 1990;
First-Class Mail volume (millions): 89,270;
First- Class Mail volume: percent change: 4.0%;
Standard Mail volume (millions): 63,725;
Standard Mail volume: percent change: 1.5%;
Total domestic volume (millions): 165,503;
Total international volume (millions): 798;
Total volume (millions): 166,301;
Total volume: percent change: 2.9%.
Fiscal year: 1991;
First-Class Mail volume (millions): 90,285;
First- Class Mail volume: percent change: 1.1;
Standard Mail volume (millions): 62,430;
Standard Mail volume: percent change: -2.0;
Total domestic volume (millions): 165,058;
Total international volume (millions): 793;
Total volume (millions): 165,851;
Total volume: percent change: -0.3.
Fiscal year: 1992;
First-Class Mail volume (millions): 90,781;
First- Class Mail volume: percent change: 0.5;
Standard Mail volume (millions): 62,547;
Standard Mail volume: percent change: 0.2;
Total domestic volume (millions): 165,654;
Total international volume (millions): 789;
Total volume (millions): 166,443;
Total volume: percent change: 0.4.
Fiscal year: 1993;
First-Class Mail volume (millions): 92,169;
First- Class Mail volume: percent change: 2.1;
Standard Mail volume (millions): 65,773;
Standard Mail volume: percent change: 5.2;
Total domestic volume (millions): 170,313;
Total international volume (millions): 907;
Total volume (millions): 171,220;
Total volume: percent change: 2.9.
Fiscal year: 1994;
First-Class Mail volume (millions): 95,333;
First- Class Mail volume: percent change: 3.4;
Standard Mail volume (millions): 69,416;
Standard Mail volume: percent change: 5.5;
Total domestic volume (millions): 177,177;
Total international volume (millions): 862;
Total volume (millions): 178,039;
Total volume: percent change: 4.0.
Fiscal year: 1995;
First-Class Mail volume (millions): 96,296;
First- Class Mail volume: percent change: 1.0;
Standard Mail volume (millions): 71,112;
Standard Mail volume: percent change: 2.4;
Total domestic volume (millions): 179,933;
Total international volume (millions): 801;
Total volume (millions): 180,734;
Total volume: percent change: 1.5.
Fiscal year: 1996;
First-Class Mail volume (millions): 98,216;
First- Class Mail volume: percent change: 2.0;
Standard Mail volume (millions): 71,686;
Standard Mail volume: percent change: 0.8;
Total domestic volume (millions): 182,386;
Total international volume (millions): 1,053;
Total volume (millions): 183,439;
Total volume: percent change: 1.5.
Fiscal year: 1997;
First-Class Mail volume (millions): 99,660;
First- Class Mail volume: percent change: 1.5;
Standard Mail volume (millions): 77,254;
Standard Mail volume: percent change: 7.8;
Total domestic volume (millions): 189,881;
Total international volume (millions): 1,007;
Total volume (millions): 190,888;
Total volume: percent change: 4.1.
Fiscal year: 1998;
First-Class Mail volume (millions): 100,434;
First- Class Mail volume: percent change: 0.8;
Standard Mail volume (millions): 82,508;
Standard Mail volume: percent change: 6.8;
Total domestic volume (millions): 195,961;
Total international volume (millions): 944;
Total volume (millions): 196,905;
Total volume: percent change: 3.2.
Fiscal year: 1999;
First-Class Mail volume (millions): 101,936;
First- Class Mail volume: percent change: 1.5;
Standard Mail volume (millions): 85,662;
Standard Mail volume: percent change: 3.8;
Total domestic volume (millions): 200,613;
Total international volume (millions): 1,031;
Total volume (millions): 201,644;
Total volume: percent change: 2.4.
Fiscal year: 2000;
First-Class Mail volume (millions): 103,526;
First- Class Mail volume: percent change: 1.6;
Standard Mail volume (millions): 90,057;
Standard Mail volume: percent change: 5.1;
Total domestic volume (millions): 206,783;
Total international volume (millions): 1,099;
Total volume (millions): 207,882;
Total volume: percent change: 3.1.
Fiscal year: 2001;
First-Class Mail volume (millions): 103,656;
First- Class Mail volume: percent change: 0.1;
Standard Mail volume (millions): 89,938;
Standard Mail volume: percent change: -0.1;
Total domestic volume (millions): 206,380;
Total international volume (millions): 1,083;
Total volume (millions): 207,463;
Total volume: percent change: -0.2.
Fiscal year: 2002;
First-Class Mail volume (millions): 102,379;
First- Class Mail volume: percent change: -1.2;
Standard Mail volume (millions): 87,231;
Standard Mail volume: percent change: -3.0;
Total domestic volume (millions): 201,918;
Total international volume (millions): 904;
Total volume (millions): 202,822;
Total volume: percent change: -2.2.
Fiscal year: 2003;
First-Class Mail volume (millions): 99,059;
First- Class Mail volume: percent change: -3.2;
Standard Mail volume (millions): 90,492;
Standard Mail volume: percent change: 3.7;
Total domestic volume (millions): 201,379;
Total international volume (millions): 805;
Total volume (millions): 202,185;
Total volume: percent change: -0.3.
Fiscal year: 2004;
First-Class Mail volume (millions): 97,926;
First- Class Mail volume: percent change: -1.1;
Standard Mail volume (millions): 95,564;
Standard Mail volume: percent change: 5.8;
Total domestic volume (millions): 205,262;
Total international volume (millions): 844;
Total volume (millions): 206,106;
Total volume: percent change: 1.9.
Fiscal year: 2005;
First-Class Mail volume (millions): 98,071;
First- Class Mail volume: percent change: 0.1;
Standard Mail volume (millions): 100,942;
Standard Mail volume: percent change: 5.6;
Total domestic volume (millions): 210,889;
Total international volume (millions): 852;
Total volume (millions): 211,741;
Total volume: percent change: 2.7.
Fiscal year: 2006;
First-Class Mail volume (millions): 97,475;
First- Class Mail volume: percent change: -0.6;
Standard Mail volume (millions): 102,460;
Standard Mail volume: percent change: 1.5;
Total domestic volume (millions): 212,199;
Total international volume (millions): 793;
Total volume (millions): 212,992;
Total volume: percent change: 0.6.
Fiscal year: 2007;
First-Class Mail volume (millions): 95,898;
First- Class Mail volume: percent change: -1.6;
Standard Mail volume (millions): 103,516;
Standard Mail volume: percent change: 1.0;
Total domestic volume (millions): 211,401;
Total international volume (millions): 833;
Total volume (millions): 212,234;
Total volume: percent change: -0.4.
Fiscal year: 2008;
First-Class Mail volume (millions): 91,280;
First- Class Mail volume: percent change: -4.8;
Standard Mail volume (millions): 99,084;
Standard Mail volume: percent change: -4.3;
Total domestic volume (millions): 201,869;
Total international volume (millions): 835;
Total volume (millions): 202,703;
Total volume: percent change: -4.5.
Source: GAO analysis of U.S. Postal Service data.
[End of table]
[End of section]
Footnotes:
[1] USPS's $5.1 billion deficit in fiscal year 2007 was impacted by the
one-time transfer of its $3.0 billion escrow fund to the newly created
Postal Service Retiree Health Benefits Fund.
[2] PRC, Report on Universal Postal Service and the Postal Monopoly
(Washington, D.C., Dec. 19, 2008).
[3] The Postal Accountability and Enhancement Act of 2006 (PAEA) Pub.
L. No. 109-435 (Dec. 20, 2006) established an inflation-based price cap
to limit price increases for market-dominant products. The price cap is
based on the CPI.
[4] PAEA established the Postal Service Retiree Health Benefits Fund,
into which USPS makes annual payments to cover future health insurance
premiums for USPS retirees.
[5] The Fund had a balance of over $32 billion at the end of fiscal
year 2008.
[6] City carrier routes are established based on workload (e.g., mail
volumes, number of deliveries, and miles traveled). These routes, which
include both office and street operations, are set as close to 8 hours
per carrier as possible. As mail volumes have declined, some routes
have workloads that frequently require less than 8 hours to complete.
The new process will allow USPS to consolidate and/or eliminate routes,
so that the remaining routes are as close to 8 hours as possible.
[7] PAEA defines market-dominant products to include First-Class Mail--
single-piece mail (e.g., bill payments and letters) and bulk mail
(e.g., bills and advertising); Standard Mail (mainly bulk advertising
and direct mail solicitations); Periodicals (mainly magazines and local
newspapers); some types of Package Services (i.e., single-piece parcel
post, media mail, bound printed matter, and library mail); and single-
piece International Mail.
[8] An exigent rate increase is a rate increase for market-dominant
products that exceeds the price cap due to extraordinary or exceptional
circumstances.
[9] Postal worksharing activities generally involve mailers preparing,
barcoding, sorting, or transporting mail to qualify for reduced postage
rates (i.e., worksharing rates). These rates are reduced based on the
costs that USPS is estimated to avoid as a result of mailer worksharing
activities.
[10] 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).
[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] GAO, U.S. Postal Service: Data Needed to Assess the Effectiveness
of Outsourcing, [hyperlink, http://www.gao.gov/products/GAO-08-787]
(Washington, D.C.: July 24, 2008).
[13] 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).
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