GAO Press Release
Reporting that broad restructuring is urgently needed, the U.S. Government Accountability Office (GAO) today added the financial condition of the U.S. Postal Service (USPS) to its High-Risk List of federal areas in need of transformation.
“There are serious and significant structural financial challenges currently facing the Postal Service. New technology is profoundly affecting services in both the private and public sectors, including traditional mail delivery. Compounded by the current recession, the volume of mail being sent is dropping substantially, leading to a sizeable decline in revenue. At the same time, the Postal Service faces significant infrastructure and personnel costs,” said Gene L. Dodaro, Acting Comptroller General of the United States and head of the GAO.
“The Postal Service urgently needs to work with Congress and other key stakeholders to develop and implement a restructuring plan to help put it on a more sustainable financial path. By adding the U.S. Postal Service’s financial condition to the High-Risk List, we hope to bring attention to the agency’s financial viability and its ability to provide sustainable, affordable, high-quality mail service,” Dodaro added.
Mail volume fell by 9.5 billion pieces in fiscal year 2008 to a total of 203 billion pieces and is projected to fall by 28 billion pieces in fiscal year 2009 to a total of 175 billion pieces. USPS expects mail volume and revenue to continue declining next year, and flat or continued volume decline over the next 5 years. USPS projects a net loss of $7 billion this fiscal year, with outstanding debt increasing to over $10 billion, and a cash shortfall of about $1 billion. USPS also expects that its projected losses will continue in fiscal year 2010.
USPS has relied on growth in mail volume to help sustain its operations, a strategy that has enabled it to remain self-supporting. During the past decade, however, businesses and consumers have increasingly turned from traditional mail delivery to electronic communication alternatives. Mail volume has bounced back after past recessions, but USPS’s forecast suggests that may not be the case this time as more and more postal customers embrace electronic options.
To remove its financial condition from the High-Risk List the Postal Service needs to undertake a number of major structural changes, Dodaro said. In the short term, a key challenge is to cut expenses quickly enough to offset mail volume and revenue declines to avoid running out of cash to pay its expenses. In the long term, USPS should consider consolidating operations, closing unneeded facilities, and reducing its workforce to reflect new trends in mail use. It has been slow to cut overhead costs to offset volume declines and continues to maintain an infrastructure of about 38,000 facilities nationwide. The Postal Service should also explore opportunities to increase revenue. Congressional support for these actions will be crucial, Dodaro added.
A more detailed description of GAO’s action can be found here (http://www.gao.gov/cgi-bin/getrpt?gao-09-937sp). For more information, contact Chuck Young, Managing Director of Public Affairs, at (202) 512-4800.
Look at what GAO is recommending in part: http://www.gao.gov/press/d09937sp.pdf
Key actions USPS could take include the following:
1.Reduce compensation and benefit costs through retirements: About 162,000 USPS employees are eligible to retire this year, which will increase to almost 300,000 within the next 4 years.
• early retirements: About 150,000 USPS employees were recently offered voluntary early retirement, but less than 3 percent accepted.
• lower benefit costs: USPS pays a higher percentage of employee health benefit premiums than other federal agencies (80 percent versus 72 percent, respectively). In addition, USPS pays 100 percent of employee life insurance premiums, while other federal agencies pay about 33 percent.
2.Consolidate retail and processing networks
• Remove excess capacity in the 400 mail processing facilities nationwide, where processing capacity for First-Class Mail exceeds processing needs by 50 percent.
• Maximize use of lower-cost retail alternatives: A growing amount of USPS retail revenue comes through alternate channels, such as stamps bought by mail, on the Internet, and at grocery stores.
• Reduce the network of 37,000 retail facilities, where maintenance has been underfunded for years, resulting in deteriorating facilities and a maintenance backlog.
3. Consolidate field structure: Review need for 74 district offices and 9 area offices.
4.Generate revenue through new or enhanced products: Use its pricing and product flexibility to maximize profitable mail volume.
Other actions that USPS has proposed that would require congressional approval include the following:
1.Change funding requirements for retiree health benefits: USPS has asked Congress to revise the funding requirements for its retiree health benefit obligation as it does not expect to make the full amount of its $5.4 billion retiree health benefit payment at the end of this fiscal year due to a cash shortage.
2.Realign delivery services with changing use of mail: USPS has asked Congress to allow it to reduce delivery from 6 to 5 days per week as its revenue per delivery has declined 20 percent from fiscal year 2000 to fiscal year 2009, as have pieces of mail delivered per address