Restructuring the U.S. Postal Service to Achieve Sustainable Financial ViabilityPage 44 GAO-11-278 High-Risk Series

Restructuring the U.S. Postal Service to

In July 2009, GAO added the U.S. Postal Service’s (USPS) financialcondition to the list of high-risk areas needing attention by Congress andthe executive branch to achieve broad-based restruct

Achieve Sustainable Financial Viability

igh Risk

uring. Amidchallenging economic conditions, a changing business environment, andondfinancial obligations.71 percent. USPSexpects mail volume to decline further to about 150 billion pieces by 2020.as veatoryrequirements, such as those related to closing unneeded facilities.rrent level of service and operations from itsrevenues and urgently needs to restructure to reflect changes in mailto offset the large decline in mail volume and revenue— particularly costs related to its workforce, retail and processing networks,utit in fiscal year2011. USPS must align its costs with revenues, generate sufficient funding

cal Years 2006

declining mail volumes, USPS is facing a deteriorating financial situatiin which it does not have sufficient revenues to cover its expenses anMail volume has declined from 213 billion pieces in fiscal year 2006 to 1billion pieces in fiscal year 2010—a decline of about 20This trend exposes weaknesses in USPS’s business model, which hrelied on mail volume growth to help cover costs. USPS actions to improits financial condition have been limited in part by statutory and regul USPS cannot fund its cu volume, revenue, and use of the mail. Although USPS reports $12.5 billionin cost savings since fiscal year 2006, it has not been able to cut costs fastenoughand delivery services. Further, its revenue initiatives have had limitedresults. USPS can borrow up to $3 billion from the Treasury annually bexpects to reach its statutory $15 billion borrowing limfor capital investment, and manage its growing debt (see table 2).

Table 2: Postal Service Financial Results and Projections, Fisthrough 2011

Dollars in billions

Fiscal year(loss)Total revenues Total expensesOutstandingdebtNet income

2006 $0.9$72.8 $71.9$2.12007 (5.1) 75.0 80.14.22008 (2.8)75.0 77.87.22009 (3.8)68.1 71.910.22010 (8.5)67.1 75.612.02011 (projected) (6.4)67.7 74.115.0

Source: USPS.

Why Area Is HWhat GAO Found

Restructuring the U.S. Postal Service to Achieve Sustainable Financial Viability

In March 2010, USPS issued a 10-year Action Plan, as suggested by Gwhen it added USPS to its High-Risk List, that included actions forCongress and USPS to take to achieve financial viability. The planincluded restructuring its retiree health benefits payments, eliminatingSaturday delivery, expanding access to retail services, establishing a moreflexible workforce, and expanding products and services. In April 2010,GAO reported on strat AOegies and options for USPS to generate revenues,reduce costs, and increase efficiency (see table 3). Options includedingneunder its existing authority will not be sufficient to achieve sustainablenancial viability. Congress, USPS, and other stakeholders need to reach

e its

ngn thenegotiation process for USPS labor contracts to take USPS’s financialThe following table summarizes selected strategies and options for actionby Congress and USPs USPS’s financial viability, wioptions requiring collaborw bargain

What Remains to Be

reducing compensation and benefit costs—which constitute about 80 percent of expenses—and optimizing networks to eliminate excesscapacity. Several bills were introduced in 2010 that included provisions torestructure USPS benefit payments and address barriers to implementUSPS’s Action Plan. These bills were not enacted.USPS has yet to fully implement its Action Plan. USPS’s actions alofiagreement on a package of actions that would

allow USPS to modernizservices to meet changing customer needs

and

remove barriers restrictiUSPS actions, which in turn would permit USPS to optimize its networksand workforce so that it can

become more efficient and reduce costs

.Congress needs to approve a comprehensive package of actions toimprove USPS’s financial viability by (1) modifying its retiree healthbenefit cost structure in a fiscally responsible manner; (2) facilitatingUSPS cost reduction, such as by modernizing and optimizing postalnetworks and workforce; and (3) requiring any binding arbitration i

Done

condition into account. USPS needs to take more aggressive action toreduce costs.S to addresationth someing.ith unions through collective

Page 45 GAO-11-278 High-Risk Series

Restructuring the U.S. Postal Service to Achieve Sustainable Financial Viability

Table 3: Strategies and Options to Facilitate Progress toward Financial ViabilityChallenges Options ressfor USPS Options for CongStrategy: Reduce compensation and benefits costs

Workforce size:

About 300,000 postal employees are expect2020.Collective bargaining agreements include limPostal unions are concerned about the lossclass wage and benefits to private-sector jobno benefit guarantees.ed to retire throughits on outsourcing.of jobs paying a middle-s with lower wages andReduce the size of the workforcethrough retirements andoutsourcing, where it is cost-effective to do so.

Wages

: USPS is required to maintain compecomparable to the private sector, and wageshalf of USPS’s costs.

wages and “grandfather”condition when makingbinding arbitrationnsation and benefitsaccount for about one-Reduce wage costs, for example,through a two-tiered pay systemthat would pay new hires lowerRequire arbitrators toconsider USPS’s financialemployees in the current system. decisions.

Benefits:

USPS benefits account for about 30 percentis required to make annual multibillion-dollarpayments.Employees eligible for workers’ compensatiothese more generous benefits even when elof USPS’s costs. USPSretiree health benefitn benefits can continueigible to retire.Reduce benefit costs by reducingUSPS health and life insurancecontribution rates for activeemployees to levels comparable tothose paid by other federalagencies.Defer costs by revisingfunding requirements forretiree health benefits.Revise workerscompensation laws foremployees eligible forretirement.

Workforce mix and work rules

: USPS has a high ratio of full-timecareer employees—about 78 percent—and ants flexibility to hiremore part-time employees.Adjust workforce mix, for example,by using more part-time staff.w

Strategy: Reduce other operations aimprove efnd nficiency

etwork costs and

USPS has costly excess capacity and inadequickly reduce costs in its retail, processing,Closing facilities has been limited by politicacommunity opposition to potential job losses

Retail

: Legal restrictions limit its ability to clooffices.

Delivery

: Delivery is the largest cost segmen, andrequired by USPS annual appropriation to beweek.Optimize USPS retail facilitynetwork (including hours and

Delivery

: Expand use of more cost-efficient delivery, such as clusterboxes.

Field structure

: Reduce the numberof field administrative offices.orteryand appropriationslanguage restrictingappropriations languagerequiring 6-day delivery.quate flexibility toand delivery networks.l, employee, union, and.se certain types of postt, labor-intensive

Mail processing

:Close unneeded facilities.Relax delivery standards tofacilitate closures or consolidations.

Retail: Mail processing

: Supphaving USPS reducexcess capacity by closingsome of its major mailprocessing facilities.

Retail

: Remove statutoprovided 6 days alocations).Move more retail services to privatestores and self-service and closeunneeded retail facilities.USPS’s ability to closesome of its 36,500 retailfacilities.

Delivery

: Remove

Page 46 GAO-11-278 High-Risk Series