U.S. Postal Service
Modernization and Restructuring Needed to Address Financial Challenges Gao ID: GAO-11-428T March 2, 2011The U.S. Postal Service's (USPS) financial condition and outlook are deteriorating because revenues are not sufficient to cover its expenses and financial obligations. These challenges continue to threaten USPS's financial viability and GAO has therefore retained USPS on its high risk list issued in February 2011. USPS also faces cost pressures from maintaining a national network of processing, retail, and delivery operations. This testimony discusses (1) updated information on USPS's financial condition and outlook and (2) actions needed to modernize and restructure USPS. It is based primarily on GAO's past and ongoing work, as well as GAO's review of USPS's recent financial results and the President's proposed budget for fiscal year 2012.
USPS experienced a net loss of $329 million in the first quarter of fiscal year 2011 and is projecting a $6.4 billion total net loss for fiscal year 2011. Mail volumes, USPS's main revenue source, have generally been decreasing as customers have shifted to electronic alternatives. This trend exposes weaknesses in USPS's business model, which has relied on mail volume growth to help cover costs. While USPS continues to reduce employees' work hours, its cost reduction efforts have not been sufficient to offset lost revenue. Since fiscal year 2006, USPS has relied on debt to help cover its obligations. If it borrows $3 billion in fiscal year 2011 as its plans indicate, USPS will reach its $15 billion statutory debt limit. The President's Fiscal Year 2012 Budget Request proposes providing USPS with over $4.5 billion in short-term financial relief in fiscal year 2011 by reducing its retiree health benefit payment by $4 billion and reimbursing it for approximately $550 million in Federal Employee Retirement System payments. While useful, these actions would not sufficiently address USPS's structural problems. USPS's financial condition has reached a tipping point. Given USPS's role in facilitating key aspects of the U.S. economy, Congress, the administration, USPS, and stakeholders need to reach agreement on a package of actions to restore USPS's financial viability, facilitate progress toward modernizing its services to meet changing customer needs, and remove barriers restricting USPS actions. This would allow USPS to optimize its networks and workforce so that it can become more efficient and reduce costs. GAO recently reported on lessons learned from foreign posts' modernization efforts, including using outreach and communication strategies to inform public officials and customers of increased access to products and services to help gain acceptance for retail network changes. Some posts also developed labor transition strategies that included training, relocation, job search services, and financial incentives to support employees who were negatively affected. While USPS has taken steps to generate ideas for modernizing its retail and delivery networks, the experiences of foreign posts suggest that it will be critically important for USPS to fully develop and implement similar outreach, communication, and labor transition strategies. While this testimony contains no new recommendations, GAO has reported that Congress, the administration, and USPS urgently need to reach agreement on a package of actions to restore USPS's financial viability by modernizing its operations, networks, and workforce. GAO has also recommended that Congress consider providing USPS with financial relief, and in doing so, consider all options available to reduce costs. In commenting on this statement, USPS generally agreed with its accuracy and provided technical comments that were incorporated as appropriate.
GAO-11-428T, U.S. Postal Service: Modernization and Restructuring Needed to Address Financial Challenges
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United States Government Accountability Office:
GAO:
Testimony:
Before the Subcommittee on Federal Workforce, U.S. Postal Service and
Labor Policy, Committee on Oversight and Government Reform, House of
Representatives:
For Release on Delivery:
Expected at 1:30 p.m. EST:
Wednesday, March 2, 2011:
U.S. Postal Service:
Modernization and Restructuring Needed to Address Financial Challenges:
Statement of Phillip Herr, Director:
Physical Infrastructure Issues:
GAO-11-428T:
GAO Highlights:
Highlights of GAO-11-428T, a testimony before the Subcommittee on
Federal Workforce, U.S. Postal Service and Labor Policy, Committee on
Oversight and Government Reform, House of Representatives.
Why GAO Did This Study:
The U.S. Postal Service‘s (USPS) financial condition and outlook are
deteriorating because revenues are not sufficient to cover its
expenses and financial obligations. These challenges continue to
threaten USPS‘s financial viability and GAO has therefore retained
USPS on its high risk list issued in February 2011. USPS also faces
cost pressures from maintaining a national network of processing,
retail, and delivery operations.
This testimony discusses (1) updated information on USPS‘s financial
condition and outlook and (2) actions needed to modernize and
restructure USPS. It is based primarily on GAO‘s past and ongoing
work, as well as GAO‘s review of USPS‘s recent financial results and
the President‘s proposed budget for fiscal year 2012.
What GAO Found:
USPS experienced a net loss of $329 million in the first quarter of
fiscal year 2011 and is projecting a $6.4 billion total net loss for
fiscal year 2011. Mail volumes, USPS‘s main revenue source, have
generally been decreasing as customers have shifted to electronic
alternatives. This trend exposes weaknesses in USPS‘s business model,
which has relied on mail volume growth to help cover costs. While USPS
continues to reduce employees‘ work hours, its cost reduction efforts
have not been sufficient to offset lost revenue. Since fiscal year
2006, USPS has relied on debt to help cover its obligations. If it
borrows $3 billion in fiscal year 2011 as its plans indicate, USPS
will reach its $15 billion statutory debt limit. The President‘s
Fiscal Year 2012 Budget Request proposes providing USPS with over $4.5
billion in short-term financial relief in fiscal year 2011 by reducing
its retiree health benefit payment by $4 billion and reimbursing it
for approximately $550 million in Federal Employee Retirement System
payments. While useful, these actions would not sufficiently address
USPS‘s structural problems.
Table: Postal Service Financial Results and Projections, Fiscal Years
2006 through 2011:
Fiscal year: 2006;
Net income (loss): $0.9 billion;
Total revenues: $72.8 billion;
Total expenses: $71.9 billion;
Outstanding debt: $2.1 billion.
Fiscal year: 2007;
Net income (loss): ($5.1) billion;
Total revenues: $75.0 billion;
Total expenses: $80.1 billion;
Outstanding debt: $4.2 billion.
Fiscal year: 2008;
Net income (loss): ($2.8) billion;
Total revenues: $75.0 billion;
Total expenses: $77.8 billion;
Outstanding debt: $7.2 billion.
Fiscal year: 2009;
Net income (loss): ($3.8) billion;
Total revenues: $68.1 billion;
Total expenses: $71.9 billion;
Outstanding debt: $10.2 billion.
Fiscal year: 2010;
Net income (loss): ($8.5) billion;
Total revenues: $67.1 billion;
Total expenses: $75.6 billion;
Outstanding debt: $12.0 billion.
Fiscal year: 2011 (projected);
Net income (loss): ($6.4) billion;
Total revenues: $67.7 billion;
Total expenses: $74.1 billion;
Outstanding debt: $15.0 billion.
Source: USPS.
[End of table]
As seen in the table, USPS‘s financial condition has reached a tipping
point. Given USPS‘s role in facilitating key aspects of the U.S.
economy, Congress, the administration, USPS, and stakeholders need to
reach agreement on a package of actions to restore USPS‘s financial
viability, facilitate progress toward modernizing its services to meet
changing customer needs, and remove barriers restricting USPS actions.
This would allow USPS to optimize its networks and workforce so that
it can become more efficient and reduce costs. GAO recently reported
on lessons learned from foreign posts‘ modernization efforts,
including using outreach and communication strategies to inform public
officials and customers of increased access to products and services
to help gain acceptance for retail network changes. Some posts also
developed labor transition strategies that included training,
relocation, job search services, and financial incentives to support
employees who were negatively affected. While USPS has taken steps to
generate ideas for modernizing its retail and delivery networks, the
experiences of foreign posts suggest that it will be critically
important for USPS to fully develop and implement similar outreach,
communication, and labor transition strategies.
What GAO Recommends:
While this testimony contains no new recommendations, GAO has reported
that Congress, the administration, and USPS urgently need to reach
agreement on a package of actions to restore USPS‘s financial
viability by modernizing its operations, networks, and workforce. GAO
has also recommended that Congress consider providing USPS with
financial relief, and in doing so, consider all options available to
reduce costs. In commenting on this statement, USPS generally agreed
with its accuracy and provided technical comments that were
incorporated as appropriate.
View [hyperlink, http://www.gao.gov/products/GAO-11-428T] or key
components. For more information, contact Phillip Herr at (202) 512-
2834 or herrp@gao.gov.
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to participate in this hearing on the
U.S. Postal Service's (USPS) financial condition, a topic we have
addressed in recent reports and testimonies. My statement will discuss
(1) updated information on USPS's financial condition and outlook and
(2) actions needed to modernize and restructure USPS.
This statement is based primarily on our past and ongoing work, and
updated financial information, including our reviews of USPS's
business model, financial condition, networks, service, and postal
reform issues.[Footnote 1] To perform our work, we reviewed USPS's
financial statements for the fiscal year that ended September 30,
2010, and for the first quarter of fiscal year 2011 that ended
December 31, 2010; USPS's Fiscal Year 2011 Integrated Financial Plan;
the President's Fiscal Year 2012 Budget Request; and other reports,
testimonies, and documentation on USPS's financial condition,
operations, and outlook. In addition, we interviewed senior USPS
officials. We conducted this performance audit in February 2011 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 objectives. We believe that the
evidence obtained provides a reasonable basis for our findings and
conclusions based on our objectives.
USPS's Financial Condition Continues to Deteriorate, and USPS May Face
a Cash Shortfall This Fiscal Year:
USPS's financial condition has deteriorated significantly since fiscal
year 2006, and its financial outlook is grim in both the short-and
long-term. In July 2009, we added USPS's financial condition and
outlook to our high-risk list because USPS was incurring billion-
dollar deficits and its debt was increasing as mail volumes and
revenues declined and costs rose. USPS experienced a net loss of $329
million in the first quarter of fiscal year 2011 and is projecting a
$6.4 billion total net loss for fiscal year 2011. In February 2011, we
retained USPS on our updated high-risk list and reported that USPS
finds itself without sufficient revenues to cover its expenses and
financial obligations (see table 1).[Footnote 2]
Table 1: Postal Service Financial Results and Projections, Fiscal
Years 2006 through 2011:
Fiscal year: 2006;
Net income (loss): $0.9 billion;
Total revenues: $72.8 billion;
Total expenses: $71.9 billion;
Outstanding debt: $2.1 billion.
Fiscal year: 2007;
Net income (loss): ($5.1) billion;
Total revenues: $75.0 billion;
Total expenses: $80.1 billion;
Outstanding debt: $4.2 billion.
Fiscal year: 2008;
Net income (loss): ($2.8) billion;
Total revenues: $75.0 billion;
Total expenses: $77.8 billion;
Outstanding debt: $7.2 billion.
Fiscal year: 2009;
Net income (loss): ($3.8) billion;
Total revenues: $68.1 billion;
Total expenses: $71.9 billion;
Outstanding debt: $10.2 billion.
Fiscal year: 2010;
Net income (loss): ($8.5) billion;
Total revenues: $67.1 billion;
Total expenses: $75.6 billion;
Outstanding debt: $12.0 billion.
Fiscal year: 2011 (projected);
Net income (loss): ($6.4) billion;
Total revenues: $67.7 billion;
Total expenses: $74.1 billion;
Outstanding debt: $15.0 billion.
Source: USPS.
[End of table]
Mail volumes have generally been decreasing as customers have
increasingly shifted to electronic communications and payment
alternatives (see figure 1), a trend that is expected to continue.
USPS's two major products are First-Class Mail and Standard Mail.
[Footnote 3] These accounted for nearly 94 percent of all mail volume
and 77 percent of USPS revenues in fiscal year 2010. One piece of
First-Class Mail generated about three times the profitability of the
average piece of Standard Mail. USPS expects First-Class Mail volumes
to continue declining in both the short-and long-term, as customers
increasingly rely on electronic alternatives. In the first quarter of
fiscal year 2011, First-Class Mail decreased by about 6 percent
compared to the same period last year, while Standard Mail volumes
grew by about 9 percent. Figure 2 depicts actual and projected mail
volume trends--which show that by fiscal year 2020 mail volume is
projected to decline to a level not seen since fiscal year 1986.
Additionally, USPS expects the gap between First-Class and Standard
Mail to expand--Standard Mail volumes first exceeded those in First-
Class Mail in fiscal year 2005.
Figure 1: Percentage of Household Bill Payments Made by Mail and
Electronically, Fiscal Years 2000 through 2009:
[Refer to PDF for image: multiple line graph]
Fiscal year: 2000;
Mail payment: 79%;
Electronic payment: 11%.
Fiscal year: 2001;
Mail payment: 80%;
Electronic payment: 13%.
Fiscal year: 2002;
Mail payment: 75%;
Electronic payment: 17%.
Fiscal year: 2003;
Mail payment: 74%;
Electronic payment: 19%.
Fiscal year: 2004;
Mail payment: 69%;
Electronic payment: 24%.
Fiscal year: 2005;
Mail payment: 67%;
Electronic payment: 27%.
Fiscal year: 2006;
Mail payment: 63%;
Electronic payment: 30%.
Fiscal year: 2007;
Mail payment: 62%;
Electronic payment: 32%.
Fiscal year: 2008;
Mail payment: 56%;
Electronic payment: 38%.
Fiscal year: 2009;
Mail payment: 54%;
Electronic payment: 41%.
Source: USPS.
[End of figure]
Figure 2: Actual and Projected Total Mail Volume, Fiscal Years 1971
through 2020:
[Refer to PDF for image: line graph]
Fiscal year: 1971: 87.0 billion pieces;
Fiscal year: 1972: 87.2 billion pieces;
Fiscal year: 1973: 89.7 billion pieces;
Fiscal year: 1974: 90.1 billion pieces;
Fiscal year: 1975: 89.3 billion pieces;
Fiscal year: 1976: 89.8 billion pieces;
Fiscal year: 1977: 93.2 billion pieces;
Fiscal year: 1978: 96.9 billion pieces;
Fiscal year: 1979: 99.8 billion pieces;
Fiscal year: 1980: 106.3 billion pieces;
Fiscal year: 1981: 110.1 billion pieces;
Fiscal year: 1982: 114.0 billion pieces;
Fiscal year: 1983: 119.4 billion pieces;
Fiscal year: 1984: 131.5 billion pieces;
Fiscal year: 1985: 140.1 billion pieces;
Fiscal year: 1986: 147.4 billion pieces;
Fiscal year: 1987: 153.9 billion pieces;
Fiscal year: 1988: 161.0 billion pieces;
Fiscal year: 1989: 161.6 billion pieces;
Fiscal year: 1990: 166.3 billion pieces;
Fiscal year: 1991: 165.9 billion pieces;
Fiscal year: 1992: 166.4 billion pieces;
Fiscal year: 1993: 171.2 billion pieces;
Fiscal year: 1994: 178.0 billion pieces;
Fiscal year: 1995: 180.7 billion pieces;
Fiscal year: 1996: 183.4 billion pieces;
Fiscal year: 1997: 190.9 billion pieces;
Fiscal year: 1998: 196.9 billion pieces;
Fiscal year: 1999: 201.6 billion pieces;
Fiscal year: 2000: 207.9 billion pieces;
Fiscal year: 2001: 207.5 billion pieces;
Fiscal year: 2002: 202.8 billion pieces;
Fiscal year: 2003: 202.2 billion pieces;
Fiscal year: 2004: 206.1 billion pieces;
Fiscal year: 2005: 211.7 billion pieces;
Fiscal year: 2006: 213.0 billion pieces;
Fiscal year: 2007: 212.2 billion pieces;
Fiscal year: 2008: 202.7 billion pieces;
Fiscal year: 2009: 176.7 billion pieces;
Fiscal year: 2010: 170.6 billion pieces;
Fiscal year: 2011: 172.5 billion pieces;
Fiscal year: 2012: 164.6 billion pieces;
Fiscal year: 2013: 164.6 billion pieces;
Fiscal year: 2014: 161.6 billion pieces;
Fiscal year: 2015: 158.6 billion pieces;
Fiscal year: 2016: 155.5 billion pieces;
Fiscal year: 2017: 153.3 billion pieces;
Fiscal year: 2018: 151.4 billion pieces;
Fiscal year: 2029: 150.0 billion pieces;
Fiscal year: 2020: 148.9 billion pieces.
Projected fiscal year 2020 volume: About 150 billion mail pieces, the
lowest level since fiscal year 1986.
Source: USPS.
[End of figure]
In 2010, USPS delivered mail to over 150 million addresses nationwide.
USPS has about 670,000 full-and part-time employees, and reports that,
when benchmarked against other large posts, it has the highest
percentage of full-time employees--about 79 percent. USPS has reported
achieving cost savings close to $13 billion in the last 5 years. For
example, USPS eliminated 125,000 full-and part-time positions (about
16 percent). Despite these achievements, USPS has had difficulty
significantly reducing its compensation and benefits costs and has
struggled to optimize its workforce and retail, mail processing, and
delivery networks. For example, during the first quarter of fiscal
year 2011 despite a reduction of 6.4 million work hours when compared
with the same period last year, savings from this reduction were
partially offset by wage increases and increase in total retirement
and health benefits expenses. Further, some USPS savings during these
years came as a result of congressional action--Congress deferred $4
billion of USPS's $5.4 billion scheduled payment to its retiree health
benefit fund that was due at the end of fiscal year 2009.[Footnote 4]
Table 2 provides an overview of key components of USPS's operational
network.
Table 2: Key Aspects of USPS's Operational Network, Fiscal Year 2010:
* Delivered to over 150 million business and residential addresses.
* Nearly 740,000 new additional delivery points.
* 6-day mail delivery to most addresses.
* Over 32,500 post offices and other retail and delivery facilities.
* Over 215,000 vehicles, 193,000 of which are delivery vehicles.
* 4.1 million miles driven in an average day by letter carriers and
truck drivers.
* Processed about 563 million pieces, on average, of mail each day.
* Over 670,000 full- and part-time employees.
* $60 billion in compensation and benefits expense (80 percent of
total expenses).
* 528 mail processing facilities.
* Nearly 1.2 billion staff work hours.
* $5.9 billion in transportation expense, primarily for highway and
air transportation.
Source: USPS.
[End of table]
USPS has relied increasingly on debt to fund its operations and has
increased its net borrowing by nearly $12 billion over the last 5
years. USPS also ended fiscal year 2010 with about $1.2 billion in
cash and unfunded obligations and liabilities of roughly $105 billion
(see table 3). For fiscal year 2011, USPS has not updated its
financial projections based on its first quarter results and it still
plans to borrow an additional $3 billion--an increase that would place
USPS at its $15 billion statutory limit and prevent it from further
borrowing in fiscal year 2012 absent congressional action. USPS also
projects a $2.7 billion cash shortfall at the end of fiscal year 2011.
Table 3: USPS Financial Liabilities and Unfunded Obligations, Fiscal
Years 2007 through 2010:
Fiscal year: 2007;
Liabilities: Outstanding debt: $4.2 billion;
Liabilities: Workers' compensation liabilities: $7.8 billion;
Liabilities: Other liabilities[A]: $12.7 billion;
Liabilities: Total liabilities: $24.7 billion;
Obligations: Unfunded obligations for retiree health benefits: $55.0
billion;
Obligations: Unfunded obligations (surplus) for pension benefits:
($5.3) billion;
Obligations: Total unfunded obligations: $49.7 billion;
Total liabilities and obligations: $74.4 billion.
Fiscal year: 2008;
Liabilities: Outstanding debt: $7.2 billion;
Liabilities: Workers' compensation liabilities: $8.0 billion;
Liabilities: Other liabilities[A]: $12.5 billion;
Liabilities: Total liabilities: $27.7 billion;
Obligations: Unfunded obligations for retiree health benefits: $53.5
billion;
Obligations: Unfunded obligations (surplus) for pension benefits: $2.5
billion;
Obligations: Total unfunded obligations: $56.0 billion;
Total liabilities and obligations: $83.7 billion.
Fiscal year: 2009;
Liabilities: Outstanding debt: $10.2 billion;
Liabilities: Workers' compensation liabilities: $10.1 billion;
Liabilities: Other liabilities[A]: $13.2 billion;
Liabilities: Total liabilities: $33.5 billion;
Obligations: Unfunded obligations for retiree health benefits: $52.0
billion;
Obligations: Unfunded obligations (surplus) for pension benefits:
$16.7[B] billion;
Obligations: Total unfunded obligations: $68.7 billion;
Total liabilities and obligations: $102.2 billion.
Fiscal year: 2010;
Liabilities: Outstanding debt: $12.0 billion;
Liabilities: Workers' compensation liabilities: $12.6 billion;
Liabilities: Other liabilities[A]: $13.6 billion;
Liabilities: Total liabilities: $38.2 billion;
Obligations: Unfunded obligations for retiree health benefits: $48.6
billion;
Obligations: Unfunded obligations (surplus) for pension benefits:
$17.9[B] billion;
Obligations: Total unfunded obligations: $66.5 billion;
Total liabilities and obligations: $104.7 billion.
Source: USPS.
Note: Data may not add exactly to totals due to rounding; workers'
compensation liabilities include the current and non current portion
of this liability.
[A] Other liabilities include many items, such as operating expenses
that USPS committed to in fiscal year 2009 but has not yet paid, the
value of postage purchased by customers but has not yet been used, and
the value of employees' accumulated leave.
[B] Pension obligations for 2009 and 2010 reflect the adoption of new
accounting principles by the plan administrator in the Office of
Personnel Management (OPM). In fiscal year 2010, OPM adopted the
Federal Accounting Standards Advisory Board's Statement of Federal
Financial Accounting Standard No. 33: Pensions, Other Retirement
Benefits, and Other Postemployment Benefits: Reporting the Gains and
Losses from Changes in Assumptions and Selecting Discount Rates and
Valuation Date.
[End of table]
The President's Fiscal Year 2012 Budget Request also proposes changes
that, if enacted, would provide USPS with over $4.5 billion in short-
term financial relief for fiscal year 2011. The majority of this
relief--$4 billion--would come as a result of USPS paying $1.5 billion
into the Postal Service Retiree Health Benefit Fund instead of the
$5.5 billion required under current law. The remaining relief would
come from reducing USPS's obligation for future funding of retirement
payments to the Federal Employees Retirement System (FERS).[Footnote
5] This relief, however, would be somewhat offset by terminating $29
million in annual appropriations in fiscal year 2012, that reimburses
USPS for revenue foregone from reduced rate mail.[Footnote 6]
USPS's financial problems will not be fixed easily or quickly. USPS
projects future mail volume declines, stagnant revenues, large
financial losses and continued significant financial obligations.
Actions Are Urgently Needed to Modernize and Restructure USPS to
Achieve Financial Viability:
Considering USPS's important role, action is urgently needed to
facilitate its financial viability as USPS cannot support its current
level of service and operations. Congress, USPS, the administration,
and stakeholders need to reach agreement on a package of actions to
restore USPS's financial viability and take steps to modernize and
restructure it. USPS needs to become a leaner, more flexible
organization so that it can operate more efficiently, control costs,
keep rates affordable, and meet customers' changing needs. In
considering proposed legislation, incentives and oversight mechanisms
would help to ensure an appropriate balance between providing USPS
with more flexibility and assuring sufficient transparency, oversight,
and accountability.
We have previously identified five key areas where action is needed to
facilitate progress toward meeting USPS's growing fiscal challenges:
* Realign postal service with customers' changing use of mail: As mail
use by businesses and consumers continues to change, USPS has stated
that it cannot afford to sustain its current level of delivery and
retail services. For example, it has estimated that it could reduce
its costs by about $3 billion annually if it reduced delivery
frequency from 6 days to 5 days per week, but congressional action
would be needed for this change. USPS filed its proposal to eliminate
Saturday delivery with the Postal Regulatory Commission (PRC) on March
30, 2010, and the PRC's advisory opinion is expected to be released in
2011.[Footnote 7] Key questions to consider when evaluating this
proposal include:
- What aspects of universal postal service, including 6-day delivery,
are appropriate in light of fundamental changes in customers' use of
the mail?
- What, if any, changes are needed to other elements of universal
service (e.g., delivery standards)? How can USPS improve customers'
access to postal services while modernizing its retail network to
maximize costs savings?
- Should USPS implement its proposal to reduce delivery frequency to 5
days a week? How would such a change affect its operations, costs,
workforce mix, employees, service, competition, value of mail, mail
volume, and revenue? How would shifting to 5-day delivery affect
business mailers and the public?
* Realign operations, networks, and workforce: USPS's operations,
networks, and workforce need to be realigned with the changes in mail
usage and customer behavior, as USPS now has costly excess capacity.
Key questions to consider when evaluating proposed actions in this
area include:
- How should USPS optimize its operations, networks, and workforce to
support changes in services? How quickly can this happen? How can it
work with its employees and customers to minimize potential
disruptions?
- Should USPS have greater flexibility to realign its retail networks
and workforce, which may involve closing post offices and moving
retail services to alternative commercial locations that are often
open 7 days a week and keep longer hours than postal facilities?
- What process is appropriate to assure sufficient transparency,
oversight, and accountability?
* Reduce compensation and benefit costs: Wages and benefits represent
80 percent of USPS's costs (about $60 billion in fiscal year 2010).
One of the most difficult yet critical challenges is making changes to
USPS's compensation systems. These systems have been set in law and
also negotiated during collective bargaining with its four largest
employee unions. USPS also consulted with its three management
associations. We suggested that Congress should consider revisiting
the statutory framework for USPS's collective bargaining to ensure
that binding arbitration takes USPS's financial condition into
account.[Footnote 8] We also reported other possible options for
reducing compensation and benefit costs, including implementing a two-
tier pay system, outsourcing if it results in cost savings, or
revising employees' share of health and life insurance premiums. Key
questions to consider when evaluating proposals in this area include:
- What changes, if any, should be made to USPS's compensation and
benefits?
- Is it appropriate that USPS pays a larger share of its employees'
health and life insurance premiums than do most other federal
agencies? What impact would changes to these premiums have on USPS and
its employees?
* Generating revenue through new or enhanced products and services: A
key issue is whether USPS can generate sufficient new revenues using
the pricing and product flexibility provided in the Postal
Accountability and Enhancement Act of 2006[Footnote 9] or if changes
are needed. In 2009, USPS asked Congress to change the law to permit
it to diversify into nonpostal areas to find new opportunities for
revenue growth. USPS also asked for additional pricing flexibility in
a 2010 action plan.[Footnote 10] However, it is unclear what the
potential impact of such changes would be and what statutory or
regulatory changes would be needed. Key questions to consider when
evaluating proposals in this area include:
- 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?
* Funding postal retiree health benefits: USPS has said that it cannot
afford its required annual prefunding payments ($5.5 billion in fiscal
year 2011 and gradually increasing to $5.8 billion by 2016), and it
has requested that Congress reduce these payments.[Footnote 11]
Several proposals have been put forth to revise the current statutory
requirements and reduce or defer some of these costs, thereby
providing USPS with financial relief.[Footnote 12] Changes to this
structure, however, could affect the federal budget, and the
Congressional Budget Office has raised concerns about how aggressive
USPS's cost-cutting measures would be if these payments were
reduced.[Footnote 13] As we reported in 2010, Congress should consider
modifying USPS's retiree health benefit payments in a fiscally
responsible manner. However, we also believe that it is important that
USPS fund its retiree health benefit financial obligations--including
prefunding these obligations--to the maximum extent that its finances
permit. Key questions to consider when evaluating proposals in this
area include:
- What changes, if any, should be made to USPS pension and retiree
health benefit obligations and payment schedules?
- What would be the impact on the federal budget?
The President's Fiscal Year 2012 Budget Request proposed specific
short-term financial relief measures, that it stated are grounded in
principles of fiscal responsibility and sound financial management.
The budget request states that these steps are to provide USPS with
the "breathing room" necessary to continue restructuring its
operations without severe disruptions and notes that they must be
coupled with meaningful business model reforms to make USPS viable for
the medium- and long-term. To that end, the budget request outlines
three principles to guide these reforms: (1) realigning postal
infrastructure, including processing and delivery facilities; (2)
adapting the postal workforce to the 21st century; and (3) enhancing
service and accelerating the value of USPS services while respecting
fair competition in the marketplace. However, while promoting
realignment and modernization, the budget request would also continue
to restrict USPS from reducing delivery from 6 days a week and closing
small rural and other small post offices.
Much attention has been focused on ways postal services may be
reduced--such as USPS's proposals to move to 5-day-a week delivery or
to close post offices. Less attention has been given to more positive
aspects of USPS's plans to modernize its retail services, which it
believes will improve customer access and convenience while reducing
costs and improving efficiency. In a recently issued report on
strategies and initiatives foreign posts have used to modernize their
delivery and retail networks, we discussed some lessons learned that
could inform USPS's modernization efforts.[Footnote 14]
Although the foreign posts we reviewed reported that changing how
postal services were provided was challenging, they also found that
outreach and communication strategies helped to inform public
officials and customers of increased access to products and services
and to gain acceptance for retail network changes. For example, when
realigning their respective retail networks, Australia Post developed
a labor outreach strategy, and the Swedish postal operator, Posten AB,
created a communications strategy to inform customers of its retail
network transformation. Additionally, foreign posts modernized their
retail networks by forming partnerships with private sector businesses
such as grocery stores to sell postal services. According to the
foreign posts we reviewed, retail modernization improved customer
service, in some cases because the private sector partners stayed open
longer, reduced operating and labor costs through closures of post-
owned and -operated facilities, or both.
When modernizing, foreign posts also transitioned their workforce to
have a greater percentage of part-time employees, which they reported
afforded flexibility to adjust work to decreased mail volumes. A few
foreign posts developed labor transition plans or strategies under
which they provided training, relocation and job search services, and
financial incentives to support employees who were negatively affected
by the modernizations.
The foreign posts we reviewed did not plan or implement changes or
realize improvements to their networks overnight. Modernization took
several posts 10 to 20 years to implement and was often met with
stakeholder resistance. Among the key principles that foreign posts
used to help modernize and restructure their organizations are the
following:
* Strategic outreach and coordination with governments, the public,
mailers, small businesses, and retail customers can address political
resistance. For example, foreign posts communicated with and reached
out to customers to increase acceptance of changes and to better meet
customers' needs, including providing alternatives before implementing
major retail network changes.
* A labor relations strategy can assist employees in making the
necessary transition to modernization changes. For example, a few
foreign posts provided training, relocation and job search services,
and financial incentives to support employees who were negatively
affected by the modernizations.
The lesson from these experiences is that USPS needs to clarify what
its modernization plans are, how and over what period it will
implement them, and what improvements in customer service and cost
savings it expects to achieve. In its efforts to modernize its retail
network, USPS needs to assure customers that they will have
alternative access to postal services, such as through self-service
retail kiosks or retail partners. While USPS has taken steps in the
past year to generate ideas for modernizing its retail and delivery
networks, the experiences of foreign posts suggest that it will be
critically important for USPS to fully develop and implement similar
outreach, communication, and labor transition strategies.
In summary, modernizing and restructuring USPS so that it can be
viable in the future is imperative given its financial condition.
While we recognize that this will not be easy, changes--some
difficult--are needed to ensure that postal services remain available
to all U.S. residents and businesses. Mr. Chairman, this concludes my
prepared statement. I would be pleased to answer any questions that
you or other Members of the Subcommittee may have.
Contacts and Staff Acknowledgments:
For further information about this statement, please contact Phillip
Herr at (202) 512-2834 or herrp@gao.gov. Individuals who made key
contributions to this statement include Susan Ragland, Director,
Financial Management and Assurance; Teresa Anderson, Joshua Bartzen,
Heather Frevert, Margaret McDavid, Robert Owens, and Crystal Wesco.
[End of section]
Related GAO Products:
U.S. Postal Service: Foreign Posts' Strategies Could Inform U.S.
Postal Service's Efforts to Modernize. [hyperlink,
http://www.gao.gov/products/GAO-11-282]. Washington, D.C.: February
16, 2011.
High-Risk Series: An Update. [hyperlink,
http://www.gao.gov/products/GAO-11-278]. Washington, D.C.: February
2011.
U.S. Postal Service: Legislation Needed to Address Key Challenges.
[hyperlink, http://www.gao.gov/products/GAO-11-244T]. Washington,
D.C.: December 2, 2010.
U.S. Postal Service: Mail Processing Network Initiatives Progressing,
and Guidance for Consolidating Area Mail Processing Operations Being
Followed. [hyperlink, http://www.gao.gov/products/GAO-10-731].
Washington, D.C.: June 16, 2010.
U.S. Postal Service: Action Needed to Facilitate Financial Viability.
[hyperlink, http://www.gao.gov/products/GAO-10-601T]. Washington,
D.C.: April 22, 2010.
U.S. Postal Service: Action Needed to Facilitate Financial Viability.
[hyperlink, http://www.gao.gov/products/GAO-10-624T]. Washington,
D.C.: April 15, 2010.
U.S. Postal Service: Strategies and Options to Facilitate Progress
toward Financial Viability. [hyperlink,
http://www.gao.gov/products/GAO-10-455]. Washington, D.C.: April 12,
2010.
U.S. Postal Service: Financial Crisis Demands Aggressive Action.
[hyperlink, http://www.gao.gov/products/GAO-10-538T]. Washington,
D.C.: March 18, 2010.
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: 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: 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 Facilities: Improvements in Data Would Strengthen
Maintenance and Alignment of Access to Retail Services. [hyperlink,
http://www.gao.gov/products/GAO-08-41]. Washington, D.C.: December 10,
2007.
[End of section]
Footnotes:
[1] A list of GAO's recent work on USPS-related issues is provided at
the end of this testimony. We conducted our work for these reports in
accordance with generally accepted government auditing standards or in
accordance with our quality assurance framework. A more detailed
discussion of our scope and methodology is available in each of the
reports cited in the GAO Related Products list.
[2] GAO, High-Risk Series: An Update, [hyperlink,
http://www.gao.gov/products/GAO-11-278] (Washington, D.C.: February
2011).
[3] First-Class Mail consists of single-piece mail (e.g., bill
payments and letters) and bulk mail (e.g., bills, statements, and
advertising). Standard Mail is mainly bulk advertising and direct mail
solicitations.
[4] USPS made its scheduled $5.5 billion payment into the Postal
Service Retiree Health Benefit Fund that was due at the end of fiscal
year 2010.
[5] The proposal would reduce USPS's obligation for future funding of
retirement payments to FERS--a change that would result in a reduction
of this obligation totaling approximately $6.9 billion, payable over
30 years with an estimated impact of $550 million in fiscal year 2011.
[6] Under this appropriation, USPS receives reimbursement for
previously provided services--free mail service for the blind and
overseas voting. See e.g., Pub. L. No. 111-117, div. C, tit. V, 123
Stat. 3200 (Dec. 16, 2009).
[7] We also expect to issue a report on 5-Day delivery this spring.
[8] About 77 percent of USPS employees are covered by collective
bargaining agreements, and if the current collective bargaining
process reaches binding arbitration, there is no statutory requirement
to consider USPS's financial condition when determining pay or other
compensation.
[9] Pub. L. No. 109-435 (Dec. 20, 2006).
[10] United States Postal Service, Ensuring a Viable Postal Service
for America: An Action Plan for the Future (Washington, D.C. March
2010).
[11] The Postal Accountability and Enhancement Act of 2006 required
USPS to prefund its retiree health benefit obligations with annual
payments through 2016 to the Postal Service Retiree Health Benefits
Fund.
[12] See GAO, U.S. Postal Service: Strategies and Options to
Facilitate Progress toward Financial Viability, [hyperlink,
http://www.gao.gov/products/GAO-10-455] (Washington, D.C.: Apr. 12,
2010) for a discussion of different approaches for funding USPS's
retiree health benefit obligations.
[13] Congressional Budget Office, H.R. 22: United States Postal
Service Financial Relief Act of 2009 (Washington, D.C. July 20, 2009);
S. 1507: Postal Service Retiree Health Benefits Funding Reform Act of
2009 (Washington, D.C., Sept. 14, 2009).
[14] GAO, U.S. Postal Service: Foreign Posts' Strategies Could Inform
U.S. Postal Service's Efforts to Modernize, [hyperlink,
http://www.gao.gov/products/GAO-11-282] (Washington, D.C.: Feb. 16,
2011).
[End of section]
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