	USPS’s Financial Condition Continues to Deteriorate, and Its Financial Condition Has Been Added to Our High-Risk List

USPS’s financial condition and outlook continue to deteriorate with a  worsening outlook for mail volume and revenue. As a result, USPS is projecting the following for  fiscal year 2009:        a net loss of about $7 billion, even if it achieves record cost savings of  about $6 billion;    an increase in outstanding debt by the annual statutory limit of $3 billion;  and,    despite this borrowing, an unprecedented $1 billion cash shortfall. USPS has reported that it does not expect to generate sufficient cash from  operations to fully make its mandated payment of $5.4 billion for future  retiree health benefits that is due by September 30, 2009. Further, USPS  recently reported to Congress that—due to the need to maintain sufficient  cash to cover costs—it will not fully make this payment, even if it receives  $2 billion in relief from fiscal year 2009 retiree health benefits payments  that would be provided by H.R. Two days ago, we added USPS’s financial condition to the list of high-risk  areas needing attention by Congress and the executive branch to achieve  broad-based transformation. We reported that USPS urgently needs to  restructure to address its current and long-term financial viability. 1). Accordingly, we have called for USPS to develop and implement a broad  restructuring plan—with input from the Postal Regulatory Commission  (PRC) and other stakeholders, and approval by Congress and the  administration—that includes key milestones and time frames for actions,  addresses key issues, and identifies what steps Congress and other  stakeholders may need to take. Network Restructuring Needed to Help USPS Achieve Financial Viability

USPS needs to optimize its retail, mail processing, and delivery networks  to eliminate growing excess capacity and maintenance backlogs, reduce  costs, and improve efficiency. We recently reported that USPS needs to  rightsize its retail and mail processing networks and reduce the size of its  workforce. USPS has a window of opportunity to further reduce the cost  and size of its workforce through attrition and the large number of  upcoming retirements to minimize the need for layoffs. USPS has begun efforts to realign and  consolidate some of its mail processing, retail, and delivery operations, but  much more restructuring is urgently needed. We recognize that USPS  would face formidable resistance to restructuring with many facility  closures and consolidations because of concerns that these actions would  impact service, employees, and local communities. USPS senior  management will need to provide leadership and work with stakeholders  to overcome resistance for its actions to be successfully implemented. USPS must use an open and transparent process that is fairly and  consistently applied; engage with its unions, management associations, the  mailing industry, and political leaders; and demonstrate results of actions. In turn, these stakeholders and Congress need to recognize that major  changes are urgently needed for USPS to be financially viable. USPS Has Recently Begun Efforts to Consolidate Retail Facilities

To its credit, USPS recently began a national initiative to consolidate some  of its 3,200 postal retail stations and branches in urban and suburban  areas. 2). USPS Has Made Limited Progress in Consolidating Its Mail Processing Network

USPS has begun efforts to consolidate some mail processing operations,  but much more needs to be done to restructure this network, particularly  since USPS has closed only 1 of its approximately 400 major mail  processing facilities. USPS Has Ongoing Efforts to Improve Delivery Efficiency

USPS has ongoing efforts to increase the efficiency of mail delivery, which  is USPS’s largest cost segment and includes more than 350,000 carriers  that account for approximately 45 percent of salary and benefit expenses. First, USPS is realigning city carrier routes to remove excess capacity and  improve efficiency, which is expected to generate nearly $1 billion in  annual savings. USPS is studying how 5-day delivery could be  implemented, potential savings, and impacts on its employees. Cutting delivery frequency would affect  universal postal service and could further accelerate the decline in mail  volume and revenues.
Why GAO Did This Study

The U.S. Postal Service's (USPS) financial condition has worsened this year, with the recession and changing mail use causing declines in mail volume and revenues despite postal rate increases. GAO testified in May to this subcommittee that USPS expects these declines to lead to a record net loss and an unprecedented cash shortfall even if ambitious cost cutting is achieved. GAO reported that maintaining USPS's financial viability as the provider of affordable, high-quality universal postal service will require actions in a number of areas, such as (1) rightsizing its retail and mail processing networks by consolidating operations and closing unnecessary facilities and (2) reducing the cost and size of its workforce, which generates about 80 percent of its costs. Today GAO is releasing its report on USPS efforts to improve the efficiency of delivery. Delivery accounts for nearly half of USPS salary and benefit costs. This testimony (1) updates USPS's financial condition and outlook and explains GAO's decision to place USPS's financial condition on the High-Risk List and (2) discusses the need for USPS to restructure its mail processing, retail, and delivery networks and its efforts to improve their efficiency. It is based on GAO's past and ongoing work and updated USPS information.

What GAO Found

USPS's financial condition and outlook continue to deteriorate with a worsening outlook for mail volume and revenue. USPS now projects mail volume to decline by about 28 billion pieces to about 175 billion pieces in fiscal year 2009, a decline of 13.7 percent. As a result, USPS projects (1) a net loss of about $7 billion even with record savings of about $6 billion; (2) an increase in outstanding debt by the annual $3 billion limit; and, (3) despite this borrowing, an unprecedented $1 billion cash shortfall. Thus, USPS recently reported to Congress that, due to the need to maintain sufficient cash to cover costs, it will not fully make its mandated payment of $5.4 billion for future retiree health benefits due by September 30, 2009, even if it receives $2 billion in relief under pending House legislation. GAO added USPS's financial condition to the High-Risk List this week. GAO reported USPS urgently needs to restructure to address its current and long-term financial viability. Accordingly, GAO calls for USPS to develop and implement a broad restructuring plan--with input from the Postal Regulatory Commission and other stakeholders, and approval by Congress and the administration--that includes key milestones and time frames for actions, addresses key issues, and identifies what steps Congress and other stakeholders may need to take. USPS needs to optimize its retail, mail processing, and delivery networks to eliminate growing excess capacity and maintenance backlogs, reduce costs, and improve efficiency. USPS has a window of opportunity to reduce the cost and size of its workforce through attrition and the large number of upcoming retirements to minimize the need for layoffs. Although USPS has begun efforts to realign and consolidate some mail processing, retail, and delivery operations, much more is urgently needed. GAO recognizes that USPS would face formidable resistance to restructuring with many facility closures and consolidations because of concerns that these actions would affect service, employees, and communities. USPS management will need to provide leadership and work with stakeholders to overcome resistance for its actions to be successfully implemented. USPS must use an open, transparent, fair, and consistent process; engage with its unions, management associations, the mailing industry, and political leaders; and demonstrate results. In turn, these stakeholders and Congress need to recognize that major restructuring is urgently needed for USPS to be financially viable. To its credit, USPS recently began a national initiative to consolidate some of its 3,200 postal retail stations and branches in urban and suburban areas. USPS has begun efforts to consolidate some mail processing operations but has closed only 1 of 400 major mail processing facilities. USPS is realigning city carrier routes to remove excess capacity and improve efficiency, which is expected to save nearly $1 billion annually; has begun to install automated equipment to reduce costly manual sorting of flat-sized mail; and is studying how it could shift to 5-day delivery and the potential savings.