In a report release yesterday GAO wrote:
Restructuring USPS’s business model to adapt to decreased mail use could follow one of three primary models: a government-subsidized federal agency, the current structure with additional flexibility, or a private-sector business. See table 2 for key actions and decisions associated with each model.
government-subsidized federal agency: Allow USPS to fund its obligations like other federal agencies and eliminate prefunding for retiree health benefit obligations.
the current structure with additional flexibility: Restructure funding for retiree health benefit obligations in a fiscally responsible manner.
private-sector business: Establish new pension, retiree health, and workers’ compensation programs and determine obligations, in accordance with applicable laws and regulation.
Revise requirements to reflect those used by federal agencies
Require binding arbitration for labor contracts to consider USPS’s financial condition
Revise requirements to reflect those applicable to private firms
U.S. POSTAL SERVICE: Mail Trends Highlight Need to Fundamentally Change Business Model
By the end of fiscal year 2011, with a projected net loss of about $10 billion, the U.S. Postal Service (USPS) was expected to become insolvent. To mitigate this, Congress temporarily deferred USPS’s required $5.5 billion retiree health benefit payment. Over the previous 4 years, USPS experienced a cumulative net loss of just over $20 billion. USPS expects its revenue to decline further as First-Class Mail is projected to decline nearly 7 percent annually through 2020. Consequently, decisions need to be made to determine how USPS should be restructured to put it on a path to financial viability. GAO was asked to summarize (1) long-term trends related to the demand for and use of mail, and (2) options for restructuring USPS’s business model to adjust to changing mail trends. This summary is based on GAO’s past work, including GAO-11-278 (High-Risk Series: An Update) and GAO-10-455 (USPS: Strategies and Options to Facilitate Progress toward Financial Viability), both of which found that USPS urgently needs to restructure its networks and workforce to achieve and sustain financial viability. In addition, GAO also used data and related studies from USPS. GAO performed this work from September 2011 to October 2011 in accordance with generally accepted government auditing standards. GAO provided a draft of this report to USPS for comment and incorporated technical comments provided by USPS as appropriate.
Long-term trends–highlighted in the data below–strongly suggest that the use of mail will continue to diminish as online communication and e-commerce expand. By 2020, USPS projects mail volume will decline to levels not seen since the 1980s: Total mail volume is projected to decrease by 25 percent, First-Class Mail is expected to decrease by 50 percent, and Standard Mail volume is projected to remain flat. While dire, USPS’s projections could prove optimistic if communication continues to move to digital technologies as quickly as in the recent past. For the first time, in 2010, fewer than 50 percent of all bills were paid by mail. Almost 60 percent of mail received by households in 2010 was advertising, while bills and financial statements comprised 22 percent. These trends underscore the need for USPS’s business model to undergo fundamental changes to reduce personnel and network-related costs. Restructuring USPS’s business model to adapt to decreased mail use could follow one of three primary models: a government-subsidized federal agency, the current structure with additional flexibility, or a private-sector business.
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