As we testified last year, the continued deterioration in USPS’s financial  condition is due primarily to two factors. 2). 2. In this regard, USPS reported a 14  percent growth in Shipping and Packages volume in fiscal year 2016. Compensation and benefits  comprise close to 80 percent of total USPS expenses. As previously discussed, USPS’s unfunded liabilities and debt have  become a large financial burden, increasing from 99 percent of USPS  revenues at the end of fiscal year 2007 to 169 percent of revenues at the  end of fiscal year 2016. As of the end of  fiscal year 2016, USPS’s liability for retiree health benefits was about  $104.0 billion and the Postal Service Retiree Health Benefits Fund  balance was $51.9 billion, with a resulting unfunded liability of $52.1  billion. USPS Will Remain Unlikely to Fully Make Required Retiree Health and Pension Payments

USPS will remain unlikely to fully make its required retiree health and  pension payments in the near future. As table 1 below shows, in fiscal year 2017, USPS  will be required to make an estimated total of $10.3 billion in payments for  retiree health and pension benefits under CSRS and FERS—about $3.3  billion more than what USPS paid in fiscal year 2016 for these benefit  programs. In addition to declining mail volumes and increased expenses, USPS’s  ability to make its required payments for these retirement programs will  be further challenged due to:
Expiration of a temporary rate surcharge: USPS has reported that the  April 2016 expiration of a 4.3 percent “exigent” surcharge that began  in January 2014 is reducing its revenues by almost $2 billion  annually. No new major cost-savings initiatives planned: USPS has made  efforts in recent years to right-size its operations to better adapt to  declining mail volumes that are adversely affecting its financial  position. However, USPS has no current plans to initiate new major initiatives  to achieve cost savings in its operations. USPS has reported that without structural change to its business model  and legislative change, it expects continuing losses and liquidity  challenges for the foreseeable future. Large unfunded liabilities for postal retiree health and pension benefits— which were $73.4 billion at the end of fiscal year 2016—may ultimately  place taxpayers, USPS employees, retirees and their beneficiaries, and  USPS itself at risk. As we have previously reported, funded benefits  protect the future viability of an enterprise such as USPS by not saddling  it with bills after employees have retired. Further, since USPS retirees  participate in the same health and pension benefit programs as other  federal retirees, if USPS ultimately does not adequately fund these  benefits and if Congress wants these benefits to be maintained at current  levels, funding from the U.S. Treasury, and hence the taxpayer, would be  needed to continue the benefit levels. This increases the  risk that taxpayers may ultimately be called on to fund these benefits.”  Alternatively, unfunded benefits could lead to pressure for reductions in  benefits or in pay. Congress Faces Difficult Choices to Address USPS’s Financial Condition

USPS’s financial situation leaves Congress with difficult choices and  trade-offs to achieve the broad-based restructuring that will be necessary  for USPS to become financially sustainable. USPS’s ability to make its  required retiree health and pension payments requires a decrease in  expenses or increase in revenues, or both. Compensation and benefits in an environment of revenue pressures:  Key compensation and benefits costs for USPS employees have  increased and continue to increase, while the volume for First-Class  Mail—USPS’s most profitable product—has declined and continues to  decline. There is no statutory requirement for USPS’s financial condition to be  considered in arbitration. USPS’s dual role of providing affordable universal service while  remaining self-financing: As an independent establishment of the  executive branch, USPS has long been expected to provide  affordable, quality, and universal delivery service to all parts of the  country while remaining self-financing. Conclusion

USPS management, unions, the public, community leaders, and  Members of Congress need to take a hard look at what level of postal  services residents and businesses need and can afford. The status quo is  not sustainable. Appendix I: U.S.
Why GAO Did This Study

USPS is a critical part of the nation's communication and commerce, delivering 154 billion pieces of mail in fiscal year 2016 to 156 million delivery points. However, USPS's mission of providing prompt, reliable and efficient universal services to the public is at risk due to its poor financial condition. USPS's net loss was $5.6 billion in fiscal year 2016, its tenth consecutive year of net losses. At the end of fiscal year 2016, USPS had $121 billion in unfunded liabilities, mostly for retiree health and pensions, and debt—an amount equal to 169 percent of USPS's revenues.
In July 2009, GAO added USPS's financial condition to its list of high-risk areas needing attention by Congress and the executive branch. USPS's financial condition remains on GAO's High-Risk List. In previous reports, GAO has identified strategies and options for USPS to generate revenue, reduce costs, increase the efficiency of its delivery operations, and restructure the funding of USPS pension and retiree health benefits. GAO has also previously reported that a comprehensive package of actions is needed to improve USPS's financial viability.
This testimony discusses (1) factors affecting USPS's deteriorating financial condition, (2) USPS's ability to make required retiree health and pension payments, and (3) considerations and choices Congress faces in addressing USPS's financial challenges. This testimony is based primarily on past GAO work that has examined USPS's financial condition—including its liabilities—and updated USPS financial information for fiscal years 2016 and 2017.

What GAO Found

The U.S. Postal Service's (USPS) deteriorating financial condition is unsustainable as a result of trends including:
Declining mail volume : First-Class Mail—USPS's most profitable product—continues to decline in volume as communications and payments migrate to electronic alternatives. USPS expects this decline to continue for the foreseeable future.
Growing expenses: Key USPS expenses such as salary increases and work hours continue to grow, due in part to growth in shipping and packages, which are more labor-intensive. Compensation and benefits comprise close to 80 percent of USPS's expenses.
USPS's financial condition makes it unlikely it will be able to fully make its required retiree health and pension payments in the near future. In fiscal year 2016, when USPS was required to make $13.0 billion in retiree health and pension payments, it made $7.0 billion in payments—mainly due to not making a required retiree health payment of $5.8 billion. USPS's required payments have been restructured for fiscal year 2017 and are estimated to total $10.3 billion. USPS's ability to make these 2017 payments will be further challenged due to:
Expiration of a temporary “exigent” rate surcharge: USPS has said the April 2016 surcharge expiration is reducing its revenues almost $2 billion annually.
No new major cost savings initiatives planned: USPS made efforts in recent years to right-size its operations, but has no current plans to initiate major new initiatives to achieve cost savings in its operations.
Large unfunded liabilities for postal retiree health and pension benefits—which were $73.4 billion at the end of fiscal year 2016—may ultimately place taxpayers, USPS employees, retirees and their beneficiaries, and USPS itself at risk. As GAO has previously reported, funded benefits protect the future viability of an enterprise such as USPS by not saddling it with bills after employees have retired. Further, with USPS retirees participating in the same health and pension benefit programs as other federal retirees, if USPS ultimately does not adequately fund these benefits and if Congress wants these benefits to be maintained at current levels, funding from the U.S. Treasury—and hence the taxpayer—would be needed to maintain the benefit levels. Alternatively, unfunded benefits could lead to pressure for reductions in USPS benefits or pay.
Congress faces difficult choices and tradeoffs to address USPS's financial challenges. The status quo is not sustainable. Considerations for Congress include the (1) level of postal services provided to the public and the affordability of those services, (2) compensation and benefits for USPS employees and retirees in an environment of revenue pressures, and (3) tension between USPS's dual roles as an independent establishment of the executive branch required to provide universal delivery service and as a self-financing entity operating in a business-like manner.