	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. 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). Mail volumes have generally been decreasing as customers have  increasingly shifted to electronic communications and payment  alternatives (see fig. 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. 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 remaining relief would come from reducing USPS’s  obligation for future funding of retirement payments to the Federal  Employees Retirement System (FERS). 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. 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. USPS also consulted with its three management associations. What  impact would changes to these premiums have on USPS and its  employees? As we  reported in 2010, Congress should consider modifying USPS’s retiree  health benefit payments in a fiscally responsible manner. 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. 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. 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. 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. U.S. Postal Service: Strategies and Options to Facilitate Progress toward  Financial Viability. U.S. U.S.
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. 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.