U.S. Postal Service
Strategies and Options to Facilitate Progress toward Financial Viability Gao ID: GAO-10-455 April 12, 2010The 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.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Phillip R. Herr Team: Government Accountability Office: Physical Infrastructure Phone: (202) 512-8509GAO-10-455, U.S. Postal Service: Strategies and Options to Facilitate Progress toward Financial Viability
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
April 2010:
U.S. Postal Service:
Strategies and Options to Facilitate Progress toward Financial
Viability:
GAO-10-455:
GAO Highlights:
Highlights of GAO-10-455, a report to congressional committees.
Why GAO Did This Study:
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.
What GAO Found:
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.
The table below summarizes selected strategies and options for action
by Congress and USPS to address USPS‘s financial viability, with some
options requiring collaboration with unions through collective
bargaining.
Table:
Strategy: Reduce compensation and benefits costs:
Challenges: Workforce size:
* About 300,000 postal employees are expected to retire through 2020.
* Collective bargaining agreements include limits on outsourcing.
* Postal unions are concerned about the loss of jobs paying a middle-
class wage and benefits to private-sector jobs with lower wages and no
benefit guarantees. Options for USPS: Reduce the size of the workforce
through retirements and outsourcing, where it is cost-effective to do
so;
Options for Congress: [Empty].
Challenges: Wages: USPS is required to maintain compensation and
benefits comparable to the private sector, and wages account for about
one-half of USPS‘s costs. Options for USPS: Reduce wage costs, for
example, through a two-tiered pay system that would pay new hires
lower wages and ’grandfather“ employees in the current system.
Options for Congress: Require arbitrators to consider USPS‘s financial
condition when making binding arbitration decisions.
Challenges: Benefits:
* USPS benefits account for over 23 percent of USPS‘s costs. USPS is
required to make annual multibillion dollar retiree health benefit
payments.
* Employees eligible for workers‘ compensation benefits can continue
these more generous benefits even when eligible to retire. Options
for USPS: Reduce benefit costs by reducing USPS health and life
insurance contribution rates for active employees to levels comparable
to those paid by other federal agencies. Options for Congress:
* Defer costs by revising funding requirements for retiree health
benefits.
* Revise workers‘ compensation laws for employees eligible for
retirement.
Challenges: Workforce mix and work rules: USPS has a high ratio of
full-time career employees”about 78 percent”and wants flexibility to
hire more part-time employees.
Options for USPS: Adjust workforce mix, for example, by using more
part-time staff.
Options for Congress: [Empty].
Strategy: Reduce other operations and network costs and improve
efficiency:
Challenges:
* USPS has costly excess capacity and inadequate flexibility to
quickly reduce costs in its retail, processing, and delivery networks.
* Closing facilities has been limited by political, employee, union,
and community opposition to potential job losses.
* Retail: Legal restrictions limit its ability to close certain types
of post offices.
* Delivery: Delivery is the largest cost segment, labor-intensive, and
required by statute to be provided 6 days a week.
Options for USPS:
Mail processing:
* Close unneeded facilities.
* Relax delivery standards to facilitate closures and consolidations.
Retail:
* Optimize USPS retail facility network (including hours and locations).
* Move more retail services to private stores and self-service and
close unneeded retail facilities. Delivery: Expand use of more cost-
efficient delivery, such as cluster boxes. Field structure: Reduce the
number of field administrative offices. Options for Congress:
Mail processing: Support having USPS reduce excess capacity by closing
some of its major mail processing facilities.
Retail: Remove statutory and appropriations language restricting
USPS‘s ability to close some of its 36,500 retail facilities.
Delivery: Remove appropriations language requiring 6-day delivery.
Strategy: Generate revenues through product and pricing flexibility:
Challenges:
* The changing use of the mail is projected to continue limiting
USPS‘s ability to generate sufficient revenues.
* Rate increases for market-dominant products are limited by the
inflation-based price cap.
* Large rate increases may lower USPS revenues in the long run and add
to its excess capacity.
* In fiscal year 2009, USPS lost $1.7 billion from products with
revenues that did not cover costs, mainly Periodicals and Standard
Mail Flats (e.g., catalogs).
Options for USPS:
* Revise pricing for market-dominant products, such as First-Class
Mail and Standard Mail.
* Address loss-making products by better aligning prices and costs.
* Provide volume incentives for certain types of bulk business mail.
* Develop new postal products and product enhancements.
* Provide incentives by simplifying complex rules for mail preparation.
Options for Congress: Determine whether preferential pricing required
by law for loss-making products should continue.
[End of table]
What GAO Recommends:
Congress should consider providing financial relief, such as revising
USPS retiree health benefit funding and requiring any binding
arbitration to take USPS‘s financial condition into account. At the
same time, Congress should consider setting up a panel of experts to
develop proposals for broader legislative and operational reform. USPS
agreed with the report‘s key findings but raised concerns about a
panel and its timing. Such panels have successfully informed prior
difficult restructuring decisions.
View [hyperlink, http://www.gao.gov/products/GAO-10-455] or key
components. For more information, contact Phillip Herr at (202) 512-
2834 or herrp@gao.gov.
[End of section]
Contents:
Letter:
Background:
USPS's Business Model Is Not Viable:
Strategies and Options That Address Challenges to USPS's Current
Business Model:
Actions Congress and USPS Can Take to Facilitate Progress toward
Financial Viability:
Conclusions:
Matters for Congressional Consideration:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Comments from the United States Postal Service:
Appendix III: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: Selected Requirements and Flexibilities Provided to USPS in
PAEA:
Table 2: USPS Financial Liabilities and Unfunded Obligations, Fiscal
Years 2007 through 2009:
Table 3: USPS Employees Covered by Selected Union Contracts as of
September 30, 2009:
Table 4: USPS Retiree Health Benefit Payments under Current Law,
Fiscal Years 2010 through 2020, which Include Prefunding through
Fiscal Year 2016:
Table 5: A Pay-as-You-Go Approach for Revising USPS Retiree Health
Benefit Payments, Fiscal Years 2010 through 2020:
Table 6: Actuarial Funding Alternative for USPS Retiree Health Benefit
Payments, Fiscal Years 2010 through 2020:
Table 7: Cost and Percentage of Delivery Routes, by Type, Fiscal Year
2009:
Table 8: Cost and Percentage of Carrier Deliveries, by Mode, Fiscal
Year 2009:
Table 9: Attributes of the Universal Postal Service Obligation:
Table 10: USPS Money-Losing Market-Dominant Products, Fiscal Years
2008 and 2009:
Figures:
Figure 1: USPS Annual Net Income (Loss), Fiscal Years 1971 through
2009:
Figure 2: Actual and Projected Total Mail Volume, Fiscal Years 1971
through 2020:
Figure 3: Actual and Projected First-Class Mail and Standard Mail
Volume, Fiscal Years 1990 through 2020:
Figure 4: Percentage of Household Bill Payments Made by Mail and
Electronically, Fiscal Years 2000 through 2008:
Figure 5: Broadband Use by American Households, 2000 to 2009:
Figure 6: USPS Actual and Projected Net Income (Loss), Fiscal Years
2000 through 2020:
Figure 7: Total Career and Noncareer Postal Employees, Fiscal Years
2000 through 2009:
Abbreviations:
AMP: Area Mail Processing:
BRAC: Base Realignment and Closure:
CBO: Congressional Budget Office:
CSRDF: Civil Service Retirement and Disability Fund:
CSRS: Civil Service Retirement System:
Dual CSRS: Dual Civil Service Retirement System and Social Security:
FEHB Fund: Federal Employees Health Benefits Fund:
FERS: Federal Employees Retirement System:
FTC: Federal Trade Commission:
NSA: negotiated service agreement:
OIG: Office of Inspector General:
OPM: Office of Personnel Management:
PAEA: Postal Accountability and Enhancement Act of 2006:
PRA: Postal Reorganization Act of 1970:
PRC: Postal Regulatory Commission:
RHB Fund: Postal Service Retiree Health Benefits Fund:
TSP: Thrift Savings Plan:
UPS: United Parcel Service:
USPS: United States Postal Service:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
April 12, 2010:
Congressional Committees:
The Postal Accountability and Enhancement Act[Footnote 1] (PAEA) of
2006 required GAO to evaluate strategies and options for the long-term
structural and operational reform of the United States Postal Service
(USPS). At that time, USPS was given additional pricing flexibility
and required to develop service standards, while PAEA reconfigured
certain financial obligations. These changes provided additional tools
to improve its effectiveness and accountability in an increasingly
competitive delivery and communications marketplace. Recent
developments have highlighted deficiencies in USPS's business model,
which is to fulfill its mission through self-supporting, businesslike
operations. As mail volume declined in fiscal years 2007 through 2009,
USPS financial viability deteriorated, and it was not able to cut
costs fast enough to offset the accelerated decline in mail volume and
revenue. These volume declines have been brought on by customers'
changing use of the mail and have been accelerated by the recession
and continuing difficulties in the economy. In fiscal year 2009, total
mail volume declined by a record 26 billion pieces, while revenue
dropped nearly $7 billion. USPS has incurred close to $12 billion in
losses in fiscal years 2007 through 2009 and is rapidly approaching
its statutory debt limit. Furthermore, a looming cash shortfall at the
end of fiscal year 2009 necessitated last-minute congressional action
that deferred costs by reducing USPS's mandated retiree health benefit
payments. On the basis of these challenges, in July 2009, we
testified[Footnote 2] that a restructuring of USPS was needed to
enhance its current and long-term financial viability and placed
USPS's financial condition on our high-risk list.[Footnote 3]
USPS's financial outlook is poor. In fiscal year 2010, USPS expects a
record loss of over $7 billion, its outstanding debt to increase to
$13.2 billion, and limited cash flow that will continue to constrain
capital investment. USPS projections show losses growing over the next
decade as mail volume declines further and costs rise. USPS remains
the largest civilian federal agency (employing about 712,000 employees
at the end of fiscal year 2009), has a nationwide network of about
38,000 facilities, and provides 6-day-per-week mail delivery to most
of the nation's 150 million addresses.
PAEA required that GAO complete this report by December 2011. Because
of USPS's financial crisis and our assessment that restructuring is
urgently needed, our work has been accelerated at the request of
Members of Congress and is presented in this report. Our objectives
were to assess (1) the viability of USPS's business model, (2)
strategies and options to address the challenges to USPS's current
business model, and (3) actions Congress and USPS need to take to
facilitate progress toward USPS's financial viability.
In conducting our work related to assessing the viability of USPS's
business model and strategies and options to solve its challenges, we
relied on our past work and USPS financial and operating data. We
interviewed various USPS officials, including the Postmaster General,
the Deputy Postmaster General, the former and current Chairmen of the
Board of Governors, and headquarters and field staff. We reviewed
USPS's Action Plan released March 2010 and its financial and volume
projections.[Footnote 4] We did not assess the validity of USPS's
financial and mail volume projections due to time and resource
constraints. We reviewed USPS's current legal and regulatory framework
and relevant congressional testimonies and hearings. We also reviewed
the results of retiree health valuations provided to us by the Office
of Personnel Management (OPM) in March 2010, which were based on USPS
employee population projections. We did not assess the reasonableness
of these projections or OPM's actuarial assumptions and methodology.
We utilized OPM's valuation results to analyze the financial impacts
of selected options for funding USPS's retiree health benefit
obligations.
We also examined studies performed by other postal stakeholders,
including the Postal Regulatory Commission (PRC), USPS Office of
Inspector General (OIG), the 2003 President's Commission on the United
States Postal Service, and other mailing industry experts. We met with
PRC commissioners and staff, representatives of the four major
employee unions and three major management associations, USPS OIG,
members of the mailing industry, economists, and other stakeholders.
We distributed a list of questions to over 60 organizations to collect
additional information on actions that could be taken to improve
USPS's business model and the potential impacts of these actions. The
organizations represented various sections of the postal community,
such as postal unions and management associations; small and large
mailers; and mailers across various segments (e.g., First-Class Mail,
Standard Mail, Periodicals, parcels, newspapers, and nonprofit mail);
and other companies in the mailing industry. They were selected on the
basis of several factors, including testifying before Congress on
postal issues; submitting comments to the 2003 President's Commission;
submitting comments to PRC on universal service, the postal monopoly,
and the new regulatory structure for ratemaking; and submitting
comments to the Federal Trade Commission (FTC) on differences in the
legal status between USPS and its competitors.
We gathered and evaluated relevant strategies and options on the basis
of a variety of criteria, including their potential to reduce USPS
costs, realign its operations, and increase revenues, in light of
USPS's current and projected financial condition. In this report, we
present selected options that could be considered to address USPS's
financial viability on the basis of these criteria. Some options are
consistent with actions we have discussed in our past work, while
others have been discussed in congressional hearings, regulatory
proceedings, and major studies. We analyzed the options on the basis
of the criteria that we have previously listed, including available
cost and revenue data. Furthermore, assessing certain options related
to a comprehensive restructuring of USPS's legal and regulatory
framework was limited because it is still too soon to see the full
impact of the changes from PAEA. We also plan to address the
experiences of foreign postal administrations in a separate report.
We conducted this performance audit from August 2009 to April 2010 in
accordance with generally accepted government auditing standards.
Those 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. Appendix I
contains a detailed discussion of our scope and methodology. We
requested comments on a draft of this report from USPS, and its
comments are discussed later in this report and reproduced in appendix
II.
Background:
Over the last 40 years, Congress has considered several business
models to provide postal services to the nation and moved USPS toward
a more businesslike entity but has simultaneously placed constraints
on its operations. Until 1970, the federal government provided postal
services via the U.S. Post Office Department, a government agency that
received annual appropriations from Congress. Congress was involved in
many aspects of the department's operations, including the selection
of managers (e.g., postmasters), and in setting postal rates and
wages. A presidential commission (The Kappel Commission) reported to
the President in 1968 on the crisis facing the department, which
included financial losses, management problems, service breakdowns,
low productivity, and low employee morale. The Kappel Commission's
basic finding was that "the procedures for administering the ordinary
executive departments of Government are inappropriate for the Post
Office."[Footnote 5] Furthermore, it concluded that:
"a transfer of the postal system to the private sector is not
feasible, largely for reasons of financing—but the possibility remains
of private ownership at some future time, if such a transfer were then
considered to be feasible and in the public interest—. We recommend,
therefore, that Congress charter a Government-owned Corporation to
operate the postal service. The corporate form would permit much more
successful operation of what has become a major business activity than
is possible under present circumstances."
The Postal Reorganization Act (PRA) of 1970 replaced the department
with the current USPS model--an independent establishment of the
executive branch designed to be self-sustaining by covering its
operating costs with revenues generated through the sales of postage
and postal-related products and services. USPS receives no
appropriations for purposes other than revenue forgone on free and
reduced rate mail.[Footnote 6]
In 1996, Congress again began considering the merits of postal reform
and ultimately enacted PAEA in 2006. A number of factors encouraged
reform, including financial challenges, such as growing cash-flow
problems and debt. A second presidential commission examined USPS's
future and issued a report in 2003 that recommended a number of
actions to ensure the viability of postal services.[Footnote 7]
Additionally, the Postal Civil Service Retirement System Funding
Reform Act of 2003 was enacted after OPM determined that USPS was
overfunding its employees' pensions.[Footnote 8] This law required the
amounts achieved by reducing the previous pension contributions to be
used toward USPS's debt to the U.S. Treasury and set aside any
remaining amounts in an escrow account. Congress addressed how the
escrowed funds should be used--along with many of USPS's other
financial and operational challenges--in PAEA. Key requirements and
flexibilities provided in PAEA are detailed in table 1.
Table 1: Selected Requirements and Flexibilities Provided to USPS in
PAEA:
Key areas: Flexible pricing mechanisms; Description:
* Abolished the former process for setting prices that was often
lengthy, costly, and litigious. Under the new structure, USPS has
broad latitude to announce price changes that are reviewed by the
newly created PRC and implemented in a streamlined process;
* Allowed USPS to raise average rates for each class of market-
dominant products,[A] such as First-Class Mail, Standard Mail,
Periodicals, and Package Services, up to a defined annual price cap;
exceed the price cap should extraordinary or exceptional circumstances
arise; and use any unused pricing authority within 5 years;
* Allowed USPS to raise prices for competitive products, such as
Priority Mail or Express Mail, as long as each product's revenue
covers the product's costs and the revenue from all competitive
products covers what PRC determines to be an appropriate share of
USPS's institutional costs (overhead costs).
Key areas: Modern delivery performance standards; Description:
* Required establishing modern delivery performance standards for
market-dominant products. These standards for on-time delivery of mail
enable mailers to have realistic expectations for the number of days
mail takes to be delivered, and to organize their activities
accordingly.
Key areas: Restriction on nonpostal products; Description:
* Restricted USPS from introducing new nonpostal products and services;
* Required PRC to review each nonpostal service USPS already offered
and determine whether it should continue based on (1) the public need
for the service and (2) the ability of the private sector to meet the
public need for the service.
Key areas: Retiree health benefit payments; Description:
* Required the funds accumulated in escrow and annual payments to be
made in fiscal years 2007 through 2016 to prefund retiree health
obligations.
Key areas: Ability to retain earnings; Description:
* Allowed USPS to retain any earnings.
Key areas: Plan for improving operational efficiency; Description:
* Required USPS to develop a plan that, among other things, included a
strategy for rationalizing the postal facilities network and removing
excess processing capacity and space from the network, as well as
identifying the cost savings and other benefits associated with
network rationalization.
Key areas: Financial reporting;
Description:
* Established new reporting and accounting requirements to enhance
collection and reporting of information on rates and financial
performance.
Source: GAO analysis of Pub. L. No. 109-435.
[A] Market-dominant products primarily include First-Class Mail (e.g.,
correspondence, bills, payments, statements, and advertising);
Standard Mail (mainly, bulk advertising and direct mail
solicitations); Periodicals (mainly, magazines and local newspapers);
and some types of Package Services (primarily, single-piece Parcel
Post, Media Mail, library mail, and bound printed matter).
[End of table]
PAEA also made changes to USPS's regulatory and oversight structure.
In addition to responsibilities for reviewing pricing and nonpostal
services described in table 1, the newly created PRC gained additional
oversight responsibilities, including responsibility for making annual
determinations of USPS compliance with applicable laws, developing
accounting practices and procedures for USPS, reviewing the universal
service obligation, and providing transparency through periodic
reports. The USPS Board of Governors, which has responsibilities
similar to a board of directors of a publicly held corporation,
directs the exercise of the powers of USPS, directs and controls its
expenditures, reviews its practices, conducts long-range planning, and
sets policies on all postal matters.[Footnote 9] PAEA added new
qualifications and lengths of term for new board members.
USPS's Business Model Is Not Viable:
USPS's business model is not viable due to its inability to reduce
costs sufficiently in response to continuing declines in mail volume
and revenue. Mail volume declined 36 billion pieces over the last 3
fiscal years, 2007 through 2009, due to the economic downturn and
changing use of the mail, with mail continuing to shift to electronic
communications and payments. USPS lost nearly $12 billion over this
period, despite achieving billions in cost savings, reducing capital
investments, and raising rates. However, USPS had difficulty in
eliminating costly excess capacity, and its revenue initiatives had
limited results. To put these results into context, until recently,
USPS's business model benefited from growth in mail volume to help
cover costs and enable it to be self-supporting. In each of the last 3
fiscal years, USPS borrowed the maximum $3 billion from the U.S.
Treasury and incurred record financial losses (see figure 1). A
looming cash shortfall led to congressional action at the end of
fiscal year 2009 that deferred costs by reducing USPS's mandated
retiree health benefit payment. Looking forward, USPS projects
continued mail volume decline and financial losses over the next
decade.
Figure 1: USPS Annual Net Income (Loss), Fiscal Years 1971 through
2009:
[Refer to PDF for image: vertical bar graph]
Fiscal year: 1971;
USPS Annual Net Income (Loss): -$0.20 billion.
Fiscal year: 1972;
USPS Annual Net Income (Loss): -$0.18 billion.
Fiscal year: 1973;
USPS Annual Net Income (Loss): -$0.01 billion.
Fiscal year: 1974;
USPS Annual Net Income (Loss): -$0.44 billion.
Fiscal year: 1975;
USPS Annual Net Income (Loss): -$0.99 billion.
Fiscal year: 1976;
USPS Annual Net Income (Loss): -$1.18 billion.
Fiscal year: 1977;
USPS Annual Net Income (Loss): -$0.69 billion.
Fiscal year: 1978;
USPS Annual Net Income (Loss): -$0.38 billion.
Fiscal year: 1979;
USPS Annual Net Income (Loss): $0.47 billion.
Fiscal year: 1980;
USPS Annual Net Income (Loss): -$0.31 billion.
Fiscal year: 1981;
USPS Annual Net Income (Loss): -$0.59 billion.
Fiscal year: 1982;
USPS Annual Net Income (Loss): $0.80 billion.
Fiscal year: 1983;
USPS Annual Net Income (Loss): $0.62 billion.
Fiscal year: 1984;
USPS Annual Net Income (Loss): $0.12 billion.
Fiscal year: 1985;
USPS Annual Net Income (Loss): -$0.25 billion.
Fiscal year: 1986;
USPS Annual Net Income (Loss): $0.30 billion.
Fiscal year: 1987;
USPS Annual Net Income (Loss): -$0.22 billion.
Fiscal year: 1988;
USPS Annual Net Income (Loss): -v0.60 billion.
Fiscal year: 1989;
USPS Annual Net Income (Loss): $0.06 billion.
Fiscal year: 1990;
USPS Annual Net Income (Loss): -$0.87 billion.
Fiscal year: 1991;
USPS Annual Net Income (Loss): -$1.47 billion.
Fiscal year: 1992;
USPS Annual Net Income (Loss): -$0.54 billion.
Fiscal year: 1993;
USPS Annual Net Income (Loss): -$1.77 billion.
Fiscal year: 1994;
USPS Annual Net Income (Loss): -$0.91 billion.
Fiscal year: 1995;
USPS Annual Net Income (Loss): $1.77 billion.
Fiscal year: 1996;
USPS Annual Net Income (Loss): $1.57 billion.
Fiscal year: 1997;
USPS Annual Net Income (Loss): $1.26 billion.
Fiscal year: 1998;
USPS Annual Net Income (Loss): $0.55 billion.
Fiscal year: 1999;
USPS Annual Net Income (Loss): $0.36 billion.
Fiscal year: 2000;
USPS Annual Net Income (Loss): -$0.20 billion.
Fiscal year: 2001;
USPS Annual Net Income (Loss): -$1.68 billion.
Fiscal year: 2002;
USPS Annual Net Income (Loss): -$0.68 billion.
Fiscal year: 2003;
USPS Annual Net Income (Loss): $3.87 billion.
Fiscal year: 2004;
USPS Annual Net Income (Loss): $3.07 billion.
Fiscal year: 2005;
USPS Annual Net Income (Loss): $1.45 billion.
Fiscal year: 2006;
USPS Annual Net Income (Loss): $0.9 billion.
Fiscal year: 2007;
USPS Annual Net Income (Loss): -$5.14 billion.
Fiscal year: 2008;
USPS Annual Net Income (Loss): -$2.81 billion.
Fiscal year: 2009;
USPS Annual Net Income (Loss): -$3.79 billion.
Source: USPS.
Note: A looming cash shortfall in 2009 necessitated last-minute
congressional action to defer costs by reducing USPS's mandated
payments to prefund retiree health benefits from $5.4 billion to $1.4
billion. While this action provided USPS with $4 billion of financial
relief, USPS still reported a loss of $3.8 billion for the year.
USPS's $8.4 billion in cumulative net income for fiscal years 2003
through 2005 largely resulted from a 2003 law (Pub. L. No. 108-18)
that reduced USPS pension benefit payments by about $9 billion over
this period.
[End of figure]
USPS Faces Reduced Mail Volume from Changes in Mail Use:
In fiscal year 2009, USPS's mail volume declined to 17 percent below
its peak of 213 billion pieces in fiscal year 2006. USPS projects that
total mail volume will decline to 167 billion pieces in fiscal year
2010--the lowest level since fiscal year 1992 and 22 percent less than
its fiscal year 2006 peak. USPS and many mailers who provided
information for this study do not expect volume to return to its
former levels when the economy recovers. By fiscal year 2020, USPS
projects further volume declines of 15 percent to about 150 billion
pieces, the lowest level since fiscal year 1986 (see figure 2).
Figure 2: Actual and Projected Total Mail Volume, Fiscal Years 1971
through 2020:
[Refer to PDF for image: line graph]
Fiscal year: 1971;
Mail pieces: 87.0 billion.
Fiscal year: 1972;
Mail pieces: 87.2 billion.
Fiscal year: 1973;
Mail pieces: 89.7 billion.
Fiscal year: 1974;
Mail pieces: 90.1 billion.
Fiscal year: 1975;
Mail pieces: 89.3 billion.
Fiscal year: 1976;
Mail pieces: 89.8 billion.
Fiscal year: 1977;
Mail pieces: 93.2 billion.
Fiscal year: 1978;
Mail pieces: 96.9 billion.
Fiscal year: 1979;
Mail pieces: 99.8 billion.
Fiscal year: 1980;
Mail pieces: 106.3 billion.
Fiscal year: 1981;
Mail pieces: 110.1 billion.
Fiscal year: 1982;
Mail pieces: 114.0 billion.
Fiscal year: 1983;
Mail pieces: 119.4 billion.
Fiscal year: 1984;
Mail pieces: 131.5 billion.
Fiscal year: 1985;
Mail pieces: 140.1 billion.
Fiscal year: 1986;
Mail pieces: 147.4 billion.
Fiscal year: 1987;
Mail pieces: 153.9 billion.
Fiscal year: 1988;
Mail pieces: 161.0 billion.
Fiscal year: 1989;
Mail pieces: 161.6 billion.
Fiscal year: 1990;
Mail pieces: 166.3 billion.
Fiscal year: 1991;
Mail pieces: 165.9 billion.
Fiscal year: 1992;
Mail pieces: 166.4 billion.
Fiscal year: 1993;
Mail pieces: 171.2 billion.
Fiscal year: 1994;
Mail pieces: 178.0 billion.
Fiscal year: 1995;
Mail pieces: 180.7 billion.
Fiscal year: 1996;
Mail pieces: 183.4 billion.
Fiscal year: 1997;
Mail pieces: 190.9 billion.
Fiscal year: 1998;
Mail pieces: 196.9 billion.
Fiscal year: 1999;
Mail pieces: 201.6 billion.
Fiscal year: 2000;
Mail pieces: 207.9 billion.
Fiscal year: 2001;
Mail pieces: 207.5 billion.
Fiscal year: 2002;
Mail pieces: 202.8 billion.
Fiscal year: 2003;
Mail pieces: 202.2 billion.
Fiscal year: 2004;
Mail pieces: 206.1 billion.
Fiscal year: 2005;
Mail pieces: 211.7 billion.
Fiscal year: 2006;
Mail pieces: 213.0 billion.
Fiscal year: 2007;
Mail pieces: 212.2 billion.
Fiscal year: 2008;
Mail pieces: 202.7 billion.
Fiscal year: 2009;
Mail pieces: 177.1 billion.
Fiscal year: 2010;
Mail pieces: 166.1 billion.
Fiscal year: 2011;
Mail pieces: 164.0 billion.
Fiscal year: 2012;
Mail pieces: 164.6 billion.
Fiscal year: 2013;
Mail pieces: 164.6 billion.
Fiscal year: 2014;
Mail pieces: 161.6 billion.
Fiscal year: 2015;
Mail pieces: 158.6 billion.
Fiscal year: 2016;
Mail pieces: 155.5 billion.
Fiscal year: 2017;
Mail pieces: 153.3 billion.
Fiscal year: 2018;
Mail pieces: 151.4 billion.
Fiscal year: 2019;
Mail pieces: 150.0 billion.
Fiscal year: 2020;
Mail pieces: 148.9 billion.
Source: USPS.
Projected fiscal year 2020 volume: About 150 billion mail pieces, the
lowest level since fiscal year 1986.
[End of figure]
* First-Class Mail volume has declined 19 percent since it peaked in
fiscal year 2001, and USPS projects that it will decline by another 37
percent over the next decade (see figure 3). This mail is highly
profitable and generates over 70 percent of the revenues used to cover
USPS overhead costs.
* Standard Mail (primarily advertising) volume has declined 20 percent
since it peaked in fiscal year 2007, and USPS projects that it will
remain roughly flat over the next decade. This class of mail is
profitable overall but lower priced, therefore, it takes 3.4 pieces of
Standard Mail, on average, to equal the profit from the average piece
of First-Class Mail. Standard Mail volume was affected by large rate
increases in 2007 for flat-sized mail, such as catalogs, and by the
recession that affected advertising, such as mortgage, home equity,
and credit card solicitations. These solicitations appear unlikely to
return to former levels. Standard Mail also faces growing competition
from electronic alternatives, increasing the possibility that its
volume may decline in the long term.
Figure 3: Actual and Projected First-Class Mail and Standard Mail
Volume, Fiscal Years 1990 through 2020:
[Refer to PDF for image: multiple line graph]
Fiscal year: 1990;
First Class: 89.3 billion pieces;
Standard Mail: 63.7 billion pieces.
Fiscal year: 1991
First Class: 90.3 billion pieces;
Standard Mail: 62.4 billion pieces.
Fiscal year: 1992;
First Class: 90.8 billion pieces;
Standard Mail: 62.5 billion pieces.
Fiscal year: 1993;
First Class: 92.2 billion pieces;
Standard Mail: 65.8 billion pieces.
Fiscal year: 1994;
First Class: 95.3 billion pieces;
Standard Mail: 69.4 billion pieces.
Fiscal year: 1995;
First Class: 96.3 billion pieces;
Standard Mail: 71.1 billion pieces.
Fiscal year: 1996;
First Class: 98.2 billion pieces;
Standard Mail: 71.7 billion pieces.
Fiscal year: 1997;
First Class: 99.7 billion pieces;
Standard Mail: 77.2 billion pieces.
Fiscal year: 1998;
First Class: 100.4 billion pieces;
Standard Mail: 82.5 billion pieces.
Fiscal year: 1999;
First Class: 101.9 billion pieces;
Standard Mail: 85.7 billion pieces.
Fiscal year: 2000;
First Class: 103.5 billion pieces;
Standard Mail: 90.1 billion pieces.
Fiscal year: 2001;
First Class: 103.7 billion pieces;
Standard Mail: 89.9 billion pieces.
Fiscal year: 2002;
First Class: 102.4 billion pieces;
Standard Mail: 87.2 billion pieces.
Fiscal year: 2003;
First Class: 99.1 billion pieces;
Standard Mail: 90.5 billion pieces.
Fiscal year: 2004;
First Class: 97.9 billion pieces;
Standard Mail: 95.6 billion pieces.
Fiscal year: 2005;
First Class: 98.1 billion pieces;
Standard Mail: 100.9 billion pieces.
Fiscal year: 2006;
First Class: 97.5 billion pieces;
Standard Mail: 102.5 billion pieces.
Fiscal year: 2007;
First Class: 95.9 billion pieces;
Standard Mail: 103.5 billion pieces.
Fiscal year: 2008;
First Class: 91.7 billion pieces;
Standard Mail: 99.1 billion pieces.
Fiscal year: 2009;
First Class: 83.8 billion pieces;
Standard Mail: 82.7 billion pieces.
Fiscal year: 2010;
First Class: 77.1 billion pieces;
Standard Mail: 78.9 billion pieces.
Fiscal year: 2011;
First Class: 71.4 billion pieces;
Standard Mail: 82.2 billion pieces.
Fiscal year: 2012;
First Class: 69.2 billion pieces;
Standard Mail: 84.9 billion pieces.
Fiscal year: 2013;
First Class: 67.0 billion pieces;
Standard Mail: 87.0 billion pieces.
Fiscal year: 2014;
First Class: 64.3 billion pieces;
Standard Mail: 86.7 billion pieces.
Fiscal year: 2015;
First Class: 61.8 billion pieces;
Standard Mail: 86.3 billion pieces.
Fiscal year: 2016;
First Class: 59.2 billion pieces;
Standard Mail: 85.9 billion pieces.
Fiscal year: 2017;
First Class: 57.3 billion pieces;
Standard Mail: 85.7 billion pieces.
Fiscal year: 2018;
First Class: 55.6 billion pieces;
Standard Mail: 85.5 billion pieces.
Fiscal year: 2019;
First Class: 54.0 billion pieces;
Standard Mail: 85.8 billion pieces.
Fiscal year: 2020;
First Class: 52.4 billion pieces;
Standard Mail: 86.3 billion pieces.
Source: USPS.
[End of figure]
One reason that mail volumes declined is because businesses and
consumers have moved to electronic payment alternatives over the past
decade (see figure 4).
Figure 4: Percentage of Household Bill Payments Made by Mail and
Electronically, Fiscal Years 2000 through 2008:
[Refer to PDF for image: multiple line graph]
Fiscal year: 2000;
Mail payments: 79%;
Electronic payments: 11%.
Fiscal year: 2001;
Mail payments: 80%;
Electronic payments: 13%.
Fiscal year: 2002;
Mail payments: 75%;
Electronic payments: 17%.
Fiscal year: 2003;
Mail payments: 74%;
Electronic payments: 19%.
Fiscal year: 2004;
Mail payments: 69%;
Electronic payments: 24%.
Fiscal year: 2005;
Mail payments: 67%;
Electronic payments: 27%.
Fiscal year: 2006;
Mail payments: 63%;
Electronic payments: 30%.
Fiscal year: 2007;
Mail payments: 62%;
Electronic payments: 32%.
Fiscal year: 2008;
Mail payments: 56%;
Electronic payments: 38%.
Source: USPS.
[End of figure]
Looking forward, the use of electronic alternatives for communications
and payments, including broadband and mobile technology, is expected
to continue to grow. Nearly two-thirds of American households had
broadband service in fiscal year 2008, up from 4.4 percent in less
than a decade (see figure 5). Expanded availability and adoption of
broadband technology is being facilitated by federal spending under
the American Recovery and Reinvestment Act.[Footnote 10]
Figure 5: Broadband Use by American Households, 2000 to 2009:
[Refer to PDF for image: line graph]
Year: 2000;
Broadband Use: 4%.
Year: 2001;
Broadband Use: 9%.
Year: 2003;
Broadband Use: 20%.
Year: 2007;
Broadband Use: 51%.
Year: 2009;
Broadband Use: 64%.
Source: U.S. Department of Commerce, National Telecommunications and
Information Administration
[End of figure]
USPS Has Made Progress in Reducing Costs but Still Faces Major Cost
Pressures:
USPS achieved nearly $10 billion in cost savings in the 3 fiscal years
2007 through 2009, primarily by cutting nearly 201 million work hours.
Work-hour savings were achieved by workforce reductions of over 84,000
full-and part-time employees, primarily through retirements; reduced
overtime; and changes to postal operations. For example, USPS reached
agreement with the National Association of Letter Carriers to realign
delivery routes, and with the American Postal Workers Union and the
National Postal Mail Handlers Union on early retirement incentives.
However, USPS's cost savings and added revenue from rate increases and
other actions to generate revenues were insufficient to fully offset
the impact of declines in mail volume and rising personnel-related
costs. Thus, USPS revenues declined by $4.7 billion during this period
of time, while its costs declined $7 million.
USPS also has large financial liabilities and obligations that totaled
over $88 billion in fiscal year 2009. Over the last 2 fiscal years,
total liabilities and obligations have increased by nearly $14 billion
(see table 2). USPS debt to the U.S. Treasury, over this same period,
increased by $6 billion and pension obligations changed by over $8
billion--from a $5.3 billion surplus to $2.8 billion in unfunded
obligations. To put these liabilities and obligations into context,
they increased from 100 percent of USPS revenues in fiscal year 2007
to 130 percent of revenues in fiscal year 2009.
Table 2: USPS Financial Liabilities and Unfunded Obligations, Fiscal
Years 2007 through 2009:
Dollars in billions:
Fiscal year: 2007;
Liabilities: Outstanding debt: $4.2 billion;
Liabilities: Workers' compensation liabilities: $6.8 billion;
Liabilities: Other liabilities[A]: $13.7 billion;
Liabilities: Total liabilities: $24.7 billion;
Obligations: Unfunded obligations for retiree health benefits:
$55.0 billion;
Obligations: Unfunded obligations (surplus) for pension benefits[B]:
($5.3 billion);
Obligations: Total unfunded obligations: $49.7 billion;
Total liabilities and obligations: $74.5 billion.
Fiscal year: 2008;
Liabilities: Outstanding debt: $7.2 billion;
Liabilities: Workers' compensation liabilities: $7.0 billion;
Liabilities: Other liabilities[A]: $13.5 billion;
Liabilities: Total liabilities: $27.7 billion;
Obligations: Unfunded obligations for retiree health benefits:
$53.5 billion;
Obligations: Unfunded obligations (surplus) for pension benefits[B]:
$2.5 billion;
Obligations: Total unfunded obligations: $56.0 billion;
Total liabilities and obligations: $83.6 billion.
Fiscal year: 2009;
Liabilities: Outstanding debt: $10.2 billion;
Liabilities: Workers' compensation liabilities: $9.1 billion;
Liabilities: Other liabilities[A]: $14.3 billion;
Liabilities: Total liabilities: $33.5 billion;
Obligations: Unfunded obligations for retiree health benefits:
$52.0 billion;
Obligations: Unfunded obligations (surplus) for pension benefits[B]:
$2.8 billion;
Obligations: Total unfunded obligations: $54.8 billion;
Total liabilities and obligations: $88.3 billion.
Source: USPS.
Note: Data may not add exactly to totals due to rounding.
[A] Other liabilities include many items, such as operating expenses
that USPS committed to in fiscal year 2009 but has not yet paid and
the value of employees' accumulated leave.
[B] Includes both CSRS and FERS obligations.
[End of table]
USPS's Financial Outlook Is Poor:
Declines in mail volume and revenue, large financial losses,
increasing debt, and financial obligations will continue to challenge
USPS. For fiscal year 2010, USPS is projecting a record loss of over
$7 billion and additional pressures to generate sufficient cash to
meet its obligations. Furthermore, it has halted construction of most
new facilities and has budgeted $1.5 billion in capital cash outlays
(mostly for prior commitments), which is down from the average of $2.2
billion in the previous 5 fiscal years. USPS also expects to borrow $3
billion in fiscal year 2010, which would bring its total outstanding
debt to $13.2 billion, close to its $15 billion statutory limit.
Looking forward, USPS projects that, absent additional action, annual
financial losses will escalate over the next decade to $33 billion in
fiscal year 2020 (see figure 6). According to USPS, its projected
losses will result from declining mail volume, stagnant revenue
(despite rate increases), large costs to provide universal service,
and rising workforce costs. These projections are the most pessimistic
in many years. Stakeholder interviews reinforce the conclusion that
the recent recession was a "tipping point" that has accelerated the
diversion of mail to electronic alternatives, particularly among
business mailers who generate the most mail volume and revenues,
leading to sobering financial results.
Figure 6: USPS Actual and Projected Net Income (Loss), Fiscal Years
2000 through 2020:
[Refer to PDF for image: vertical bar graph]
Fiscal year: 2002;
Actual: -$0.68 billion.
Fiscal year: 2003;
Actual: $3.87 billion.
Fiscal year: 2004;
Actual: $3.07 billion.
Fiscal year: 2005;
Actual: $1.45 billion.
Fiscal year: 2006;
Actual: $0.9 billion.
Fiscal year: 2007;
Actual: -$5.14 billion.
Fiscal year: 2008;
Actual: -$2.81 billion.
Fiscal year: 2009;
Actual: -$3.79 billion.
Fiscal year: 2010;
Projected: -$7.8 billion.
Fiscal year: 2011;
Projected: -$11.75 billion.
Fiscal year: 2012;
Projected: -$15.14 billion.
Fiscal year: 2013;
Projected: -$16.99 billion.
Fiscal year: 2014;
Projected: -$19.77 billion.
Fiscal year: 2015;
Projected: -$22.56 billion.
Fiscal year: 2016;
Projected: -$25.6 billion.
Fiscal year: 2017;
Projected: -$24.62 billion.
Fiscal year: 2018;
Projected: -$26.98 billion.
Fiscal year: 2019;
Projected: -$30.11 billion.
Fiscal year: 2020;
Projected: -$33.07 billion.
Source: USPS.
Note: The projection for fiscal year 2010 is from USPS's Fiscal Year
2010 Integrated Financial Plan. USPS projections for fiscal years 2011
through 2020 are from its Action Plan and assume that (1) USPS takes
no management actions beyond those in its fiscal year 2009 budget and
(2) USPS's total statutory borrowing limit of $15 billion would be
increased to accommodate these losses. USPS's $8.4 billion in
cumulative net income for fiscal years 2003 through 2005 largely
resulted from a 2003 law (Pub. L. No. 108-18) that reduced USPS
pension benefit payments by about $9 billion over this period.
[End of figure]
Strategies and Options That Address Challenges to USPS's Current
Business Model:
Making progress toward USPS's financial viability would primarily
involve taking action on strategies and options to rightsize
operations, cut costs, and increase revenues. USPS does not need--and
cannot afford to maintain--its costly excess infrastructure capacity.
USPS has achieved noteworthy cost reductions, but much more progress
is needed. Making the necessary progress would require (1) taking more
aggressive actions to reduce costs and increase revenues within its
current authority, using the collective bargaining process to address
wages, benefits, and workforce flexibility, and (2) congressional
action to address legal restrictions and resistance to realigning USPS
operations, networks, and workforce. Key strategies and options, some
of which would require statutory changes, fall into the following
three major categories:
* reducing compensation and benefits costs,
* reducing other operations and network costs and improving
efficiency, and:
* generating revenues through product and pricing flexibility.
Ultimately, Congress may want to examine other options that would
alter the ownership structure of USPS. For example, USPS might be
moved back to being a federal agency funded in part by taxpayer
support, or it might be moved to a corporate model. This report does
not address the ownership issue because of an array of functional and
operational options--discussed throughout this report--that need to be
examined immediately. The resolution of some of these more pressing
issues might afford a better understanding of whether the ownership
structure should be modified.
Options to Reduce Compensation and Benefits Costs:
USPS has options to reduce its compensation and benefits costs in the
following four key areas: workforce size, to be aligned with reduced
workload; wages, which continue to be a key component of costs;
benefits, which in some cases are more generous than those provided by
other federal agencies; and workforce flexibility, including the mix
of full-and part-time employees and work rules that govern what tasks
employees can perform. Changes in these areas would need to be
negotiated with employee unions and would involve tradeoffs between
reducing costs and addressing union concerns that reducing workforce
size and compensation and benefits would erode the number of well-
paying jobs.
About 85 percent of USPS employees are covered by collective
bargaining agreements, which correspond with major crafts (see table
3). USPS and its employee unions will begin negotiations for new
agreements in 2010 and 2011. If USPS and its unions are unable to
agree, binding arbitration by a third-party panel will ultimately be
used to establish agreement. USPS is also required to consult with its
management associations that represent postmasters and supervisors.
About 78 percent of USPS employees are full time and receive salary
increases and cost-of-living adjustments based on predetermined
levels. These employees are generally scheduled in 8-hour shifts and
can earn overtime pay, except for rural mail carriers, who are
generally paid a salary without overtime. Managers are not covered by
collective bargaining agreements and are compensated under a pay-for-
performance program. About 90 percent of city carriers are full time,
while about 55 percent of rural carriers are full time.
Table 3: USPS Employees Covered by Selected Union Contracts as of
September 30, 2009:
Craft: Clerks;
Number of employees: 177,842;
Name of union: American Postal Workers Union;
Contract expiration date: November 20, 2010.
Craft: Mail Handlers;
Number of employees: 52,954;
Name of union: National Postal Mail Handlers Union;
Contract expiration date: November 20, 2011.
Craft: City Carriers;
Number of employees: 200,658;
Name of union: National Association of Letter Carriers;
Contract expiration date: November 20, 2011.
Craft: Rural Carriers;
Number of employees: 122,278[A]; Name of union: National Rural Letter
Carriers' Association;
Contract expiration date: November 20, 2010.
Craft: Total;
Number of employees: 553,732.
Sources: USPS and employee unions.
[A] Includes 54,529 part-time rural carriers.
[End of table]
USPS has not achieved significant reductions in compensation and
benefits, in part due to the following challenges:
* USPS is required by law to maintain compensation and benefits
comparable to the private sector. The application of the comparability
standard to postal employees--that is, whether a compensation premium
exists between postal employees and private-sector employees who do
comparable work--has been a source of disagreement between management
and postal unions in negotiations and interest arbitration.
* Career USPS employees participate in federal pension and benefits
programs, including health care and life insurance. USPS collective
bargaining agreements include provisions to reduce USPS's contribution
to health care premiums by 1 percent a year from 85 percent in fiscal
year 2007 to 81 percent in 2011 or 80 percent in 2012, depending on
the agreement. Nevertheless, USPS covers a higher proportion of
employee premiums for health care and life insurance than most other
federal agencies. The law requires USPS's fringe benefits to be at
least as favorable as those in effect when the PRA of 1970 was
enacted.[Footnote 11]
* USPS is also required by law to participate in the federal workers'
compensation program[Footnote 12] and ensure coverage for injured
employees. Some benefits provided under the federal program exceed
those provided in the private sector. For example, injured USPS
employees with dependents receive 75 percent of their salary compared
with the 66 percent of pay private employers covered under state
workers' compensation laws typically provide. Furthermore, USPS
employees receiving this benefit often do not opt to retire when
eligible, staying permanently on the more generous workers'
compensation rolls.
* Current collective bargaining agreements include provisions related
to compensation, leave, workforce composition, and work rules. They
also include some provisions that allow USPS to make changes, such as
relocating employees, but other provisions limit USPS's flexibility to
manage work efficiently and rightsize its workforce. For example,
current collective bargaining agreements:
- limit the percentage of part-time and contract workers who help USPS
match its workforce to changing workload;
- limit managers from assigning work to employees outside of their
crafts, such as having a retail clerk deliver mail;
- limit outsourcing for city delivery routes; and:
- contain "no-layoff" provisions for about 500,000 employees and
require USPS to release lower-cost part-time and temporary employees
before it can layoff any full-time workers without layoff protection.
* Currently, if the collective bargaining process reaches binding
arbitration, there is no statutory requirement for USPS's financial
condition to be considered. In 2009, proposed Senate
legislation[Footnote 13] included language that would require any
binding arbitration in the negotiation of postal contracts to take the
financial health of the Postal Service into account.
Workforce Size:
The 2003 President's Commission reported that "far more than
individual benefits, the size of the [postal] workforce determines the
cost of the workforce." USPS has worked to reduce the size of its
workforce through regular retirements and early retirements in
response to recent separation incentives and through a hiring freeze.
USPS's workforce of career and noncareer employees declined by nearly
21 percent--from 901,238 at the end of fiscal year 2000 to 712,082 at
the end of fiscal year 2009 (see figure 7). Career employees continued
to comprise most of the total workforce throughout this period. USPS
has a window of opportunity to reduce the cost and size of its
workforce through the large number of upcoming retirements, minimizing
any need for layoffs. In this regard, about 5 percent of USPS
employees will be eligible and expected to retire each year through
2020--a total of approximately 300,000 employees. Key issues include
what size workforce is needed to reflect changes in mail volumes,
revenues, and operations; how quickly changes can be made in this
area; whether separation incentives should be offered and are
affordable; and to what extent and under what terms should outsourcing
be considered.
Figure 7: Total Career and Noncareer Postal Employees, Fiscal Years
2000 through 2009:
[Refer to PDF for image: stacked vertical bar graph]
Fiscal year: 2000;
Career employees: 787,538;
Non-career employees: 113,700.
Fiscal year: 2001;
Career employees: 775,903;
Non-career employees: 115,102.
Fiscal year: 2002;
Career employees: 752,949;
Non-career employees: 101,427.
Fiscal year: 2003;
Career employees: 729,035;
Non-career employees: 97,920.
Fiscal year: 2004;
Career employees: 707,485;
Non-career employees: 100,111.
Fiscal year: 2005;
Career employees: 704,716;
Non-career employees: 98,284.
Fiscal year: 2006;
Career employees: 696,138;
Non-career employees: 100,061.
Fiscal year: 2007;
Career employees: 684,762;
Non-career employees: 101,167.
Fiscal year: 2008;
Career employees: 663,238;
Non-career employees: 101,850.
Fiscal year: 2009;
Career employees: 623,128;
Non-career employees: 88,954.
Source: USPS.
[End of figure]
Options to reduce the size of USPS's workforce include the following:
* Retirement and separation incentives: According to USPS officials,
incentives could accelerate the rate of attrition, but it needs to
have sufficient cash to fund them.
* Outsourcing: Determine which functions would be cost-effective to
outsource (using companies or individuals). At the end of fiscal year
2009, USPS had about 36,500 retail facilities, 3,000 of which were
contract postal units and 800 of which were community post offices
staffed by nonpostal employees. USPS also has long outsourced most of
its long-distance air and ground transportation. In delivery
operations, contractors deliver to less than 2 percent of USPS's
delivery points. Postal labor unions and some Members of Congress have
previously resisted outsourcing. For example, after USPS attempted to
contract out some city delivery routes in 2007, legislation was
introduced in both Houses of Congress on this matter.[Footnote 14]
USPS and the National Association of Letter Carriers subsequently
agreed to a moratorium on outsourcing city carrier delivery through
November 2011. Looking forward, the outsourcing issue could involve
consideration of the tradeoffs between the loss of government jobs
paying middle-class wages and benefits to achieve savings by shifting
the work to private-sector jobs that may pay lower wages and not have
guaranteed benefits.
* Layoffs: USPS could implement layoffs as a last resort if it has too
few positions to offer employees affected by restructuring. For
example, USPS could implement layoffs as part of shifting from 6-day
delivery to 5-day delivery. However, under current collective
bargaining agreements, any layoffs of covered employees not protected
by no-layoff clauses must first be applied to noncareer employees,
such as temporary employees, whose average wages are less than full-
time career employees.
Wages:
USPS wages were $39 billion in fiscal year 2009--about one-half of its
costs. Increasing wages have been a key driver of additional costs,
expected to add $1 billion in fiscal year 2010. Wages have
traditionally increased on the basis of cost-of-living allowances
keyed to the Consumer Price Index. Rising wages also increase benefit
costs, such as pensions. Key issues include how USPS can improve its
compensation systems to balance the need for fair compensation with
reducing costs and increasing incentives to become more competitive.
In this regard, a recent legislative proposal would have required that
USPS's financial condition be considered if collective bargaining
reaches binding arbitration.[Footnote 15] One option would be a two-
tier pay system that would pay new hires lower wages, while
"grandfathering" current employees under the current pay structure.
Benefits:
USPS makes payments to fund its liabilities and obligations for
retiree health and pension benefits, health and life insurance
premiums, and workers' compensation.[Footnote 16] Benefits cost USPS
almost $17 billion in fiscal year 2009, over 23 percent of its total
costs. The cost would have been nearly $21 billion if Congress had not
reduced USPS payments for retiree health benefits by $4 billion to
address a looming cash shortfall. Key issues are assigning financial
responsibility for benefits to USPS, its employees, and current and
future ratepayers and balancing USPS's poor financial condition, while
keeping rates affordable, meeting legal requirements for employee
benefits, and minimizing risk to the taxpayer if USPS would be unable
to meet its responsibilities.
Retiree Health Benefits:
According to OPM estimates, at the end of fiscal year 2009, the
actuarially determined obligation for USPS's future retiree health
benefits was about $87.5 billion. At that time, the dedicated Postal
Service Retiree Health Benefits Fund (the RHB Fund) had a balance of
$35.5 billion, and, therefore, unfunded obligations of $52.0 billion
remained. These unfunded obligations developed largely because, prior
to the enactment of PAEA in 2006, USPS financed its share of the
health insurance premiums for its retirees on a pay-as-you-go basis,
rather than on the annual accrued cost of future benefits attributable
to the service of current employees. PAEA required USPS to begin
prefunding its retiree health benefit obligations with annual payments
to the RHB Fund, while continuing to pay its share of the retiree
health premiums of current retirees to the Federal Employees Health
Benefits Fund (the FEHB Fund).
Since PAEA was enacted, mail volume has declined, USPS's financial
condition has deteriorated, and it has had difficulty in making its
required payments to prefund its retiree health benefit obligations.
In fiscal year 2009, a looming cash shortfall led to last-minute
congressional action that deferred costs by reducing USPS's required
prefunding payment from $5.4 billion to $1.4 billion. At the end of
fiscal year 2009, USPS had about 463,000 annuitants and survivors
participating in the Federal Employees Health Benefits Program.
Furthermore, 162,000 USPS career employees are eligible for regular
retirement this fiscal year, and this number is projected to increase
to about 300,000 career employees over the next decade. For fiscal
year 2010, USPS has reported that it is "highly uncertain" whether it
will have sufficient cash to cover its required prefunding payment of
$5.5 billion that is due by September 30, 2010. According to USPS's
fiscal year 2010 budget, by making the required prefunding payment, it
will end the fiscal year with a cash balance of only $200 million.
However, USPS officials have said that this cash balance would likely
be inadequate to finance operations in October 2010, when it must make
three payroll payments of close to $2 billion each, as well as a
payment for workers' compensation costs expected to exceed $1 billion.
In response to these likely conditions, USPS has requested that
Congress revise the required schedule for retiree health benefits
payments as part of a package to improve its financial viability.
There are multiple options for funding USPS's retiree health benefit
obligations. In addition to the current prefunding approach, where the
obligations are paid prior to when USPS's share of retiree health
premiums are due, there are two broad approaches--(1) a "pay-as-you-
go" funding approach, where USPS's share of retiree health premiums
are paid as they are billed for current retirees, and (2) an actuarial
funding approach, where payments include amounts for "normal costs" to
finance the future retiree health benefits attributed to the service
of current employees and amortization amounts to liquidate unfunded
obligations over a 40-year period. The impact of these various
approaches on USPS's payments would depend on whether its share of
retiree health premiums would be paid directly by USPS to the FEHB
Fund or whether the premiums would be paid from the RHB Fund.
Depending on which option is selected, changes could also impact the
federal budget deficit. PAEA's approach to funding USPS's retiree
health benefit obligations is a combination of the prefunding and pay-
as-you-go approaches that we have previously described. Specifically,
PAEA requires USPS to make two payments annually over fiscal years
2010 through 2016:
* a payment to the FEHB Fund to cover its share of the premiums for
current retirees and:
* a statutorily determined payment to the RHB Fund to prefund
obligations for future retirees.
Starting in fiscal year 2017--after the last statutorily scheduled
prefunding payment--PAEA requires that USPS's share of retiree health
premiums be paid from the RHB Fund and requires OPM to determine
future payments to the RHB Fund. Each annual payment to the RHB Fund
starting in fiscal year 2017 will be the sum of the two amounts that
finance the following:
* the annual accrued cost of future benefits attributable to the
service of current USPS employees, which OPM refers to as "normal
costs," and:
* amortization payments over 40 years to liquidate any unfunded
obligations.[Footnote 17]
Table 4 shows USPS payments from fiscal years 2010 through 2020, based
on updated estimates that OPM provided to us for this report. Total
USPS payments are estimated to increase from $7.8 billion in fiscal
year 2010 to $10.3 billion in fiscal year 2016. The payments are
estimated to decline to $6.4 billion in fiscal year 2017 and increase
to $7.3 billion in fiscal year 2020. Based on GAO analysis, assuming
that USPS made these payments through 2020, estimated unfunded
obligations of about $33 billion would remain.
Table 4: USPS Retiree Health Benefit Payments under Current Law,
Fiscal Years 2010 through 2020, which Include Prefunding through
Fiscal Year 2016:
Fiscal year: 2010;
USPS payments to RHB Fund: $5.5 billion;
USPS payments to FEHB Fund: $2.3 billion;
Total USPS payments: $7.8 billion;
Payments from RHB Fund to FEHB Fund: 0.0.
Fiscal year: 2011;
USPS payments to RHB Fund: $5.5 billion;
USPS payments to FEHB Fund: $2.6 billion;
Total USPS payments: $8.1 billion;
Payments from RHB Fund to FEHB Fund: 0.0.
Fiscal year: 2012;
USPS payments to RHB Fund: $5.6 billion;
USPS payments to FEHB Fund: $2.9 billion;
Total USPS payments: $8.5 billion;
Payments from RHB Fund to FEHB Fund: 0.0.
Fiscal year: 2013;
USPS payments to RHB Fund: $5.6 billion;
USPS payments to FEHB Fund: $3.3 billion;
Total USPS payments: $8.9 billion;
Payments from RHB Fund to FEHB Fund: 0.0.
Fiscal year: 2014;
USPS payments to RHB Fund: $5.7 billion;
USPS payments to FEHB Fund: $3.6 billion;
Total USPS payments: $9.3 billion;
Payments from RHB Fund to FEHB Fund: 0.0.
Fiscal year: 2015;
USPS payments to RHB Fund: $5.7 billion;
USPS payments to FEHB Fund: $4.0 billion;
Total USPS payments: $9.7 billion;
Payments from RHB Fund to FEHB Fund: 0.0.
Fiscal year: 2016;
USPS payments to RHB Fund: $5.8 billion;
USPS payments to FEHB Fund: $4.5 billion;
Total USPS payments: $10.3 billion;
Payments from RHB Fund to FEHB Fund: 0.0.
Fiscal year: 2017;
USPS payments to RHB Fund: $6.4 billion;
USPS payments to FEHB Fund: 0.0;
Total USPS payments: $6.4 billion;
Payments from RHB Fund to FEHB Fund: $4.9 billion.
Fiscal year: 2018;
USPS payments to RHB Fund: $6.7 billion;
USPS payments to FEHB Fund: 0.0;
Total USPS payments: $6.7 billion;
Payments from RHB Fund to FEHB Fund: $5.4 billion.
Fiscal year: 2019;
USPS payments to RHB Fund: $7.0 billion;
USPS payments to FEHB Fund: 0.0;
Total USPS payments: $7.0 billion;
Payments from RHB Fund to FEHB Fund: $5.8 billion.
Fiscal year: 2020;
USPS payments to RHB Fund: $7.3 billion;
USPS payments to FEHB Fund: 0.0;
Total USPS payments: $7.3 billion;
Payments from RHB Fund to FEHB Fund: $6.4 billion.
Fiscal year: Total;
USPS payments to RHB Fund: $66.8 billion;
USPS payments to FEHB Fund: $23.2 billion;
Total USPS payments: $90.0 billion;
Payments from RHB Fund to FEHB Fund: $22.5 billion.
Source: OPM analysis prepared at GAO's request.
Note: Estimates are based on OPM assumptions that factor in updated
USPS workforce size projections, annual inflation in health care costs
of 8 percent in fiscal year 2010 that then declines slowly, a general
inflation rate of 3.5 percent annually, and RHB Fund interest of 6.25
percent annually. USPS prefunding payments are specified in PAEA and
are shown above as USPS Payments to RHB Fund for fiscal years 2010
through 2016. Starting in fiscal year 2017, annual USPS payments will
include (1) "normal costs" (i.e., future retiree health benefits costs
attributed to the service of current employees) and (2) amortization
amounts to liquidate any unfunded obligations over a 40-year period.
[End of table]
In 2009, proposed legislation was introduced in both houses of
Congress that would have revised the payment schedule for postal
retiree health benefits.[Footnote 18] The House legislation (H.R. 22)
would have shifted responsibility for payments for current retiree
health premiums from USPS to the RHB Fund for fiscal years 2009
through 2011. Such action would result in USPS needing to pay
additional amounts to the RHB Fund in the future due to the use of
those RHB funds for current retiree health premiums. The Congressional
Budget Office (CBO) estimated that enacting the House legislation
would have a net cost to the federal budget of $2.5 billion over
fiscal years 2010 through 2019.[Footnote 19] The Senate legislation
(S. 1507) would have extended and revised prefunding payments to the
RHB Fund, with the payment amounts increasing from $1.7 billion in
fiscal years 2009 and 2010 to $5.3 billion in fiscal year 2019. CBO
estimated that enacting S. 1507 would have a net cost to the federal
budget of $2.8 billion over both fiscal years 2010 through 2019 and
fiscal years 2009 through 2014.[Footnote 20] Ultimately, Congress
acted at the end of September 2009 to reduce costs by deferring USPS's
prefunding payment for retiree health benefits in fiscal year 2009 by
$4 billion.[Footnote 21]
We strongly support the principle that USPS should continue to fund
its retiree health benefit obligations to the maximum extent that its
finances permit. Deferrals of funding such benefits would serve as
financial relief. Such deferrals, however, increase the risk that in
the future USPS will not be able to pay these obligations as its core
business continues to decline and if sufficient actions are not taken
to restructure operations and reduce costs. With these considerations,
the current statutory approach for funding USPS's retiree health
benefit obligations can be revised along the lines of the two broad
approaches to funding retiree health obligations--pay-as-you-go and
actuarial. The approaches vary in the amount of annual payments,
which, in turn, impact the unfunded obligation, lower annual payments,
and result in higher unfunded obligation balances. For comparison
purposes, we present the estimated unfunded balance for USPS's retiree
health obligations in fiscal year 2020. These approaches to revising
the current statutory approach are presented in the following text to
illustrate the wide range of possible options.
Approach #1: Pay-as-you-go approach to funding retiree health benefit
obligations:
In March 2010, USPS proposed "to shift to a 'pay-as-you-go' system
[for its retiree health benefits], paying premiums as they are billed"
for current retirees. Estimated annual USPS payments under one
possible pay-as-you-go approach are shown in table 5. Under this
approach, USPS would make payments to the FEHB Fund for its share of
retiree health premiums. The RHB Fund would not make or receive
payments, but would continue to earn interest. Based on GAO analysis,
USPS's unfunded obligations would be an estimated $99 billion in
fiscal year 2020, or about $66 billion more than they would be under
current law. This level of unfunded obligations would increase the
risk that, absent future events that could reduce USPS's retiree
health premiums, USPS's operations in the future may not be able to
support the future payments that are expected. However, in such a
circumstance, a mechanism could be created to pay a portion of premium
payments from the assets that have accumulated in the RHB Fund once a
threshold was reached, such as when the pay-as-you-go premium payments
reach a particular percentage of postal revenues. Using the RHB Fund
to pay a portion of retiree health premiums would reduce USPS's
payments to the FEHB Fund and increase USPS's unfunded obligations by
a corresponding amount. Such a mechanism could, if implemented
carefully, provide some assistance to USPS in meeting its obligation
to pay retiree health premiums.
Table 5: A Pay-as-You-Go Approach for Revising USPS Retiree Health
Benefit Payments, Fiscal Years 2010 through 2020:
Fiscal year: 2010;
USPS payments to RHB Fund: $0.0 billion;
USPS payments to FEHB Fund: $2.3 billion;
Total USPS payments: $2.3 billion;
Payments from RHB Fund to FEHB Fund: 0.0;
Difference between total USPS payments under this option and current law[A]:
($5.5 billion).
Fiscal year: 2011;
USPS payments to RHB Fund: 0.0;
USPS payments to FEHB Fund: $2.6 billion;
Total USPS payments: $2.6
billion;
Payments from RHB Fund to FEHB Fund: 0.0;
Difference between total USPS payments under this option and current law[A]:
($5.5 billion).
Fiscal year: 2012;
USPS payments to RHB Fund: 0.0;
USPS payments to FEHB Fund: $2.9 billion;
Total USPS payments: $2.9 billion;
Payments from RHB Fund to FEHB Fund: 0.0;
Difference between total USPS payments under this option and current law[A]:
($5.6 billion).
Fiscal year: 2013;
USPS payments to RHB Fund: 0.0;
USPS payments to FEHB Fund: $3.3 billion;
Total USPS payments: $3.3 billion;
Payments from RHB Fund to FEHB Fund: 0.0;
Difference between total USPS payments under this option and current law[A]:
($5.6 billion).
Fiscal year: 2014;
USPS payments to RHB Fund: 0.0;
USPS payments to FEHB Fund: $3.6 billion;
Total USPS payments: $3.6 billion;
Payments from RHB Fund to FEHB Fund: 0.0;
Difference between total USPS payments under this option and current law[A]:
($5.7 billion).
Fiscal year: 2015;
USPS payments to RHB Fund: 0.0;
USPS payments to FEHB Fund: $4.0 billion;
Total USPS payments: $4.0 billion;
Payments from RHB Fund to FEHB Fund: 0.0;
Difference between total USPS payments under this option and current law[A]:
($5.7 billion).
Fiscal year: 2016;
USPS payments to RHB Fund: 0.0;
USPS payments to FEHB Fund: $4.5 billion;
Total USPS payments: $4.5 billion;
Payments from RHB Fund to FEHB Fund: 0.0;
Difference between total USPS payments under this option and current law[A]:
($5.8 billion).
Fiscal year: 2017;
USPS payments to RHB Fund: 0.0;
USPS payments to FEHB Fund: $4.9 billion; Total USPS payments: $4.9
billion; Payments from RHB Fund to FEHB Fund: 0.0; Difference between
total USPS payments under this option and current law[A]: ($1.5
billion).
Fiscal year: 2018;
USPS payments to RHB Fund: 0.0;
USPS payments to FEHB Fund: $5.4 billion;
Total USPS payments: $5.4 billion;
Payments from RHB Fund to FEHB Fund: 0.0;
Difference between total USPS payments under this option and current law[A]:
($1.3 billion).
Fiscal year: 2019;
USPS payments to RHB Fund: 0.0;
USPS payments to FEHB Fund: $5.8 billion; Total USPS payments: $5.8
billion; Payments from RHB Fund to FEHB Fund: 0.0; Difference between
total USPS payments under this option and current law[A]: ($1.2
billion).
Fiscal year: 2020;
USPS payments to RHB Fund: 0.0;
USPS payments to FEHB Fund: $6.4 billion;
Total USPS payments: $6.4 billion;
Payments from RHB Fund to FEHB Fund: 0.0;
Difference between total USPS payments under this option and current law[A]:
($0.9 billion).
Fiscal year: Total;
USPS payments to RHB Fund: $0.0 billion;
USPS payments to FEHB Fund: $45.7 billion;
Total USPS payments: $45.7 billion;
Payments from RHB Fund to FEHB Fund: 0.0;
Difference between total USPS payments under this option and current law[A]:
($44.3 billion).
Source: OPM analysis prepared at GAO's request.
Note: Estimates are based on OPM assumptions that factor in updated
USPS workforce size projections, annual inflation in health care costs
of 8 percent in fiscal year 2010 that then declines slowly, a general
inflation rate of 3.5 percent annually, and RHB Fund interest of 6.25
percent annually.
[A] GAO compiled the data shown in this column. Also, see table 4 for
USPS payments under current law.
[End of table]
Different variations on a "pay-as-you-go" approach are also possible,
such as using the RHB Fund to pay USPS's share of retiree health
premiums for current retirees until the RHB Fund is exhausted and then
reverting to USPS funding future premiums from its operations by
paying the FEHB Fund directly. Under this alternative, USPS's payments
would be suspended until the RHB Fund is exhausted, which would be
approximately fiscal year 2025.
Approach #2: Actuarial approach to funding retiree health benefit
obligations:
An actuarial funding approach for USPS retiree health benefit
obligations could provide a financing mechanism that allows the RHB
Fund to remain self-sustaining in the long term. Under one such
approach, unfunded retiree health benefit obligations would be
reamortized starting in fiscal year 2010, instead of fiscal year 2017,
as required under current law. Specifically, starting in fiscal year
2010, USPS would make payments to the RHB Fund that finance the
following:
* the annual accrued cost of future benefits attributable to the
service of current USPS employees, which OPM refers to as "normal
costs," and:
* amortization payments over 40 years to liquidate any unfunded
obligations.
Under this actuarial funding approach, USPS would make annual
estimated payments that total about $80 billion from fiscal years 2010
through 2020 (see table 6). Based on GAO analysis, in fiscal year
2020, the estimated unfunded obligations under this method would be
about $48 billion, or about $15 billion more than they would be under
current law.
Table 6: Actuarial Funding Alternative for USPS Retiree Health Benefit
Payments, Fiscal Years 2010 through 2020:
Fiscal year: 2010;
USPS payments to RHB Fund[A]: $6.3 billion;
USPS payments to FEHB Fund: 0.0;
Total USPS payments: $6.3 billion;
Payments from RHB Fund to FEHB Fund: $2.3 billion;
Difference between total USPS payments under this option and current law[B]:
$(1.5 billion).
Fiscal year: 2011;
USPS payments to RHB Fund[A]: $6.4 billion;
USPS payments to FEHB Fund: 0.0;
Total USPS payments: $6.4 billion;
Payments from RHB Fund to FEHB Fund: $2.6 billion;
Difference between total USPS payments under this option and current law[B]:
($1.7 billion).
Fiscal year: 2012;
USPS payments to RHB Fund[A]: $6.5 billion;
USPS payments to FEHB Fund: 0.0;
Total USPS payments: $6.5 billion;
Payments from RHB Fund to FEHB Fund: $2.9 billion;
Difference between total USPS payments under this option and current law[B]:
($2.0 billion).
Fiscal year: 2013;
USPS payments to RHB Fund[A]: $6.8 billion;
USPS payments to FEHB Fund: 0.0;
Total USPS payments: $6.8 billion;
Payments from RHB Fund to FEHB Fund: $3.3 billion;
Difference between total USPS payments under this option and current law[B]:
($2.1 billion).
Fiscal year: 2014;
USPS payments to RHB Fund[A]: $7.0 billion;
USPS payments to FEHB Fund: 0.0;
Total USPS payments: $7.0 billion;
Payments from RHB Fund to FEHB Fund: $3.6 billion;
Difference between total USPS payments under this option and current law[B]:
($2.3 billion).
Fiscal year: 2015;
USPS payments to RHB Fund[A]: $7.2 billion;
USPS payments to FEHB Fund: 0.0;
Total USPS payments: $7.2 billion;
Payments from RHB Fund to FEHB Fund: $4.0 billion;
Difference between total USPS payments under this option and current law[B]:
($2.5 billion).
Fiscal year: 2016;
USPS payments to RHB Fund[A]: $7.5 billion;
USPS payments to FEHB Fund: 0.0;
Total USPS payments: $7.5;
Payments from RHB Fund to FEHB Fund: $4.5 billion;
Difference between total USPS payments under this option and current law[B]:
($2.8 billion).
Fiscal year: 2017;
USPS payments to RHB Fund[A]: $7.7 billion;
USPS payments to FEHB Fund: 0.0;
Total USPS payments: $7.7 billion;
Payments from RHB Fund to FEHB Fund: $4.9 billion;
Difference between total USPS payments under this option and current law[B]:
$1.3 billion.
Fiscal year: 2018;
USPS payments to RHB Fund[A]: $8.0 billion;
USPS payments to FEHB Fund: 0.0;
Total USPS payments: $8.0 billion;
Payments from RHB Fund to FEHB Fund: $5.4 billion;
Difference between total USPS payments under this option and current law[B]:
$1.3 billion.
Fiscal year: 2019;
USPS payments to RHB Fund[A]: $8.3 billion;
USPS payments to FEHB Fund: 0.0;
Total USPS payments: $8.3 billion;
Payments from RHB Fund to FEHB Fund: $5.8 billion;
Difference between total USPS payments under this option and current law[B]:
$1.3 billion.
Fiscal year: 2020;
USPS payments to RHB Fund[A]: $8.6 billion;
USPS payments to FEHB Fund: 0.0;
Total USPS payments: $8.6 billion;
Payments from RHB Fund to FEHB Fund: $6.4 billion;
Difference between total USPS payments under this option and current law[B]:
$1.3 billion.
Fiscal year: Total;
USPS payments to RHB Fund[A]: $80.3 billion;
USPS payments to FEHB Fund: 0.0;
Total USPS payments: $80.3 billion;
Payments from RHB Fund to FEHB Fund: $45.7 billion;
Difference between total USPS payments under this option and current law[B]:
($9.7 billion).
Source: OPM analysis done at GAO's request.
Note: Estimates are based on OPM assumptions that factor in updated
USPS workforce size projections, annual inflation in health care costs
of 8 percent in fiscal year 2010 that then declines slowly, a general
inflation rate of 3.5 percent annually, and RHB Fund interest of 6.25
percent annually.
[A] Starting in fiscal year 2010, USPS payments include (1) amounts
for "normal costs" (i.e., future retiree health benefits costs
attributed to the service of current USPS employees) and (2)
amortization amounts to liquidate any unfunded obligations over a 40-
year period.
[B] GAO compiled the data shown in this column. Also, see table 4 for
USPS payments under current law.
[End of table]
PAEA's funding requirements represent a significant financial
commitment for USPS, especially in light of the current economic
environment and the major challenges it faces. As we have testified,
we continue to be concerned about those options that would greatly
reduce payments in the short term, only to defer payments into the
future. [Footnote 22] Specifically, we are concerned that deferring
these payments or some portion into the future increases the risk that
USPS may have difficulty in making the future payments, particularly
if mail volumes continue to decline. Because its retirees are eligible
to receive the same health benefits as other federal retirees, if USPS
cannot make its required payments, the U.S. Treasury, and hence the
taxpayer, would still have to meet the federal government's
obligations.
Pension Benefits:
USPS employees participate in the federal government's two civilian
pension plans--the Civil Service Retirement System (CSRS) and the
Federal Employees' Retirement System (FERS)--that are administered by
OPM. As of the end of fiscal year 2009, approximately 80 percent of
USPS's employees were enrolled in FERS, while 20 percent were enrolled
in CSRS or the Dual Civil Service Retirement System and Social
Security (Dual CSRS).[Footnote 23] As an agency employer, USPS is
required by law to make certain payments to the Civil Service
Retirement and Disability Fund (CSRDF) to fund its share of CSRS and
FERS pension costs. In addition to providing an annuity at retirement
based on years of service and "high-3" average pay, FERS also consists
of Social Security and the government's Thrift Savings Plan (TSP). As
such, USPS contributes the employer's share of Social Security taxes
and the required contributions to its employees' TSP accounts.
Because USPS's pension, Social Security, and TSP contributions are in
part a function of employee wages as defined for these programs,
changes in total employee wages will have a corresponding effect on
USPS's costs for these items. USPS's retirement expenses were $5.9
billion in fiscal year 2009. As we have previously mentioned, most
USPS employees are full time, can receive overtime pay, and receive
pay increases and cost-of-living adjustments as set forth in
collective bargaining agreements with various unions. Other USPS
employees, typically managers and postmasters, are compensated under
pay-for-performance programs. USPS's ability to reduce the size of its
workforce and the number of workhours, the strategies and options for
which are described elsewhere in this report, will affect the pension,
Social Security, and TSP benefit costs it incurs for most of its
employees.
Furthermore, the methods and rates at which USPS funds pension benefit
costs are set forth in law. In 2002, OPM estimated that, under
statutory pension funding requirements applicable to USPS at the time,
USPS was on course to overfund its CSRS pension obligations.[Footnote
24] Congress responded by enacting the Postal Civil Service Retirement
System Funding Reform Act of 2003,[Footnote 25] which changed the
prior method of estimating and funding the USPS CSRS pension
obligations. The act required USPS to contribute the employer's share
of "dynamic normal cost" to the CSRDF, plus an amount to liquidate any
underfunding, or "postal supplemental liability," both as determined
by OPM.[Footnote 26] In July 2003, OPM submitted to Congress its plan
enumerating the actuarial methods and assumptions by which OPM would
make its determinations. In 2004, OPM and the Board of Actuaries for
the CSRDF reconsidered OPM's methodology at the request of USPS and
concluded that OPM's methodology was in accordance with congressional
intent. OPM also rejected an alternative methodology offered by USPS.
In January 2010, the USPS OIG issued a report on funding the USPS's
CSRS pension responsibility.[Footnote 27] This report asserted that,
despite the changes brought about in the 2003 Act, the current method
of allocating the pension costs for post-1971 pay increases results in
the inequitable allocation of pension obligations to USPS. The USPS
OIG proposed an alternative allocation methodology that its actuaries
estimated would, if implemented, change the funded status of USPS's
CSRS pension obligations from a current $10 billion underfunding to a
$65 billion overfunding. This alternative allocation methodology is
the same methodology that OPM rejected in 2004. Application of the
USPS OIG's proposed methodology would result in a shift of pension
funding costs from USPS to the U.S. Treasury.
Other Benefits:
* Health and life insurance: Health insurance premiums for current
employees comprise a growing share of USPS expenses, rising from $2.2
billion (3.5 percent of total expenses) in fiscal year 2000 to $5.3
billion (7.4 percent) in fiscal year 2009. Collective bargaining
agreements require USPS to pay a more generous share of employees'
health and life insurance premiums than most other agencies. For
example, USPS paid, on average, 81 percent of health benefit premiums
in fiscal year 2009 compared with 72 percent by other federal
agencies. It also paid 100 percent of employee life insurance
premiums, while other federal agencies pay about 33 percent. One
option would be to increase employee premium payments for health and
life insurance premiums. USPS's share of the health and life insurance
premium payments could be reduced to levels paid by most federal
agencies, which would increase the employees' annual premium payments
and, according to USPS estimates, would have saved about $615 million
in fiscal year 2009.
* Workers' compensation: The 2003 President's Commission recommended
making USPS's workers' compensation program more comparable to
programs in the private sector to control costs, still provide
adequate benefits, and address USPS's unfunded liability in this area.
The commission recommended that USPS be allowed to (1) transition
employees receiving workers' compensation to its pension plan on the
basis of when the employee (if not injured) would be retirement
eligible and (2) limit benefits from the current 75 percent for
employees with dependents to two-thirds of the maximum weekly rate--
the rate that applies to employees without dependents.
Postal Workforce Mix and Work Rules:
Limitations on the workforce mix of full-time and part-time postal
employees and workforce flexibility rules contained in contracts with
USPS's unions are key determinants of how postal work is organized
and, thus, of its cost. USPS officials told us that as mail volume
declines, it would be more efficient to have a much higher proportion
of part-time workers than is currently allowed under the existing
agreements. These part-time employees would have flexible schedules
and responsibilities and lower pay than full-time career employees. A
key issue is how USPS can obtain greater flexibility through the
collective bargaining process so that it can adjust its workforce more
quickly to adapt to changing volume and revenue. Some options for
postal workforce mix and work rules include the following:
* Part-time workers: Increase the percentage of part-time employees,
who could work more flexible schedules, including less than an 8-hour
shift. Such flexibility could help match USPS's workforce to the
changing workload, which varies greatly depending on the day of the
week and the time of the year.
* Job Flexibility: Increase the flexibility to use employees in
different assignments. Changes in the skill requirements of some jobs
and the needs of operations have made it more feasible and necessary
for employees to be trained in different tasks and work in different
areas, depending on daily needs. Under current collective bargaining
agreements, USPS can assign employees to "cross crafts" and perform
different duties, but the agreements require managers to consider wage
level, knowledge, and experience before asking employees to perform
duties outside of their normal purview.
Options for Reducing Operational and Network Costs and Improving
Efficiency:
Another area where USPS can reduce operational costs is by optimizing
its mail processing, retail, and delivery networks; eliminating
growing excess capacity and maintenance backlogs; and improving
efficiency. Declines in mail volume and continuing automation have
increased costly excess capacity that was a problem even when mail
volume peaked in fiscal year 2006. USPS no longer needs--and can no
longer afford--to maintain all of its retail and mail processing
facilities. For example, USPS has reported that it has 50 percent
excess plant capacity in its First-Class Mail processing operations.
Although USPS has begun efforts to realign and consolidate some mail
processing, retail, and delivery operations, additional efforts are
urgently needed to overcome obstacles. USPS has faced formidable
resistance to facility closures and consolidations because of concerns
about how these actions might affect jobs, service, employees, and
communities, particularly in small towns or rural areas. According to
some Members of Congress and postmaster organizations, among others,
post offices are fundamental to the identity of small towns, providing
them with an economic and social anchor. Another issue is that
inadequate USPS financial resources could impede efforts to optimize
postal mail processing, retail, and delivery networks by limiting
available funding for transition costs.
Reducing operational and network costs would require navigating
statutory requirements, regulations, procedures, and service
standards, including the following:
* USPS is required by law to provide adequate, prompt, reliable, and
efficient services to all communities, including a maximum degree of
effective and regular services in rural areas, communities, and small
towns where post offices are not self-sustaining.[Footnote 28] USPS is
specifically prohibited from closing small post offices "solely for
operating at a deficit."[Footnote 29] Statutory requirements also
specify the process and criteria for post office closings, including
appellate review by PRC.[Footnote 30] Also, USPS regulations prescribe
processes for closing, consolidating, and relocating post offices.
* PAEA requires USPS to develop and use procedures for providing
public notice and input before closing or consolidating any mail
processing or logistics facilities.[Footnote 31]
* Appropriations provisions restrict post office closures[Footnote 32]
and mandate 6-day delivery.[Footnote 33]
* Service standards drive operations at mail processing facilities. In
this regard, PAEA requires USPS to establish and maintain modern
delivery standards.[Footnote 34] USPS standards currently call for
delivery of most local First-Class Mail overnight and most long-
distance First-Class Mail in 2 to 3 days.
* A PRC hearing and advisory opinion are required when USPS submits a
proposal to make changes that would generally affect service on a
nationwide or substantially nationwide basis.[Footnote 35]
Mail Processing Operations:
In 2006, PAEA encouraged USPS to expeditiously move forward in its
streamlining efforts, recognizing that USPS has more processing
facilities than it needs.[Footnote 36] USPS has begun efforts to
consolidate some mail processing operations, but much more needs to be
done. Since 2005, USPS has closed only 2 of its 270 processing and
distribution centers. Over this period, it also has closed some
facilities, such as 68 Airport Mail Centers and 12 Remote Encoding
Centers.[Footnote 37] Between fiscal years 2005 and 2009, the Area
Mail Processing (AMP) process has been used to implement 13
consolidations, saving a projected $31 million, but 39 under
consideration were canceled, according to a recent USPS OIG report.
[Footnote 38] This report also noted that another 16 AMP
consolidations have been approved, while 30 remained under
consideration.
When determining whether to close a particular mail processing
facility, key factors include the role of the facility in providing
secure and timely delivery in accordance with its service standards as
well as the expected cost reductions or productivity gains.
Furthermore, we have reported that the process for governing such
decisions should be clearly defined and transparent, and include
public notice and meaningful engagement with affected communities,
mailers, and employees. In 2005, we recommended that USPS enhance
transparency and strengthen accountability of realignment efforts to
assure stakeholders that such efforts would be implemented fairly and
achieve the desired results.[Footnote 39] We have since testified that
USPS took steps to address these recommendations and should be
positioned for action.[Footnote 40] Individual facility decisions are
best made in the context of a comprehensive, integrated approach for
optimizing the overall mail processing network. Key process issues in
this area include how to better inform Congress and the public about
the purpose and scope of USPS's optimization plans, address possible
resistance to consolidating operations and closing facilities, and
ensure that employees will be treated fairly.
Options in the mail processing area include the following:
* Close major mail processing facilities: The Postmaster General and
other stakeholders have recently said that USPS could close many major
mail processing facilities while maintaining current standards for
timely delivery. Some stakeholders have estimated that roughly over
one-half of these facilities are not needed.
* Relax delivery standards to facilitate closures and consolidations:
USPS officials and experts have also noted that additional major
processing facilities could be closed if delivery standards were
relaxed. For example, one senior USPS official estimated that about 70
processing facilities could be eliminated if local First-Class Mail
were to be delivered in 2 days instead of overnight.
* Introduce a discount for destination-entry of First-Class Mail:
[Footnote 41] Some mailers favor having USPS introduce a discount for
entering First-Class Mail at facilities that are generally closer to
the mail's final destination. For mail sent to distant recipients,
such destination entry would be expected to bypass some mail
processing facilities and some USPS transportation. However, USPS
officials told us that they did not believe that USPS could capture
the potential cost savings from creating such a discount, because of
existing excess capacity. If such a discount were to be applied to
mail that is already locally entered--which comprises much First-Class
Mail volume--that could reduce revenues with little corresponding cost
savings.
Retail Operations:
USPS's retail network has remained largely static, despite expanded
use of retail alternatives and population shifts. USPS continues to
provide service at about 36,500 post offices, branches, and stations
and has not significantly downsized its retail operations in recent
years. Furthermore, USPS has a maintenance backlog for its retail
facilities.[Footnote 42] USPS officials stated that maintenance has
historically been underfunded, causing it to focus on "emergency"
repairs at the expense of routine maintenance. USPS has limited its
capital expenditures to help conserve cash, an action that may affect
its ability to make progress on its maintenance backlog.
USPS recognizes the need to adjust its retail network to provide
optimal service at the lowest possible cost and has expanded its use
of alternatives to traditional post offices. In 2009, customers could
also access postal services at more than 63,000 physical locations,
such as purchasing stamps at drug stores and supermarkets. By fiscal
year 2009, nearly 30 percent of retail transactions were conducted in
locations other than USPS retail facilities. In addition, self-service
options, such as Automated Postal Centers, are located in postal
retail facilities. Opportunities to consolidate retail facilities are
particularly evident in urban and suburban areas, where USPS retail
locations are close to one another, customers have more options, and
facilities are expensive to operate and maintain.
Some of the key issues in the retail area include whether USPS should
retain its current retail network and find sources of revenue to
support it other than through the sale of postal products, or whether
it should eliminate unnecessary facilities, modernize its retail
services, and partner with the private sector to provide services in
other locations, such as shopping malls. Another issue is whether USPS
should provide other governmental services in postal facilities and,
if so, whether it would receive reimbursement.
Options in the retail area include the following:
* Optimize USPS's retail facility network by expanding retail access
and closing unneeded facilities: In March 2010, USPS stated that it
plans to expand customer access while reducing costs through new
partnerships with retailers and other options, such as self-service
kiosks. USPS explained that post offices are often less convenient for
customers in terms of hours and accessibility, and cost two to three
times more than alternatives. USPS also noted that it has more retail
locations than McDonalds, Starbucks, Walgreens, and Walmart combined,
but the average post office provides service to about 600 customers
weekly--or about 1/10th in comparison to Walgreens. Additional postal
retail locations could be located within drug stores, grocery stores,
and other retail chain stores, such as those in shopping centers and
local malls. These retail stores are often open 7 days a week, for
longer hours than postal retail facilities. According to USPS
officials, stores that could provide access to postal retail services
pay their employees less than postal retail clerks who currently earn
an average of over $40 per hour in compensation and benefits. USPS
stated that it would reduce redundant retail facilities as customers
continue to shift to alternatives, but noted that proposals to close
facilities have led to protests and resistance. USPS called for
Congress to eliminate the statutory prohibition on closing small post
offices solely for operating at a loss,[Footnote 43] and stated that
changes would be needed to the regulatory review process for closing
post offices. USPS also called for reduced constraints on the decision-
making process for providing access to postal services. If USPS is not
able to streamline its retail operations, it may need to make major
reductions in the hours that post offices and retail facilities are
open for window service.
* Leverage the USPS retail network: USPS could maintain current retail
facilities and leverage this network by providing other nonpostal
goods or services. Such activities might be performed by USPS or
private-sector partners and other government agencies. For example,
these partners and agencies could lease unused space in USPS
facilities. Stakeholders suggested many options for diversifying into
nonpostal retail areas, which could include selling nonpostal products
at postal retail facilities and providing services for other federal,
state, or local government agencies. While this option may increase
the use of USPS's retail network, it may raise costs if facility
modifications are needed, such as measures to maintain mail security
at a facility where other business partners are colocated. Also, some
competitors may raise concerns about USPS's legal advantages. For
example, according to a 2007 report to Congress by FTC,[Footnote 44]
USPS is exempt from state and local taxes and fees and some other
state and local statutes and regulations.
Delivery Operations:
USPS has opportunities to reduce delivery costs, which is its most
costly operation. More than 320,000 carriers account for close to one-
half of USPS salary and benefit expenses. Because USPS delivers 6 days
per week to most of its 150 million addresses, regardless of mail
volume, it is difficult to reduce delivery costs commensurate with
declining mail volume. In fiscal year 2000, carriers delivered an
average of about 5 pieces of mail per day to every address, which fell
to about 4 pieces in fiscal year 2009--a decline of 22 percent. This
trend is continuing as mail volume declines and the delivery network
continues to expand. Over 900,000 delivery points were added in fiscal
year 2009--increasing costs by over $190 million, according to an USPS
estimate.
In addition to the number of delivery points, the efficiency and cost
of delivery operations depend on a variety of other factors, including
the type of carrier route or the location of the receptacle where mail
is delivered. For example, most customers (about 87 percent)[Footnote
45] receive their mail via one of the three different types of carrier
routes identified in table 7. These routes are served by carriers
under different compensation systems, which largely account for the
differences in their costs.
Table 7: Cost and Percentage of Delivery Routes, by Type, Fiscal Year
2009:
Type of carrier route: City delivery;
Average annual national cost per address: $198;
Percentage of routes: 64%.
Type of carrier route: Rural delivery;
Average annual national cost per address: 156;
Percentage of routes: 32.
Type of carrier route: Contract delivery;
Average annual national cost per address: 108;
Percentage of routes: 3.
Source: USPS.
Note: Percentages do not add to 100 percent due to rounding.
[End of table]
Cost differences also exist related to the location of the mail
receptacle (see table 8).
Table 8: Cost and Percentage of Carrier Deliveries, by Mode, Fiscal
Year 2009:
Mode of delivery: Door[A];
Average annual national cost per address: $353;
Percentage of carrier deliveries: 29%.
Mode of delivery: Curbline;
Average annual national cost per address: $224;
Percentage of carrier deliveries: 41%.
Mode of delivery: Centralized[B];
Average annual national cost per address: $161;
Percentage of carrier deliveries: 16%.
Mode of delivery: Collection/Cluster box units[C];
Average annual national cost per address: $158;
Percentage of carrier deliveries: 13%.
Source: USPS.
Note: Percentages do not add to 100 percent due to rounding.
[A] These deliveries are primarily door deliveries and also include
"other" deliveries that are not covered by other categories.
[B] Centralized delivery is defined as delivery and collection
services to a number of businesses or residences from a centrally
located delivery point or place, such as a group of mailboxes at an
apartment building.
[C] This category includes cluster box units (which are centralized
units of individually locked compartments for the delivery of mail)
and Neighborhood Delivery Collection Box Units (which are centralized
units of more than eight individually locked compartments that receive
mail).
[End of table]
We have reported on USPS's ongoing efforts to increase the efficiency
of mail delivery.[Footnote 46] USPS has begun to install 100 machines
for its $1.5 billion Flats Sequencing System to sort flat-sized mail
into delivery order. USPS expects this system to eliminate costly
manual sorting, thereby improving delivery efficiency, accuracy,
consistency, and timeliness. USPS is also realigning city carrier
routes to remove excess capacity, which is expected to generate more
than $1 billion in annual savings. This effort is expected to result
in reduced facility space needs, increased employee satisfaction, and
more consistent delivery service. Route realignment has been made
possible by collaboration between USPS and the National Association of
Letter Carriers and is continuing this fiscal year. In addition, USPS
may have additional opportunities to further increase delivery route
efficiency, such as by promoting the use of more efficient delivery
modes for new delivery points.
Options in the delivery area include the following:
* Decrease delivery frequency from 6 days a week to 5 days a week:
USPS favors eliminating Saturday delivery to provide substantial
financial savings.[Footnote 47] According to USPS studies, its savings
would be primarily achieved by eliminating work performed by city and
rural letter carriers. Additional savings would be realized from
reducing the use of delivery vehicles as well as reducing the scope of
mail processing activities that support Saturday delivery. However,
concerns have been raised about the impact on customers, who may need
to wait longer to receive time-sensitive mail or go to USPS retail
facilities to pick up mail; senders, who may have to change when they
send mail; and USPS, which may lose the competitive advantage of
delivering on Saturdays. According to USPS, eliminating Saturday
delivery is estimated to result in annual savings of about $3 billion.
PRC reported in 2009 that eliminating Saturday delivery would result
in estimated annual savings of about $2.2 billion, on the basis of
somewhat different assumptions regarding the likely effects on mail
volume and costs. For this option to be implemented, Congress would
need to exclude statutory restrictions that mandate 6-day delivery
from USPS annual appropriations. USPS filed a request on March 30,
2010, for a PRC advisory opinion on its proposal to eliminate Saturday
delivery, which would lead to a public proceeding that would include
input by interested parties.
* Allow USPS to determine delivery frequency on the basis of local
mail volume: A related option would be to change delivery frequency to
match mail volumes to demand, which could change by season as well as
by local area. For example, USPS could have less frequent delivery in
low-volume summer months than the high-volume holiday season. Some
residents already do not receive 6-day delivery, particularly those
located in remote or seasonal vacation areas. A consequence of this
option could be more frequent delivery to areas with higher mail
volume, which could be in higher-income areas, which tend to receive
much more mail. However, low-income residents and others, such as the
elderly and disabled, may rely more on mail delivery. This option may
also be criticized as inconsistent with current statutory
requirements. USPS is required by law to provide prompt, reliable, and
efficient services to patrons in all areas.[Footnote 48] It is also
required by law to provide a maximum degree of effective and regular
postal services to rural areas, communities, and small towns where
post offices are not self-sustaining.[Footnote 49]
* Expand the use of more cost-efficient modes of delivery for new
addresses, including cluster boxes and curbline delivery: USPS has
recently estimated that this option could annually save around $2.5
billion by moving certain door deliveries to centralized deliveries.
However, USPS officials told us that they and some mailers are
concerned that this option would lead to residents picking up their
mail less frequently, which could delay remittances and lower the
value of advertising mail. It also would affect access to mail,
particularly for customers who currently have mailboxes attached to
their homes.
Streamline Field Structure:
Further streamlining of USPS's field structure could help reduce
facility and personnel costs. USPS has the authority to review the
need for field administrative offices and streamline its field
structure. For example, in fiscal year 2009, it closed 1 of its 9 area
offices and 6 of its 80 district offices.
Options to Generate Revenues:
USPS has many opportunities to generate additional net revenue,
particularly from postal products and services; however, as it has
noted, results from actions to generate revenue other than rate
increases are likely to be limited compared with its expected losses.
Aside from rate increases, USPS projects that it can increase profits
by $2 billion by fiscal year 2020 through product and service
initiatives. For example, according to USPS, it will work to increase
direct mail use among small and medium-sized businesses and increase
volumes in both First-Class Mail and advertising mail through targeted
promotions. USPS also will continue to leverage its "last-mile"
network to transport and deliver packages to their final destinations
and work to grow other retail services, such as passport services
provided by USPS and Post Office box rentals.
Key challenges in the area of revenue generation include the following:
* The short-term results will likely be limited by the economic
climate as well as the ongoing diversion to electronic alternatives.
* The potential for some actions will be limited because they will
apply to mail or services that generate only a small fraction of
revenues.
* USPS projects that its revenue will stagnate in the next decade
despite further rate increases. Its revenue peaked at $75 billion in
fiscal year 2007 but is projected to decline to $66 billion in fiscal
year 2010, and to reach $69 billion in fiscal year 2020--growth that
is below expected inflation.
Rate Increases for Market-Dominant and Competitive Products:
Rate increases for market-dominant products, such as First-Class Mail
and Standard Mail, would address pressing needs for revenue and could
be used to better align rates and discounts with the costs,
profitability, and price-sensitivity of mail. In the coming decade,
rate increases for market-dominant products up to the price cap could
raise significant revenues since these products currently generate 88
percent of revenue, while competitive products comprise nearly all
other revenue.
Some key issues include the following:
* At what point are rate increases self-defeating, potentially
triggering large, permanent declines in mail volume?
* How does USPS balance increasing rates to generate revenues with the
impact on mailers and the long-term effects on volume, revenues, and
the broader mailing industry?
* Would an "exigent" increase in postal rates over the price cap be
justified, considering that it is limited by law to extraordinary or
exceptional circumstances?
Some options include the following:
* "Exigent" rate increases over the price cap: USPS projects that its
annual losses will increase greatly, even if rates for market-dominant
products increase by the maximum allowed under the price cap. To
improve its financial viability, USPS announced in March 2010 that it
would seek "a moderate exigent price increase" for its market-dominant
products that would be effective in 2011. An exigent rate increase
over the price cap may produce a large short-term revenue boost.
However, a very large rate increase could be self-defeating by
increasing incentives for mailers to accelerate diversion to
electronic alternatives, thereby lowering revenues in the long run and
adding to USPS excess capacity. In 2009, USPS cited the potential
impact on mail volume and the mailing industry when it ruled out an
exigent rate increase for 2010--a year when the inflation-based price
cap was zero--and announced that rates would not change for market-
dominant products.
* Rate increases for competitive products: USPS annually increased
rates in 2008, 2009, and 2010 for competitive products, including
Priority Mail and Express Mail. Major USPS competitors, such as United
Parcel Service (UPS) and FedEx, also have a history of annual rate
increases.
Volume-Based Incentives for Specific Types of Market-Dominant Mail:
USPS plans to pursue more volume-based rate incentives to stimulate
additional mail use and take advantage of its excess capacity. For
example, USPS reported that volume-based incentives can stimulate more
advertising mail sent for sales, customer acquisition, and customer
retention purposes, which should lead to greater mail use in the
future. The additional mail volume can take advantage of USPS's large
excess operational capacity. However, results to date suggest that
such incentives can increase net income, but they appear to have
limited potential compared with USPS losses. For example, a 2009
"summer sale" for Standard Mail that offered lower rates for volumes
over mailer-specific thresholds reportedly had little effect on USPS's
overall financial results for the fiscal year. USPS has estimated that
about 38 percent of the volume qualifying for reduced "summer sale"
rates would have been sent in the absence of the incentive, which
reduced the profitability of this initiative. USPS plans to implement
a similar initiative for summer 2010.
Some mailers have said that USPS should enter into more negotiated
service agreements (NSA) with individual business mailers of market-
dominant products. NSAs generally specify mutual agreements between
USPS and mailers involving the preparation, presentation, acceptance,
processing, transportation, and delivery of mailings under particular
rate, classification, and service conditions, and restrictions that go
beyond those required of other mailers. USPS did not generate net
income from its seven NSAs in fiscal years 2007 through 2009 combined.
These NSAs generally offered mailers lower rates for volumes that
exceeded thresholds and had provisions to reduce some USPS costs, such
as not returning undeliverable advertising mail and using electronic
communications to provide this information to mailers. In comparison,
USPS has negotiated about 100 contracts with business mailers of
competitive products. Like NSAs for market-dominant products,
contracts for competitive products are generally volume-based. These
contracts also have provisions intended to lower USPS's mail-handling
costs. PRC has reported that the contracts it approved in fiscal years
2008 and 2009 are expected to improve USPS's net revenue.
In December 2009, USPS officials told us that after PAEA was enacted,
USPS preferred to pursue the volume-based incentive programs for
market-dominant products that we have previously described, instead of
pursuing NSAs. In theory, NSAs can increase net income by incentives
tailored to each mailer's business needs, mailing practices, and
opportunities to reduce USPS costs. In practice, it may be costly and
time-consuming to negotiate NSAs and have them reviewed by PRC. The
potential profitability of NSAs has been scrutinized in the past and
is listed in PAEA as a factor for PRC to consider, along with (1)
issues of fair competition, such as the availability of NSAs to
similarly situated mailers, and (2) whether NSAs would cause
unreasonable harm to the marketplace. These issues relate to the
broader issue of whether USPS should have additional pricing
flexibility and less PRC review of rates for its market-dominant
products. USPS has suggested that regulatory and legal restrictions in
this area need to be removed to provide greater flexibility,
explaining that NSAs provide mailers with the opportunity to increase
volume at a reasonable price.
Develop New Postal Products and Product Enhancements:
During 2009, USPS considered options for developing new postal
products and product enhancements, such as (1) "hybrid" mail that
could be created online and printed and sent close to its final
destination, which might involve USPS partnerships with private
companies, and (2) new, low-cost ways for handling consumer
electronics and other items that are being returned for recycling or
disposal. As an example of recent product enhancements, USPS
introduced new flat-rate boxes for Priority Mail, which it reports has
met customer needs and generated volume growth. Consistent with USPS's
stated strategy of providing greater value to its customers, some
stakeholders told us that USPS should better understand and meet the
needs and revenue growth opportunities of diverse mailers, in part
through greater customer focus and improving the value of mail.
Increase Focus on Volume Growth in the Growing but Competitive Parcel
Delivery Market:
Competitive products are a promising growth opportunity for USPS,
especially packages mailed by businesses to consumers. USPS forecasts
that the volume of competitive products will increase 40 percent over
the next decade. However, this volume growth is expected to have
limited impact on losses, in part because competitive products
generate only 12 percent of revenues. USPS is working to increase
revenues from competitive products by increasing its market share in
the growing package delivery market as well as by delivering more
packages of competitors, such as "last-mile" delivery of packages that
UPS or FedEx transport close to the destination and provide to USPS
for final delivery. A key issue is what the net return would be if
USPS pursues a growth strategy requiring costly additional investment
to upgrade its automation and tracking capabilities in an area with
formidable competitors.
Simplify Complex Rules for Mail Preparation and Entry:
USPS may have opportunities to increase volume by reducing mailers'
costs to prepare and enter mail as well as allowing more creative mail
use for advertising and communications. However, this option could
also risk additional costs to handle mail and provide assurance that
discounted mail meets the necessary requirements. Some mailer groups
and mailers have criticized USPS requirements that they consider to be
impediments to volume and revenue growth. These stakeholders said that
these requirements are costly for mailers but only yield marginal
benefits for USPS, delay delivery, limit the effectiveness of mail, or
are enforced in an overly stringent manner. USPS counters that (1)
these requirements are needed to limit its handling costs and ensure
that discounted mail meets the necessary requirements and (2) there
are limited opportunities for it to increase revenues by simplifying
its requirements. Some parties have said that USPS should strike a
balance between requirements necessary for its operations and the need
to provide mailers with flexible, low-cost methods to prepare and
submit mail. USPS and mailers have long engaged in collaborative
efforts to help define appropriate requirements. Redoubling efforts in
this area could produce important benefits for USPS and the mailing
industry.
New Nonpostal Products and Services:
In 2009, USPS asked Congress to change the law so that it can
diversify into nonpostal areas to find new opportunities for revenue
growth, and some stakeholders have also supported diversification.
USPS and stakeholders we collected information from offered many
options for diversification into nonpostal areas, either on its own or
in partnership with other private firms or government agencies. New
nonpostal products and services that were identified include providing
banking, financial, and insurance services; selling nonpostal products
at its retail facilities; providing services for other federal, state,
or local government agencies; carriers delivering nonpostal items or
providing contract services (such as meter reading); advertising at
USPS facilities; and providing electronic commerce. Diversification
could involve entering new areas or earning revenues from business
partners who sell nonpostal products at USPS retail facilities.
Whether USPS should be allowed to engage in nonpostal activities
should be carefully considered, including its poor past performance in
this area, as should the risks and fair competition issues. We have
previously reported the following:
* USPS lost nearly $85 million in fiscal years 1995, 1996, and 1997 on
19 new products, including electronic commerce services, electronic
money transfers, and a remittance processing business, among others.
[Footnote 50]
* In 2001, we reported that none of USPS's electronic commerce
initiatives were profitable, and that USPS's management of these
initiatives--such as an electronic bill payment service that was
eventually discontinued--was fragmented, with inconsistent
implementation and incomplete financial information.[Footnote 51]
In enacting PAEA, Congress restricted USPS from engaging in new
nonpostal activities. PAEA also required PRC to review USPS's existing
nonpostal services to determine whether they should be continued or
terminated. PRC recently found the intent of this requirement was to
concentrate USPS's focus on its core responsibilities and away from
nonpostal services that are not justified by a public need that cannot
be met by the private sector. Allowing USPS to diversify into
nonpostal activities would raise a number of issues, including whether
it should engage in nonpostal areas where there are private-sector
providers and, if so, under what terms. Other issues relate to
concerns about unfair competition; whether USPS's mission and role as
a government entity with a monopoly should be changed; as well as
questions regarding how it would finance its nonpostal activities,
what transparency and accountability provisions would apply; whether
USPS would be subject to the same regulatory entities and regulations
as its competitors; and whether any losses might be borne by postal
ratepayers or the taxpayer.
USPS reported in March 2010 that even if it could enter nonpostal
areas, such as banking or selling consumer goods, its opportunities
would be limited by its high operating costs and the relatively light
customer traffic of post offices compared with commercial retailers.
USPS also stated that the possibility of building a sizable presence
in logistics, banking, integrated marketing, and document management
is currently not viable because of its net losses, high wage and
benefit costs, and limited access to cash to support necessary
investment. USPS concluded in its Action Plan that building a sizable
business in any of these areas would require "time, resources, new
capabilities (often with the support of acquisitions or partnerships)
and profound alterations to the postal business model."
Options to Reform USPS's Statutory and Regulatory Framework:
Addressing challenges to USPS's current business model may require
restructuring its statutory and regulatory framework to reflect
business and consumers changing use of the mail. While we do not
address whether USPS's ownership structure should be modified in this
report, many other statutory and regulatory considerations that should
help to address the changing use of mail have been discussed and
relate to the following elements of USPS's business model:
* Mission: What is an appropriate universal service obligation in
light of fundamental changes in the use of mail?
* Role: Should USPS be solely responsible for providing universal
postal service, or should that responsibility be shared with the
private sector?
* Monopoly: Does USPS need a monopoly over delivery of certain types
of letter mail and access to mail boxes to finance--in part or wholly--
universal postal service?
* Governance and regulation: What is an appropriate balance between
managerial flexibility and the oversight and accountability provided
by the current governance and the regulatory structure?
USPS's Mission:
USPS's statutory mission is to provide postal services to "bind the
nation together through the personal, educational, literary, and
business correspondence of the people."[Footnote 52] It is required by
law to provide prompt, reliable, and efficient services to patrons in
all areas and postal services to all communities. These and related
requirements are commonly referred to as the universal service
obligation. PRC has reported that universal postal service has seven
principal attributes (see table 9).
Table 9: Attributes of the Universal Postal Service Obligation:
Attribute: Geographic scope;
Description: USPS is required to provide universal postal service
throughout the nation and to and from foreign countries, subject to
reasonable economic and efficiency limitations.
Attribute: Range of products;
Description: The range of postal products included in the universal
service obligation can change to meet the public's changing needs.
Attribute: Access to universal services;
Description: Access takes into account not only the time and distance
needed to get to a location where postal services are available, but
also the time spent waiting to obtain services. "Essential postal
services" include postal products, mail acceptance points such as
collection boxes, access to letter carriers who accept mail for
posting, and easily accessible information. Although USPS has
discretion to determine the nature and location of postal facilities,
these determinations are subject to statutory limitations, such as
those related to closing post offices.
Attribute: Delivery of universal services;
Description: Since fiscal year 1984, annual appropriations language
has mandated that 6-day delivery continue at not less than the 1983
level.[A] However, USPS has discretion over the method used to deliver
mail, such as to mailboxes attached to houses, curbside mailboxes, and
cluster boxes.
Attribute: Prices/Affordability;
Description: Requirements include reduced rate or no charge for some
mail; uniform rate for at least one class of mail (currently First-
Class Mail); and PAEA pricing constraints that include a price cap for
market-dominant products.
Attribute: Quality of service;
Description: USPS is required to provide quality postal service, and
service changes that are nationwide or substantially nationwide in
scope are subject to public comment and a PRC advisory opinion and
must meet service quality standards.
Attribute: Enforcement mechanism;
Description: Interested persons may file complaints with PRC for
USPS's failure to meet certain statutory provisions, such as
ratemaking requirements. If PRC finds a complaint to be justified, PRC
is required to order USPS to take the appropriate action to come into
compliance.
Source: Postal Regulatory Commission, Report on Universal Postal
Service and the Postal Monopoly (Washington, D.C.: Dec. 19, 2008).
[A] Consolidated Appropriations Act, 2010, Pub. L. No. 111-117, div.
C, tit. V, 123 Stat. 3034, 3200 (Dec. 16, 2009).
[End of table]
Key questions regarding universal postal service include the following:
* How much postal service does the nation need and how should it be
funded?
* Should the costs of providing universal service be borne by postal
ratepayers, or should taxpayers subsidize some unprofitable aspects of
universal service that benefit the nation?
* If USPS cannot be financially viable without reducing universal
postal service, what changes would be needed?
* Who should determine whether changes should be made to universal
service (e.g., Congress, USPS, or PRC)?
In addition, issues have been raised about whether all postal products
should be required to cover their costs, even if they provide social
benefits, or receive a subsidy through appropriations. Historically,
some types of mail were designed to channel broad public goals, such
as furthering the dissemination of information, the distribution of
merchandise, and the advancement of nonprofit organizations. For
example, Periodicals (mainly, mailed magazines and newspapers) have
historically been given favorable rates, consistent with the view that
they help bind the nation together, but this class has not covered its
costs for the past 13 fiscal years. Losses from Periodicals increased
from $74 million in fiscal year 1997 to $438 million in fiscal year
2008 and to $642 million in fiscal year 2009. These escalating losses
have provoked growing concern and controversy. Postal stakeholders are
currently debating what corrective actions, if any, are warranted, and
their possible impact on Periodicals.
Other money-losing types of mail with social benefits include the
following:
* Single-piece Parcel Post was introduced in 1913 to provide
affordable parcel delivery; this opened up the mail order merchandise
market, especially in rural areas.
* Media Mail, or "book rate," as it was formerly known, was initially
designed in 1938 to provide lower rates for mailed books and encourage
the mailing of educational materials.
* Library Mail was introduced in 1928 as a preferential rate for books
sent by or to libraries and was later expanded to schools, colleges,
and universities in 1953.
According to a Congressional Research Service report, when Congress
put USPS on a self-sustaining basis in 1971, it continued to subsidize
the mailing costs of such groups as the blind, nonprofit
organizations, local newspapers, and publishers of educational
material, by providing an appropriation to cover the revenues that
were given up, or "forgone," in charging below-cost rates to these
groups.[Footnote 53] Appropriations for these subsidies mounted as
postage rates and the number of nonprofits grew, approaching $1
billion annually in the mid-1980s. Successive administrations sought
to cut these costs by reducing eligibility and having other mailers
bear more of the burden. Questions continue about how these money-
losing types of mail should be funded.
All money-losing market-dominant products lost $1.7 billion
collectively in fiscal year 2009, up from $1.1 billion in fiscal year
2008 (see table 10). In addition to the $642 million lost from
Periodicals in fiscal year 2009, the largest money-losing product was
Standard Mail Flats ($616 million).[Footnote 54] Losses from Standard
Mail Flats have nearly tripled over the past fiscal year. In its
Annual Compliance Determination report for fiscal year 2009, PRC
discussed actions that could be taken to deal with these and other
money-losing products. Some of the losses from Standard Mail are due
to unprofitable mail sent by nonprofit organizations. By law, rates
for nonprofit Standard Mail are 60 percent of the rates for the most
closely corresponding type of for-profit Standard Mail.[Footnote 55]
However, nonprofit rates benefit charitable and religious
organizations, and Congress has long required preferential rates for
nonprofit mail.
Table 10: USPS Money-Losing Market-Dominant Products, Fiscal Years
2008 and 2009:
Market-dominant product: Periodicals;
Net income (loss): Fiscal year 2008: ($438 million);
Net income (loss): Fiscal year 2009: ($642 million);
Change: ($204 million).
Market-dominant product: Standard Mail Flats[A];
Net income (loss): Fiscal year 2008: ($218 million);
Net income (loss): Fiscal year 2009: ($616 million);
Change: ($398 million).
Market-dominant product: Standard Mail ("not flat machinables"[B] and
parcels);
Net income (loss): Fiscal year 2008: ($165 million);
Net income (loss): Fiscal year 2009: ($205 million);
Change: ($39 million).
Market-dominant product: Inbound single-piece First-Class Mail;
Net income (loss): Fiscal year 2008: ($102 million);
Net income (loss): Fiscal year 2009: ($105 million);
Change: ($3 million).
Market-dominant product: Media and Library Mail;
Net income (loss): Fiscal year 2008: ($58 million);
Net income (loss): Fiscal year 2009: ($74 million);
Change: ($16 million).
Market-dominant product: Single-piece Parcel Post;
Net income (loss): Fiscal year 2008: ($64 million);
Net income (loss): Fiscal year 2009: ($61 million);
Change: $3 million.
Market-dominant product: Other[C];
Net income (loss): Fiscal year 2008: ($37 million);
Net income (loss): Fiscal year 2009: ($23 million);
Change: $14 million.
Market-dominant product: Total;
Net income (loss): Fiscal year 2008: ($1,082 million);
Net income (loss): Fiscal year 2009: ($1,726 million);
Change: ($644 million).
Sources: USPS and PRC.
Note: All data are rounded to the nearest million, including totals
and changes between fiscal years.
[A] Standard Mail Flats includes some, but not all, flat-sized
Standard Mail. For example, saturation advertising mail is not part of
the Standard Mail Flats product.
[B] Standard Mail "not flat machinables" include items that cannot be
sorted by USPS automation equipment, such as CD jewel cases and other
rigid items.
[C] Other includes ancillary services for international mail,
Registered Mail, and Stamped Cards (losses in both fiscal years) as
well as Bound Printed Matter, inbound surface Parcel Post at Universal
Postal Union rates, Confirm Service, and address list services (losses
in fiscal year 2009 only).
[End of table]
If Congress were to decide that all market-dominant products should
cover their costs, it could also revisit other legal requirements that
constrain USPS's pricing flexibility for these products. First, the
price cap requirement may need to be revisited to enable some types of
mail to be increased over the cap without resorting to the exigent
rate increase process. For example, the average rate increase for the
Periodicals class is limited to inflation under the price cap.
Similarly, single-piece Parcel Post, Media Mail, and Library Mail are
a significant part of the Package Services class that is also covered
by the price cap. In addition, USPS could continue to gradually
implement a rate structure for Periodicals that is based more on
costs, which could involve rate increases for mail that is more costly
to handle (e.g., mail provided to USPS in sacks, rather than on
pallets). However, such a rate structure could disproportionately
affect some small-circulation magazines.
Issues regarding which entity should consider and decide on changes to
universal service--including Congress, PRC, or USPS--have long been
debated. Because many aspects of universal service are required by
law, Congress would have to make any changes in these areas. For
example, Congress would have to redefine certain aspects of universal
postal service that are required under current law, such as 6-day
delivery, revised statutory preferences for nonprofit mail, and
restrictions on closing small post offices. For some aspects of
universal service, such as related pricing issues, PRC has the
authority to act by establishing regulations that govern postal
pricing and overseeing USPS compliance with legal requirements. USPS
has flexibility to act on some other aspects, such as establishing and
maintaining service standards for timely mail delivery.
USPS's Role:
Another issue is whether postal services are an inherently
governmental function, and whether USPS should be the only entity
responsible for universal postal service. The federal government's
responsibility for postal services is detailed in Title 39 of the
United States Code. A possible rationale for sharing this
responsibility would be to allow private companies to provide postal
services, with the idea that competition could give some customers
more choices that better meet their needs, through lower cost products
and expanded services. A related consideration is that some aspects of
postal service, particularly mail delivery, are considered to have
economies of scale, meaning that, in theory, one provider might
fulfill this function more economically than multiple providers. In
practice, multiple providers--including USPS and numerous companies--
already deliver mail (e.g., contractors who provide long-distance mail
transportation and deliver mail to households located along sparsely
populated highway routes).
Another question is whether USPS should continue to fulfill other
roles, or whether these roles should be discharged by other agencies.
For example whether USPS or some other law enforcement body should
enforce postal laws was considered in the postal reform debate--
specifically, whether the Postal Inspection Service that enforces mail
fraud and other statutes should be transferred to another federal law
enforcement agency. Another example is USPS's involvement in
responding to national disasters, including hurricanes and terrorist
attacks. In this regard, a recent executive order stated that USPS has
the capacity for rapid residential delivery of medical countermeasures
across all U.S. communities, and that the federal government will use
USPS to implement national medical countermeasures in the event of a
large-scale biological attack.[Footnote 56]
USPS Monopoly:
USPS has two types of monopolies to (1) deliver certain letter mail
and (2) have exclusive access to mailboxes.
The Mail Monopoly:
USPS has a monopoly over the delivery of certain letter mail to help
ensure that it has sufficient revenues to carry out public service
mandates, including universal service.[Footnote 57] USPS has
promulgated regulations to identify exceptions to the postal monopoly.
[Footnote 58] Some key exceptions include "extremely urgent" letters
(generally, next-day delivery) and outbound international letters.
Most mail volume is covered by this monopoly, regulated as market-
dominant mail, and subject to the price cap. Over the years, Congress
has reevaluated the need for the mail monopoly, broadening and
reducing it at various times, including in PAEA.[Footnote 59]
For over 200 years, USPS and its predecessor, the former U.S. Post
Office Department, operated with a statutory mail monopoly, which
restricted the private delivery of most letters. Congress created the
mail monopoly as a revenue protection measure to help enable the
former Post Office Department to fulfill its mission. A rationale for
the mail monopoly is to prevent private competitors from engaging in
an activity known as cream-skimming, that is, offering service on low-
cost routes at prices below those of USPS, while leaving USPS with
high-cost routes. Furthermore, allowing private companies to compete
for mail now covered by the monopoly could lead to additional declines
in mail volume and revenue, thereby increasing excess capacity and
reducing USPS's net income.
According to PRC, the most frequent argument against the mail monopoly
is that, assuming a legal framework continues to exist to protect
public interest and the provision of universal service, competitive
markets might produce more efficient, innovative, flexible, and fairer
services to buyers and producers. Narrowing or eliminating the
monopoly could increase consumer choice and provide incentives for
USPS to become more effective and efficient. Critics of the monopoly
also cite the experience of foreign countries that have narrowed,
eliminated, or are phasing out their monopolies.
The Mailbox Monopoly:
This restriction prohibits anyone from knowingly and willingly placing
mailable matter without postage into any mailbox.[Footnote 60] As we
have reported, the purposes of the restriction, which dates back to
1934, were twofold--to stop the loss of postal revenue resulting
largely from private messengers delivering customer bills to mailboxes
without paying postage and to decrease the quantity of extraneous
matter being placed in mailboxes.[Footnote 61] PAEA did not change the
mailbox monopoly.
USPS has stated that continuation of the mailbox monopoly would best
preserve customer service, safety, security, and the value of mail.
According to USPS, the mailbox monopoly helps deter mail theft and
identity theft, facilitates enforcement when violations occur, and is
needed for efficient mail collection and delivery. We have previously
reported that critics of the mailbox monopoly said it impedes
competition and infringes on private property.[Footnote 62] FTC
reported in 2007 that the mailbox monopoly reduces competition and
raised competitors' costs of delivering products that otherwise could
fit into a mailbox.[Footnote 63] While FTC recognized mail security
and privacy issues, it concluded that Congress and PRC may want to
consider whether relaxing the mailbox monopoly to allow consumers to
choose to have private carriers deliver competitive products to their
mailboxes would create net benefits. In 2008, PRC stated that it "does
not recommend any changes to the mailbox rule," citing issues with
mail security and USPS efficiency. PRC also noted that its public
proceeding evidenced broad support for continuing the mailbox monopoly.
Governance and Regulation:
The effectiveness of USPS's governance and regulatory structure is
critical to its success and to ensuring that quality affordable postal
services are provided to the American people. The 2003 President's
Commission noted that managerial accountability must come from the
top, with USPS being governed by a strong corporate-style board that
holds its officers accountable. The commission concluded that giving
USPS greater flexibility would require enhanced oversight by an
independent regulatory body endowed with broad authority, adequate
resources, and clear direction to protect the public interest and
ensure that USPS fulfills its duties. A number of regulatory changes
were implemented after PAEA was enacted, and a thorough review of
these changes has not been developed. PAEA required PRC to submit a
report to Congress by December 2011 concerning "the operation of the
amendments made by [PAEA]" and any recommendations for improvements to
the U.S. postal laws. Another PRC report is required by December 2016
to determine whether the system for regulating rates and classes for
market-dominant products is achieving its objectives.
Governance:
The Board of Governors directs the exercise of the powers of USPS,
directs and controls its expenditures, reviews its practices, and
conducts long-range planning. The board sets policy; participates in
establishing postage rates; and takes up various matters, such as mail
delivery standards and some capital investments and facilities
projects. By law, governors are chosen to represent the public
interest and cannot be "representatives of specific interests using
the Postal Service."[Footnote 64] Despite the changes made by PAEA,
the qualifications of USPS governors continue to be an issue. Members
of the Board of Governors told us that the board lacks sufficient
business and financial expertise. The members also suggested that some
governors should not be politically appointed. In this regard, the
2003 President's Commission recommended that the Board of Governors be
comprised of 12 individuals: 3 presidential appointees, 8 independent
members selected by the 3 appointees with the concurrence of the
Secretary of the Treasury, and the Postmaster General (who would be
selected by the other 11 members).[Footnote 65]
Regulation:
Should any of the operational or structural options outlined in this
report be implemented, Congress, USPS, the Board of Governors, PRC,
and other relevant postal stakeholders could consider whether
governance and regulatory structures need to be changed to reflect an
appropriate balance in the oversight roles of these entities. PAEA
gave USPS more pricing and product flexibility, which was balanced by
strengthening PRC's oversight authority. Among other things, PAEA
required PRC to develop the regulatory structure for postal rates,
consult with USPS on establishing delivery service standards, and
annually determine USPS's compliance with applicable laws. Also under
PAEA, PRC was granted the authority to issue subpoenas; direct USPS to
adjust rates not in compliance with applicable postal laws; or, in
cases of deliberate noncompliance with applicable postal laws, levy
fines.
Actions Congress and USPS Can Take to Facilitate Progress toward
Financial Viability:
Action by Congress and USPS is urgently needed on a number of
difficult issues to facilitate progress toward USPS's financial
viability by reducing costs, increasing efficiency, and generating
revenues. The significant deterioration in USPS's financial condition
over the past 2 years, its increasing debt, and the grim forecast for
declining volume over the next decade led GAO to add USPS's financial
condition to its high-risk list in July 2009. We suggested that USPS
develop and implement a broad restructuring plan, with input from PRC
and other stakeholders, to identify specific actions planned, key
issues, and steps Congress and other stakeholders need to take. On
March 2, 2010, USPS issued its Action Plan, which identified seven key
areas wherein it would need legislative changes or support. Many of
the options discussed are also options we have analyzed and included
in this report for consideration. USPS forecasts of mail volume,
revenue, and net income over the next decade quantify the magnitude of
the challenges that it faces from continued volume decline to about
150 billion pieces in fiscal year 2020--about the same as the volume
level in fiscal year 1986--and a projected cumulative $238 billion
shortfall if no additional efficiency or revenue initiatives are
undertaken. USPS's Action Plan indicates that actions within its
control can close $123 billion of this financial gap, but that actions
outside its existing authority--including some involving statutory
changes--would be needed to eliminate the remaining financial gap.
Action on these issues will likely take several years to fully
implement once a decision is made on the scope of needed changes.
Therefore, agreement on next steps is urgently needed.
If USPS is to continue being self-financing, Congress, USPS, and other
stakeholders will need to reach agreement on major issues that impede
its ability to implement actions to reduce losses. These issues
include funding postal retiree health benefits; reexamining binding
arbitration; realigning services, operations, networks, and workforce
to reflect declining volume; and changing use of the mail in a dynamic
marketplace as well as generating revenue.
* Funding postal retiree health benefits: USPS has said that it cannot
afford its required prefunding payments on the basis of its
significant volume and revenue declines, incurring large losses,
nearing its debt limit, and limited cost-cutting opportunities under
its current authority. Several proposals have been made to defer costs
by revising the statutory requirements, and it is important that USPS
fund its retiree health benefit obligations--including prefunding
these obligations--to the maximum extent that its finances permit. In
addition to considering what is affordable and a fair balance of
payments between current and future ratepayers, Congress would also
have to address the impact of these proposals on the federal budget.
CBO has raised concerns about how aggressive cost-cutting measures
would be if prefunding payments for retiree health care were reduced.
This concern further indicates the need for broad agreement on
specific realignment actions, the time frame for implementation, and
the expected financial impact.
* Binding arbitration: One of the most difficult challenges USPS faces
is making changes to its compensation systems, which will be critical
to its financial condition since wages and benefits comprise 80
percent of its costs. In this regard, the time has come to reexamine
the structure for collective bargaining that was developed 40 years
ago. Since that time, the competitive environment has changed
dramatically and rising personnel costs are contributing to escalating
losses. Thus, it is imperative to ensure that USPS's financial
condition be considered in upcoming collective bargaining if the
process reaches binding arbitration.
* Realigning postal services with changing use of the mail: As mail
use by businesses and consumers continues to change, USPS has stated
that it cannot afford to provide the same level of services and that
changes are needed. USPS has estimated that it could reduce costs by
about $3 billion annually if it could reduce delivery frequency from 6
days to 5 days, but congressional agreement would be needed to not
include a 6-day delivery requirement in USPS annual appropriations.
USPS filed a request on March 30, 2010, for a PRC advisory opinion on
its proposal to eliminate Saturday delivery.
* Generating revenue through new or enhanced product and services: On
the revenue side, a key issue is whether USPS can make sufficient
progress using the pricing and product flexibility provided in PAEA or
whether changes may be needed. The Action Plan stated that USPS needs
additional authority to adjust its pricing to better reflect market
dynamics and proposed some changes. These proposals have not been
fully analyzed, nor have PRC and stakeholders had an opportunity to
provide input. Thus, it is unclear what statutory or regulatory
changes should be made at this time. Another key issue is whether USPS
should be allowed to engage in new nonpostal areas that may compete
with private firms. Congress considered many of the public policy
issues in this area related to fair competition prior to PAEA's
enactment in 2006 and decided at that time not to let USPS engage in
new nonpostal areas. It is not clear what specific actions USPS would
like to take, their expected profitability, or how they might affect
other businesses. USPS's current financial condition may limit its
expansion into other areas in the short term, but ultimately its plans
in this area could affect its operations.
* Realigning operations, networks, and workforce: Once Congress and
USPS have determined what, if any, changes should be made in the
products and services that it provides, corresponding changes will be
needed in postal operations, networks, and workforce. This area
involves some public policy issues that Congress may want to address.
USPS will need to address detailed operational issues related to
increasing cost-efficiency. Some of the difficult tradeoffs in this
area include USPS's need to significantly reduce its size to remain
self-financing and keep prices affordable, versus concerns about
whether such reductions could harm the value of its brand, its network
of physical assets, and the social benefits that it provides as well
as the effects of these actions on its workforce.
USPS has made limited progress in optimizing its networks over the
last decade, particularly in facilities that include public access to
retail operations. For example, in July 2009, USPS initiated a PRC
review of over 3,600 retail stations and branches located primarily in
urban and suburban areas for possible consolidation or discontinuance,
but fewer than 200 facilities remain under consideration for such
actions. PRC issued its advisory opinion on USPS's proposed retail
consolidations in early March, which affirmed USPS's authority to
adjust its retail network while recommending several process
improvements.[Footnote 66] Considering the numerous statutory and
regulatory requirements in this area, it could be difficult to make
rapid changes to rightsize its network of 36,500 retail facilities.
USPS's Action Plan says that it plans to expand access to retail
service and, as customers shift to these new services, that it will
reduce redundant retail facilities. However, it is unclear what
specific changes would be made, how long it would take to make these
changes, and how much annual cost savings could be achieved. USPS's
Action Plan also does not address possible closures of large mail
processing facilities to reduce the excess capacity in its mail
processing network.
A new approach is urgently needed to make the necessary progress in
realigning postal operations and networks as USPS's core business
continues to decline. Conducting business as usual is unlikely to
produce significant results, particularly in the rapid time frame that
would be required to avert massive losses. Thus, it will be important
for Congress, USPS, and other stakeholders to reach agreement on the
package of actions that should be taken, the desired operational and
financial results, and the time frames for implementation. Key
questions that need to be addressed include the following:
* Universal service issues: What, if any, changes are needed--that is,
should delivery services be changed (e.g., frequency or standards),
and should USPS continue moving retail services out of post offices to
alternative locations?
* New products and services: What opportunities are there to introduce
profitable new postal products and enhancements to existing ones?
Should USPS engage in nonpostal areas where there are private-sector
providers? If so, under what terms?
* Realigning operations, networks, and workforce: How should USPS
optimize its operations, networks, and workforce to support changes in
services; how quickly can this happen; and how can it work with its
employees and customers to minimize potential disruption?
This is an area where Congress may want to consider an approach
similar to that used by the Department of Defense's Base Realignment
and Closure (BRAC) Commission, which was established to realign
military installations within the United States. Under the Defense
Base Closure and Realignment Act of 1990, the President can either
accept or reject BRAC recommendations in their entirety.[Footnote 67]
If rejected, the BRAC Commission could give the President a revised
list of recommendations. If the President accepts the list of
recommendations, it is forwarded to Congress and the list becomes
final, unless Congress enacts a joint resolution. Our report on the
2005 BRAC round noted that the Department of Defense viewed this BRAC
as a unique opportunity to reshape its installations and realign its
forces to meet its needs for the next 20 years.[Footnote 68]
Congress has previously turned to panels of independent experts to
assist in restructuring organizations that are facing key financial
challenges. These panels have gained consensus and developed proposed
legislative or other changes to address difficult public policy
issues. For example, the District of Columbia Financial Responsibility
and Management Assistance Authority was established to, among other
things, (1) eliminate budget deficits and cash shortages of the
District through financial planning, sound budgeting, accurate revenue
forecasts, and careful spending; (2) ensure the most efficient and
effective delivery of services, including public safety services, by
the District during a period of fiscal emergency; and (3) conduct
necessary investigations and studies. This organization was suspended
in 2001 once relevant legal provisions were met, including achieving a
balanced budget for a 4th consecutive year.
Establishing a similar commission or control board of independent
experts could provide a mechanism to assist Congress in making timely
decisions and comprehensive changes to USPS's business model and
operations. A commission of experts may be more appropriate to
facilitate the changes needed to achieve financial viability while
also considering stakeholder interests. The following questions could
assist Congress in developing such a commission:
* What criteria should be used to select commission members, for
example, logistics experience, business restructuring, or labor
management expertise?
* How could the commission best ensure that diverse stakeholder
interests are appropriately considered?
* What would be the time frame of the commission?
* What goals or objectives should guide the commission--for example,
ensuring USPS's financial viability, and recommending policy and
management changes?
Conclusions:
USPS faces daunting financial losses that it projects could total over
$238 billion through fiscal year 2020, unless it can substantially
reduce its costs, including the size of its operations, networks, and
workforce to reflect declining mail volume, and to generate new
revenues. USPS's planned actions under its existing authority will not
be enough to make it financially viable. Therefore, Congress, USPS,
and other stakeholders need to reach agreement on a package of actions
to take so that USPS can become financially viable. This agreement
will need to address difficult constraints and legal restrictions that
continue to hamper progress. Such an agreement is urgently needed so
that Congress and stakeholders have confidence that the actions USPS
takes will be fair to all stakeholders. Then USPS could begin to plan
and make the necessary changes, some of which may require several
years to fully implement and realize potential cost savings. For
example, restructuring operations and networks would require
coordinated actions involving postal employees, mailers, and the
public.
To reach agreement on these difficult issues, Congress could engage a
panel of independent experts to develop a credible and comprehensive
package of specific proposals, including the following:
* Potential changes related to adapting universal postal services to
the declining use of mail, such as removing the statutory requirements
for 6-day delivery and restrictions on closing post offices.
* Changes needed to realign USPS operations, networks, and workforce
with its declining workload, and how to address employee and community
concerns and resistance to facility closures.
* Improving opportunities to generate revenues, and whether that
should include allowing USPS to engage in new nonpostal areas.
Due to the urgency of USPS's deteriorated financial condition and
outlook, and the fact that it is rapidly approaching its statutory
debt limit, Congress may need to provide financial relief, for
example, by revising the funding schedule for retiree health benefits.
Another action that Congress could take in the near term, which would
have a longer-term impact, would be to modify the collective
bargaining process to ensure that any binding arbitration would take
USPS's financial condition into account. Furthermore, Congress may
want assurance through regular reports that any financial relief it
provides is met with aggressive actions to reduce costs and increase
revenues, and that progress is being made toward addressing its
financial problems.
Ultimately, Congress may want to consider changing USPS's ownership
structure, but the resolution of these more pressing issues might
afford a better understanding of whether the ownership structure
should be modified. As communications and the use of the mail evolve,
Congress will need to revisit policy issues related to USPS, the
services it provides, and how to best position the organization for
the future. The current crisis presents the opportunity to act and
position this important American institution for the future. If no
action is taken, the risk of USPS's insolvency and the need for a
bailout by taxpayers and the U.S. Treasury increases.
Matters for Congressional Consideration:
To address USPS's financial viability in the short term, Congress
should consider providing financial relief to USPS, including
modifying its retiree health benefit cost structure in a fiscally
responsible manner. Congress should also 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 should
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.
Congress also should 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.
Agency Comments and Our Evaluation:
USPS provided written comments on a draft of this report by a letter
dated April 2, 2010. These comments are summarized below and included
in their entirety in appendix II of this report. In separate
correspondence, USPS also provided technical comments, which we
incorporated as appropriate.
USPS stated that it agreed with many key points in our report and with
all but one of our matters for congressional consideration. First,
regarding revising USPS retiree health benefit funding, USPS said the
prefunding requirement urgently needs to be restructured and agreed
that it should continue to fund its retiree health benefits obligation
to the maximum extent that its finances permit. Second, USPS agreed
that Congress should consider revising the statutory framework for
USPS collective bargaining to ensure that binding arbitration takes
its financial condition into account. Third, USPS agreed that Congress
should consider requiring USPS to provide regular reports to ensure
that it is making progress to improve its financial condition.
However, USPS raised concerns about using a panel of independent
experts to develop a package of proposed legislative and other
changes, stating that doing so would add a layer of bureaucracy and
delay to problems that require immediate attention. We believe that
unless Congress and USPS agree on actions to be taken, USPS will not
be able to reduce costs enough to close the revenue gap and achieve
financial stability. Congress has used such panels to successfully
reach agreement regarding other difficult restructuring issues.
We are sending copies of this report to the appropriate congressional
committees, the Postmaster General, the Chairman of the USPS Board of
Governors, the Chairman of the Postal Regulatory Commission, and other
interested parties. In addition, the report will be available at no
charge on GAO's Web site 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. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made key contributions to
this report are listed in appendix III.
Signed by:
Phillip Herr:
Director, Physical Infrastructure Issues:
List of Committees:
The Honorable Joseph I. Lieberman:
Chairman:
The Honorable Susan M. Collins:
Ranking Member:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
The Honorable Thomas R. Carper:
Chairman:
The Honorable John McCain:
Ranking Member:
Subcommittee on Federal Financial Management, Government Information,
Federal Services, and International Security:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
The Honorable Richard J. Durbin:
Chairman:
The Honorable Susan M. Collins:
Ranking Member:
Subcommittee on Financial Services and General Government:
Committee on Appropriations:
United States Senate:
The Honorable Edolphus Towns:
Chairman:
The Honorable Darrell E. Issa:
Ranking Member:
Committee on Oversight and Government Reform:
House of Representatives:
The Honorable Stephen F. Lynch:
Chairman:
The Honorable Jason Chaffetz:
Ranking Member:
Subcommittee on Federal Workforce, Postal Service, and the District of
Columbia:
Committee on Oversight and Government Reform:
House of Representatives:
The Honorable José E. Serrano:
Chairman:
The Honorable Jo Ann Emerson:
Ranking Member:
Subcommittee on Financial Services and General Government:
Committee on Appropriations:
House of Representatives:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
The Postal Accountability and Enhancement Act (PAEA) of 2006 required
us to report on strategies and options for the long-term structural
and operational reform of the United States Postal Service (USPS).
Because of USPS's financial crisis and our assessment that
restructuring is urgently needed, our work has been accelerated at the
request of Members of Congress and is presented in this report. The
objectives of this report are to assess (1) the viability of USPS's
business model, (2) strategies and options to address challenges to
USPS's current business model, and (3) actions Congress and USPS need
to take to facilitate progress toward USPS's financial viability.
To assess the viability of USPS's business model, we relied on our
past work, including putting USPS's financial condition on GAO's high-
risk list in July 2009, and on our testimonies regarding its
deteriorating financial condition. We interviewed multiple USPS
officials, including the Postmaster General, the Deputy Postmaster
General, the former and current Chairman of the Board of Governors,
and headquarters and field staff during visits to post offices, mail
processing facilities, and other facilities that serve urban and rural
areas. We reviewed USPS financial and operating information, including
its Annual Reports, Integrated Financial Plans, and Comprehensive
Statements; other strategic documents, including its transformation
plans, Assessment of U.S. Postal Service Future Business Model, action
plan released March 2010--entitled Ensuring a Viable Postal Service
for America: An Action Plan for the Future (Action Plan)--and the
Action Plan's financial and volume projections; and collective
bargaining agreements. We reviewed USPS's current legal and regulatory
framework and relevant congressional testimonies and hearings. We also
reviewed the results of retiree health valuations provided to us by
the Office of Personnel Management (OPM) in March 2010. OPM's
valuations, which include estimates of future obligations, costs,
premium payments, and fund balances, were based on USPS employee
population projections. We did not assess the reasonableness of USPS's
population projections or OPM's actuarial assumptions and methodology.
We utilized OPM's valuation results to analyze the financial impacts
of selected options for funding USPS's retiree health benefit
obligations. We did not assess the validity of USPS's financial and
mail volume projections due to time and resource constraints.
Also, we examined reports issued by other postal stakeholders,
including the Postal Regulatory Commission (PRC) (particularly its
2008 report on Universal Postal Service and the Postal Monopoly), USPS
Office of Inspector General, Congressional Research Service,
Congressional Budget Office, the 2003 President's Commission on the
United States Postal Service, and other mailing industry experts. We
also met with PRC commissioners and various staff members;
representatives of the four major employee unions and three major
management associations (the American Postal Workers Union, National
Association of Letter Carriers, National Postal Mail Handlers Union,
National Rural Letter Carriers' Association, National Association of
Postmasters of the United States, National League of Postmasters, and
National Association of Postal Supervisors); USPS Office of Inspector
General; Military Postal Service Agency; members of the mailing
industry; other postal stakeholders; and economists.
To identify options to address the challenges in the current business
model, we reviewed information from many of the sources that we have
previously mentioned, including (1) past GAO work, (2) relevant
congressional hearings and testimonies, (3) stakeholder studies, and
(4) interviews with stakeholders. We then supplemented this
information by distributing a list of questions to over 60
organizations to gather their opinions on actions that could be taken
to improve USPS's business model and the potential impacts of these
actions. Organizations were selected on the basis of a variety of
factors, including those who have testified before Congress on postal
issues; submitted comments (1) during the public comment solicitations
as part of the work of the 2003 President's Commission on the United
States Postal Service, (2) to PRC on universal service, the postal
monopoly, and the new regulatory structure for ratemaking, and (3) to
the Federal Trade Commission on differences in the legal status
between USPS and its competitors; and have been active participants in
various USPS-related activities, including participation in the
Mailers' Technical Advisory Committee (a joint USPS-industry
workgroup). We also considered the nature of the organization and
selected organizations that represented various sections of the postal
community, including unions, management associations, private printing
and mailing companies, and mailers across various mail segments (e.g.,
large and smaller mailers, First-Class Mail, Standard Mail,
Periodicals, parcels, newspapers, and nonprofit mail). We received
responses from 24 mailing associations, 15 private companies, and 4
postal unions and management associations, which is a response rate of
about 70 percent.
We then gathered and evaluated relevant options on the basis of a
variety of criteria, including their potential to reduce USPS costs,
realign its operations, and increase revenues, in light of its current
and projected financial condition. Some options are consistent with
actions we have discussed in our past work--such as optimizing USPS's
retail, delivery, and mail processing networks--while others have been
discussed in congressional hearings, regulatory proceedings, and major
studies. Other options, some of which would require significant
changes to USPS's legal framework or to current collective bargaining
agreements, were selected because they would provide useful context
into the key restructuring issues that we have previously described in
this report. We did not include every option that we had identified in
this report; rather, we present a select listing of options that were
based on these criteria. We analyzed each option on the previously
mentioned criteria; reviewed available cost and revenue data; and
considered potential impacts on various stakeholders, including USPS,
employees, mailers, and the public.
For reporting purposes, we grouped options according to these
following strategies to align costs with revenues:
* reducing compensation and benefits costs;
* reducing other operations and network costs and improving
efficiency; and:
* generating revenues through product and pricing flexibility.
Our assessment of certain options related to USPS's business model,
such as in the governance and regulatory areas, was also limited
because it is still too soon to see the full impact of the changes
from PAEA. Furthermore, we did not address whether USPS's ownership
structure should be altered at this time, but focused instead on the
more pressing issues discussed throughout the report. The resolution
of these operational issues may afford a clearer understanding of
whether USPS's ownership structure should be modified. We also plan to
address the experiences of foreign postal administrations in a
separate report.
The previously mentioned analysis that we performed was also used as a
basis to determine actions that Congress and USPS need to take
facilitate progress toward USPS's financial viability. We supplemented
this analysis with other GAO work on independent commissions and
control boards, including the Department of Defense's Base Realignment
and Closure Commission, and the District of Columbia Financial
Responsibility and Management Assistance Authority.
We conducted this performance audit from August 2009 to April 2010 in
accordance with generally accepted government auditing standards.
Those 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 based on our audit objectives.
[End of section]
Appendix II: Comments from the United States Postal Service:
United States Postal Service:
John E. Potter, Postmaster General, CEO:
475 L'Enfant Plaza SW:
Washington DC 20260-0010:
[hyperlink, http://www.usps.com]
April 2, 2010:
Mr. Phillip R. Herr:
Director, Physical Infrastructure Issues:
United States Government Accountability Office:
441 G Street, NW:
Washington, DC 20548-0002:
Dear Mr. Herr:
Thank you for the opportunity to comment on the draft report titled
U.S. Postal Service: Strategies and Options to Facilitate Progress
toward Financial Viability (GA0-10-455). I appreciate the time and
effort the Government Accountability Office (GAO) has devoted to these
complex issues.
I am pleased that many of the actions set out in the Postal Service's
plan also appear in this GAO report, and that we are in agreement on
many key points. There is no question that the Postal Service's
business model is not viable and that swift action must be taken to
avert a financial crisis. Studies have been done, reports generated,
polls taken, and projections made and analyzed. The drivers of revenue
decline and cost growth are clear. There is no reason to believe that
this situation will improve without structural changes.
Eight months have passed since the GAO added the Postal Service to its
list of high-risk federal government programs, saying "...the Postal
Service needs a restructuring plan to adjust services to meet changes
in the way customers use the mail, bring personnel and other costs
into better alignment with revenues, and retain earnings to cover
capital investments and debt repayment." The current GAO report
presents an even-handed, detailed assessment of the Postal Service's
continuing challenges.
On March 2, 2010, the Postal Service laid out a practical, actionable,
customer-focused plan”one consistent with the GAO's assessment”to
close the gap between costs and revenue. The
actions and structural changes proposed in the plan seek to make it
possible for the Postal Service to continue providing the United
States with reliable, affordable, high-quality service, rapidly adjust
its business to reflect changing market conditions, and finance the
universal service obligation. Some of these actions can be taken under
our existing authority. However, the Postal Service cannot achieve
solvency using only the authority it has today.
Both the GAO's high-risk assessment and the current report note that
the Postal Service must be able to retain earnings to cover capital
investments and debt repayment, in addition to funding its existing
obligations. The Postal Service completely agrees, and is committed to
a solution that provides sufficient liquidity. If a proposed course of
action does not provide sufficient liquidity, it is not a viable
solution.
The report sets out three matters for Congressional consideration on
certain issues and provides a number of related options. We discuss
these matters below.
1. Congress should consider providing financial relief, such as
revising USPS retiree health benefits funding and requiring any
binding arbitration to take USPS' financial condition into account.
The Postal Service urgently needs a restructuring of the prefunding
requirement, which would ease financial pressures while we work to
execute additional strategies to reduce costs, grow revenue, and
increase efficiencies. Legislative action on the payment schedule
would also reduce our need to borrow from the Treasury for the sole
purpose of depositing money back into the Treasury for the Retiree
Health Benefits Trust Fund.
The report says "USPS should continue to fund its retiree health
benefit obligations to the maximum extent that its finances permit." I
share that view, and the Postal Service will continue to do everything
it can within the current law to regain its financial health. However,
the existing business model provides neither the financial resources
nor the flexibility to meet the payment schedule in current law. This
was amply illustrated in FY 2009, when despite having achieved $6.1
billion in savings and obtaining financial relief from Congress, the
Postal Service still ended the year with a $3.8 billion loss.
As important as it is, restructuring of retiree health benefits
funding alone is not enough to ensure the Postal Service's short- and
long-term financial health. We urge Congress to review potential
overpayments to the Postal Service's CSRS pension fund. We support the
recommendation of the USPS Office of Inspector General to divide
legacy costs in a far more equitable manner than the current system.
In addition, we strongly agree with the GAO report that Congress
should consider requiring arbitrators to take the Postal Service's
financial condition in making any arbitration award.
2. Congress should consider setting up a panel of experts to develop
proposals for legislative and operational changes.
The GAO report also proposes for consideration the creation of a panel
composed of independent experts to work with the Postal Service and
stakeholders to provide Congress with a package of proposed
legislative and other changes that would focus on allowing the Postal
Service to adapt delivery and retail services to declining mail
volumes; make its operations, networks and workforce more efficient,
and generate new revenue.
We have concerns about this proposal. We believe that it would add a
layer of bureaucracy and delay to problems that require immediate
attention. Our challenges are urgent and well documented. It is time
to act. While a BRAC-type model was effective in managing a limited
number of military installations nationwide, it would not be as useful
in dealing with postal operations and services found in every
community in the country.
3. Congress should require the Postal Service to provide regular
reports on its actions and progress toward financial viability.
The GAO report suggests that Congress consider requiring us to provide
regular reports on the actions taken to reduce costs and increase
revenues, the results of these actions, and the progress toward
addressing its financial problems. We agree, and plan to ensure
transparency and accountability through a number of regular reports we
currently are required to file. These include quarterly and annual SEC-
like reports filed with the Postal Regulatory Commission (PRC) and
made available to Congress and stakeholders. We will continue to give
extensive information to Congress through the Annual Report, the
Comprehensive Statement on Postal Operations, the Annual Network
Update to Congress, oversight hearings, and responses to numerous
questions submitted in connection with oversight hearings. We also
file with the PRC our Annual Compliance Report, which provides
detailed information about most aspects of our business. Whenever we
plan an operational change that would cause a nationwide or
substantially nationwide change in service, we provide extensive
information in order to secure an advisory opinion from the PRC. In
addition, the GAO and the Postal Service Office of Inspector General
(OIG) routinely audit numerous aspects of the Postal Service's
business and provide their findings to Congress.
Key Strategies and Options:
In addition to the matters for Congressional consideration discussed
above, the GAO report contains "key strategies and options" in three
categories for addressing the Postal Service's situation: (1) reducing
compensation and benefits costs; (2) reducing other operations and
network costs and improving efficiency, and (3) generating revenues
through product and pricing flexibility. Each of these strategies and
options is also contained in the Postal Service plan.
Category 1: Reducing compensation and benefits costs:
We agree with the GAO that we must reduce employee-related costs and
increase workforce and work rule flexibility. We note that significant
portions of these costs are imposed by statute; namely, the
requirements for employee participation in the CSRS or FERS pension
plans and retiree health benefits.
Because wages and benefits comprise 80 percent of Postal Service
costs, viability is inextricably tied to the level of benefits
provided. We must have more control over total compensation.
Congressional action should be taken to permit the Postal Service to
bargain with postal unions over pension and retiree health programs
eligibility and costs, and to reduce pension and retiree health
obligations in connection with new employees.
Category 2: Reducing other operations and network costs and improving
efficiency:
We agree that reducing operations and network costs is necessary, and
are working hard to accomplish that. While more facilities need to be
closed, over the past ten years, the Postal Service has made
remarkable reductions in operations and network costs.
Because wages and benefits are such a large proportion of the Postal
Service's costs, we have focused first on reducing work hours and
personnel as the most important factors in improving the efficiency of
our network. Between 2000 and 2010, the Postal Service reduced
complement in plant operations by 98,000 employees: from 228,000 in
2000 to 130,000 in 2010.
We concur with the GAO that individual facility decisions are best
made in the context of an integrated approach that optimizes the
entire mail processing network. To achieve the efficiencies and
benefits of a comprehensive network approach driven by good
operational and economic intentions, the Postal Service needs the
freedom to make independent operational decisions regarding the
activities for which it is responsible, with fewer political
roadblocks. As the GAO's report notes, the Postal Service faces
formidable resistance to facility closures and consolidations. Work we
are doing with the OIG to enhance the process for identifying Area
Mail Processing consolidation opportunities takes into consideration
service standards, customer concerns, and the local business
environment and should help reduce such resistance.
Category 3: Generating revenues through product and pricing
flexibility:
We agree that Congress should consider allowing the Postal Service to
broaden product and service offerings, consistent with our mission, as
a means of financing universal service and continuing to be responsive
to the changing needs of our customers. Revenue from additional
products and services would help finance universal service and help
avoid the need for appropriations.
In addition to the flexibility to pursue new avenues of revenue
generation, we need to modernize the regulatory structure for
developing new products and services. A modern structure would allow
the speed and flexibility required in today's marketplace. The Postal
Accountability and Enhancement Act of 2006 (PAEA) expanded both the
scope and degree of oversight imposed on the Postal Service in ways
that have proven to be inconsistent with the principle that we operate
like a business. For example, all pricing decisions, even on the
smallest customer contracts, require the PRC to conduct a before-the-
fact review (i.e., before pricing decisions can be implemented). This
is not how the marketplace operates and not the way our customers
interact with our competitors. A regulatory structure could be
designed to allow for an after-the-fact review of pricing and product
decisions while still maintaining adequate transparency, customer
input, and accountability.
The report also asks whether the Postal Service should be required to
sustain loss-making products, or be allowed to pierce the price cap to
ensure that such products cover their attributable costs. We believe
that all postal customers should not have to bear the losses caused by
certain products that do not cover their costs. If Congress wishes to
continue preferential pricing for some loss-making classes of
products, taxpayers”not ratepayers”should subsidize them. In our plan,
we recommend a price cap on market dominant products as a whole rather
than by class so that we can price in response to market demand. This
approach would also allow us to better adapt prices to the costs of
specific products.
Other Issues Raised in the Report:
In discussing the Postal Service's role, the GAO report identifies as
an issue whether postal services are inherently governmental
functions, and whether the Postal Service should be the only entity
responsible for universal postal service. The report implies that
multiple private sector providers already deliver mail, citing as an
example "contractors who provide long-distance mail transportation and
deliver mail to households located along sparsely populated highway
routes." The Postal Service is the only entity with an obligation to
deliver universal service. We do use contractors to perform services
for the network, such as transportation and contract delivery. But the
Postal Service controls the network and oversees all work performed
within it.
Late in its report, the GAO raises the issue of reducing or
eliminating the Postal Service's monopoly, and notes that some foreign
posts have taken that step. In nearly all such instances, governments
have provided their posts with subsidies to cover the universal
service obligation, and expanded the posts' abilities to generate
additional revenue from new lines of business. In some instances,
posts were already earning substantial revenue from their longstanding
participation in nonpostal businesses. Today, some earn more from
nonpostal than postal sources.
The concept of opening up the Postal Service's business to private
sector companies and contractors is often discussed. If given the
opportunity to participate in the delivery of mail, private sector
companies would avoid hard-to-reach or unprofitable delivery areas.
This would increase the cost to the Postal Service of providing
universal service because we would lose the revenue from the
profitable delivery areas attractive to private sector enterprises,
but continue to bear the expense of maintaining a universal network.
Other countries where private competitors have taken on delivery
services have protected their posts by requiring the competitors to
provide or help fund universal service. So far, there is no country in
the world where a new player is successfully providing universal
service.
The report's discussion of the role of the Postal Service also asks
whether it should continue to fulfill all of its current functions, or
whether some functions could be discharged by other agencies. One of
the functions mentioned is the enforcement of mail fraud and other
statutes, which for over two centuries has been fulfilled by the
Postal Inspection Service. Annual surveys have found the Postal
Service to be the most trusted federal agency, and we believe one of
the reasons is the existence of the Postal Inspection Service.
Transferring the Inspection Service or its duties to another agency
would diminish that trust and adversely impact our brand and our
revenues.
The contents of the GAO's report support many of the actions outlined
by the Postal Service's plan. We agree, as the GAO said when adding
the Postal Service to the high-risk list last year, that "Action is
needed in multiple areas, including possible action and support by
Congress; no single change will be sufficient to address USPS'
challenges." The plan we outlined on March 2 is consistent with the
GAO's call last year to "develop and implement a broad restructuring
plan" that would include key milestones and time frames for actions,
address key issues, and identify what steps Congress and other
stakeholders may need to take.
Again, I appreciate the professional approach and the time the GAO has
put into this report in the interest of identifying for Congress
strategies to help ensure the Postal Service's financial viability.
The Postal Service welcomes further discussion with you and your staff
about any of these comments.
Sincerely,
Signed by:
John E. Potter:
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Phillip Herr, (202) 512-2834 or herrp@gao.gov:
Staff Acknowledgments:
In addition to the individual named above, Shirley Abel, Amy
Abramowitz, Teresa Anderson, Joseph Applebaum, Gerald Barnes, Joshua
Bartzen, William Dougherty, Patrick Dudley, Brandon Haller, Carol
Henn, Paul Hobart, Kenneth John, Anar Ladhani, Hannah Laufe, Scott
McNulty, Daniel Paepke, Susan Ragland, Amy Rosewarne, Travis Thomson,
Jack Wang, and Crystal Wesco made key contributions to this report.
[End of section]
Related GAO Products:
U.S. Postal Service: Financial Crisis Demands Aggressive Action.
[hyperlink, http://www.gao.gov/products/GAO-10-538T]. Washington,
D.C.: March 18, 2010.
U.S. Postal Service: The Program for Reassessing Work Provided to
Injured Employees Is Under Way, but Actions Are Needed to Improve
Program Management. [hyperlink,
http://www.gao.gov/products/GAO-10-78]. Washington, D.C.: December 14,
2009.
U.S. Postal Service: Financial Challenges Continue, with Relatively
Limited Results from Recent Revenue-Generation Efforts. [hyperlink,
http://www.gao.gov/products/GAO-10-191T]. Washington, D.C.: November
5, 2009.
U.S. Postal Service: Restructuring Urgently Needed to Achieve
Financial Viability. [hyperlink,
http://www.gao.gov/products/GAO-09-958T]. Washington, D.C.: August 6,
2009.
U.S. Postal Service: Broad Restructuring Needed to Address
Deteriorating Finances. [hyperlink,
http://www.gao.gov/products/GAO-09-790T]. Washington, D.C.: July 30,
2009.
High-Risk Series: Restructuring the U.S. Postal Service to Achieve
Sustainable Financial Viability. [hyperlink,
http://www.gao.gov/products/GAO-09-937SP]. Washington, D.C.:
July 28, 2009.
U.S. Postal Service: Mail Delivery Efficiency Has Improved, but
Additional Actions Needed to Achieve Further Gains. [hyperlink,
http://www.gao.gov/products/GAO-09-696]. Washington, D.C.: July 15,
2009.
U.S. Postal Service: Network Rightsizing Needed to Help Keep USPS
Financially Viable. [hyperlink,
http://www.gao.gov/products/GAO-09-674T]. Washington, D.C.: May 20,
2009.
U.S. Postal Service: Escalating Financial Problems Require Major Cost
Reductions to Limit Losses. [hyperlink,
http://www.gao.gov/products/GAO-09-475T]. Washington, D.C.: March 25,
2009.
U.S. Postal Service: Deteriorating Postal Finances Require Aggressive
Actions to Reduce Costs. [hyperlink,
http://www.gao.gov/products/GAO-09-332T]. Washington, D.C.: January
28, 2009.
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.
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.
U.S. Postal Service Facilities: Improvements in Data Would Strengthen
Maintenance and Alignment of Access to Retail Service. [hyperlink,
http://www.gao.gov/products/GAO-08-41]. Washington, D.C.: December 10,
2007.
U.S. Postal Service: Mail Processing Realignment Efforts Under Way
Need Better Integration and Explanation. [hyperlink,
http://www.gao.gov/products/GAO-07-717]. Washington, D.C.: June 21,
2007.
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.:
April 8, 2005.
[End of section]
Footnotes:
[1] Pub. L. No. 109-435, 120 Stat. 3198 (Dec. 20, 2006).
[2] GAO, U.S. Postal Service: Broad Restructuring Needed to Address
Deteriorating Finances, [hyperlink,
http://www.gao.gov/products/GAO-09-790T] (Washington, D.C.: July 30,
2009).
[3] GAO, High-Risk Series: Restructuring the U.S. Postal Service to
Achieve Sustainable Financial Viability, [hyperlink,
http://www.gao.gov/products/GAO-09-937SP] (Washington, D.C.: July 28,
2009). USPS's transformation efforts and long-term outlook were on our
high-risk list from 2001 to 2007.
[4] United States Postal Service, Ensuring a Viable Postal Service for
America: An Action Plan for the Future (Washington, D.C.: March 2010).
USPS's plan and related material are available at the following Web
address: [hyperlink:
http://www.usps.com/strategicplanning/futurepostalservice.htm]
(accessed on Apr. 9, 2010).
[5] President's Commission on Postal Organization, Towards Postal
Excellence (Washington, D.C.: June 1968).
[6] USPS receives annual appropriations for revenue forgone in
providing (1) free and reduced rate mail for the blind and (2)
overseas voting materials for U.S. elections. Congress appropriated
about $118 million to USPS for these purposes for fiscal year 2010.
[7] President's Commission on the United States Postal Service,
Embracing the Future: Making the Tough Choices to Preserve Universal
Mail Service (Washington, D.C.: July 31, 2003).
[8] Pub. L. No. 108-18, 117 Stat. 624 (Apr. 23, 2003).
[9] USPS is directed by a Board of Governors consisting of 11 members,
including (1) 9 Governors appointed by the President, with the advice
and consent of the Senate, to 7-year terms; (2) the Postmaster
General, who is appointed by the Governors; and (3) the Deputy
Postmaster General, who is appointed by the Governors and the
Postmaster General. Not more than 5 of the 9 Governors may belong to
the same political party.
[10] GAO, Recovery Act: Preliminary Observations on the Implementation
of Broadband Programs, [hyperlink,
http://www.gao.gov/products/GAO-10-192T] (Washington, D.C.: Oct. 27,
2009). Also see GAO, Recovery Act: Agencies Are Addressing Broadband
Program Challenges, but Actions Are Needed to Improve Implementation,
[hyperlink, http://www.gao.gov/products/GAO-10-80] (Washington, D.C.:
Nov. 16, 2009).
[11] 39 U.S.C. § 1005(f).
[12] 39 U.S.C. § 1005(c).
[13] S. 1507, 111TH Cong. (2009).
[14] The Mail Delivery Protection Act of 2007, S. 1457, 110th Cong.
(2007) would have restricted contracting for mail delivery. The Mail
Network Protection Act of 2007, H.R. 4236, 110th Cong. (2007),
specified conditions that must be met before USPS entered into some
contracts, such as for surface transportation of mail. Additionally,
H.Res. 282, 110th Cong. (2007), expressed "the sense of the House of
Representatives that the United States Postal Service should
discontinue the practice of contracting out mail delivery services."
[15] Postal Service Retiree Health Benefits Funding Reform Act of
2009, S. 1507, 110th Cong. (2009).
[16] USPS accounts for its participation in the federal government's
health and pension plans by recognizing these contributions as an
expense. This accounting method is based on private-sector standards
that employers use to account for multi-employer benefit plans.
[17] Pub. L. No. 109-435, § 803.
[18] H.R. 22, 111th Cong. (2009); S. 1507, 111th Cong. (2009).
[19] Congressional Budget Office, H.R. 22: United States Postal
Service Financial Relief Act of 2009 (Washington, D.C.: July 20, 2009).
[20] Congressional Budget Office, S. 1507: Postal Service Retiree
Health Benefits Funding Reform Act of 2009 (Washington, D.C.: Sept.
14, 2009).
[21] H.R. 2918, 111th Cong. (2009), enacted as Pub. L. No. 111-68
(2009).
[22] GAO, U.S. Postal Service: Deteriorating Postal Finances Require
Aggressive Actions to Reduce Costs, [hyperlink,
http://www.gao.gov/products/GAO-09-332T] (Washington, D.C.: Jan. 28,
2009).
[23] Employees with prior U.S. government service who were hired
between January 1, 1984, and January 1, 1987, are covered by Dual
CSRS. Less than 1 percent of USPS employees are covered by this plan.
[24] USPS contributed 7 percent of its CSRS employees' basic pay to
the CSRDF when the Postal Reorganization Act was enacted in 1970.
Subsequently, Congress periodically enacted legislation that required
USPS to make additional CSRS contributions, primarily for the effect
of increases in pension liabilities resulting from increases in
employee pay and annuitant cost-of-living adjustments. See GAO, Review
of the Office of Personnel Management's Analysis of the United States
Postal Service's Funding of Civil Service Retirement System Costs, GAO-
03-448R (Washington, D.C.: Jan. 31, 2003), appendix II, for a listing
and description of key legislation affecting USPS's funding of CSRS
costs.
[25] Pub. L. No. 108-18, 117 Stat. 624 (Apr. 23, 2003). See S. Rep.
No. 108-35, at 2 (2003).
[26] Postal supplemental liability is the estimated difference of the
actuarial present value of retirement obligations for USPS employees
less the sum of several items, including the present value of future
employer normal cost contributions and employee contributions to the
CSRDF; the portion of the CSRDF balance attributable to payments to
the CSRDF; and any other appropriate amount determined by OPM under
generally accepted actuarial practices and principles. The current
requirement is codified, as amended, at 5 U.S.C. § 8348(h). In
determining USPS's CSRS contributions, Congress required the use of
"dynamic assumptions," which are defined as economic assumptions that
are used in determining actuarial costs and liabilities of a
retirement system and in anticipating the effects of long-term future
investment yields; increases in rates of basic pay; and rates of price
inflation.
[27] United States Postal Service, Office of Inspector General, The
Postal Service's Share of CSRS Pension Responsibility, RARC-WP-10-001
(Arlington, Va.: Jan. 20, 2010).
[28] 39 U.S.C. § 101.
[29] 39 U.S.C. § 101(b).
[30] 39 U.S.C. § 404(d).
[31] Pub. L. No. 109-435, § 302(c)(5).
[32] For example, see Consolidated Appropriations Act, 2010, Pub. L.
No. 111-117, div. C, title V, 123 Stat. 3034, 3200 (Dec. 10, 2009),
which provides "that none of the funds provided in this Act shall be
used to consolidate or close small rural and other small post offices
in fiscal year 2010."
[33] For example, see Pub. L. No. 111-117, which provides that "6-day
delivery and rural delivery of mail shall continue at not less than
the 1983 level."
[34] Pub. L. No. 109-435, § 301.
[35] 39 U.S.C. § 3661.
[36] Pub. L. No. 109-435, § 302.
[37] Remote Encoding Centers were established as a temporary solution
to automate the processing of mail with handwritten addresses that
could not be read by sorting equipment.
[38] United States Postal Service, Office of Inspector General, Audit
Report - Status Report on the Postal Service's Network Rationalization
Initiatives, Report Number EN-AR-10-001 (Arlington, Va.: Jan. 7, 2010).
[39] 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).
[40] 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).
[41] PAEA defined "worksharing discounts" as reductions in postal
rates that are provided to mailers for the presorting, prebarcoding,
handling, or transportation of mail. Worksharing discounts are
generally based on the costs that USPS is estimated to avoid as a
result of mailer worksharing activities.
[42] GAO, U.S. Postal Service Facilities: Improvements in Data Would
Strengthen Maintenance and Alignment of Access to Retail Service,
[hyperlink, http://www.gao.gov/products/GAO-08-41] (Washington, D.C.:
Dec. 10, 2007).
[43] 39 U.S.C. § 101(b).
[44] Federal Trade Commission, Accounting for Laws that Apply
Differently to the United States Postal Service and its Private
Competitors (Washington, D.C.: December 2007).
[45] The remaining 13 percent of addresses (about 20 million of the
total 150 million delivery points) are to Post Office boxes. Most of
these deliveries are served by clerks, not carriers.
[46] GAO, U.S. Postal Service: Mail Delivery Efficiency Has Improved,
but Additional Actions Needed to Achieve Further Gains, [hyperlink,
http://www.gao.gov/products/GAO-09-696] (Washington, D.C.: July 15,
2009).
[47] USPS officials indicated that USPS would continue providing
window retail service and delivery to Post Office boxes on Saturday as
well as remittance mail service for business mailers.
[48] 39 U.S.C. § 101(a).
[49] 39 U.S.C. § 101(b).
[50] GAO, U.S. Postal Service: Development and Inventory of New
Products, [hyperlink, http://www.gao.gov/products/GAO/GGD-99-15]
(Washington, D.C.: Nov. 24, 1998).
[51] GAO, U.S. Postal Service: Update on E-Commerce Activities and
Privacy Protections, [hyperlink,
http://www.gao.gov/products/GAO-02-79] (Washington, D.C.: Dec. 21,
2001). Also see GAO, U.S. Postal Service: Postal Activities and Laws
Related to Electronic Commerce, [hyperlink,
http://www.gao.gov/products/GAO/GGD-00-188] (Washington, D.C.: Sept.
7, 2000).
[52] 39 U.S.C. § 101(a).
[53] Congressional Research Service, The Postal Revenue Forgone
Appropriation: Overview and Current Issues, RS21025 (Washington, D.C.:
updated Sept. 21, 2006).
[54] The Standard Mail Flats product includes some, but not all, flat-
sized Standard Mail. This product does not include saturation
advertising mail.
[55] 39 U.S.C. § 3626(a)(6).
[56] Exec. Order No. 13527, Establishing Federal Capability for the
Timely Provision of Medical Countermeasures Following a Biological
Attack, 75 Fed. Reg. 737 (Dec. 30, 2009).
[57] The basic restrictions on private delivery of letter mail are in
seven sections of the federal criminal statutes (18 U.S.C. §§ 1693-
1699) as well as additional provisions dealing with private delivery
of letters (39 U.S.C. §§ 601-606). These laws generally prohibit
anyone from establishing, operating, or using a private company to
carry letters for compensation on regular trips or at stated periods
over postal routes or between places where U.S. mail regularly is
carried. Violators are subject to fines or, in some cases,
imprisonment.
[58] See, for example, 39 C.F.R. § 320.6.
[59] Pub. L. No. 109-435, § 503.
[60] 18 U.S.C. § 1725.
[61] GAO, Postal Service Reform: Issues Relevant to Changing
Restrictions on Private Letter Delivery, [hyperlink,
http://www.gao.gov/products/GAO/GGD-96-129B] (Washington, D.C.: Sept.
12, 1996).
[62] GAO, U.S. Postal Service: Information About Restrictions on
Mailbox Access, [hyperlink, http://www.gao.gov/products/GAO/GGD-97-85]
(Washington, D.C.: May 30, 1997).
[63] Accounting for Laws that Apply Differently.
[64] 39 U.S.C. § 202(a).
[65] Successors to the 8 independent members would be selected by the
full board, with the concurrence of the Secretary of the Treasury.
[66] Postal Regulatory Commission, Advisory Opinion Concerning the
Process for Evaluating Closing Stations and Branches, Docket No. N2009-
1 (Washington, D.C.: Mar. 10, 2010).
[67] Pub. L. No. 101-510, § 2901, 104 Stat. 1485, 1808 (Nov. 5, 1990).
[68] GAO, Military Base Realignments and Closures: Cost Estimates Have
Increased and Are Likely to Continue to Evolve, [hyperlink,
http://www.gao.gov/products/GAO-08-159] (Washington, D.C.: Dec. 11,
2007).
[End of section]
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