	Key Actions Have Been Taken to Implement the Act

Several key actions have been taken to implement the law since it was  enacted over 14 months ago. Some of the actions taken to implement the  act had a direct impact on the Service’s 2007 financial condition, while  others facilitated the transition to a new financial, operating, and  regulatory environment. Specific actions in the act that have affected the  Service’s 2007 financial condition include:    prefunding the Service’s significant unfunded retiree health obligations. This revenue  increase, however, was largely attributable to the January 2006 and May  2007 rate increases—not mail volume increases. These increases were  primarily used to finance year-end worker compensation and retiree  health payments. The net income reported for 2007 was a $5.1 billion loss. Remaining Implementation Challenges Exacerbated by Economic Uncertainty

The financial, operational, human capital, and regulatory challenges facing  the Service and other stakeholders as they take actions to continue  implementing the act are exacerbated by the current uncertain economic  environment. The Service has updated its strategies for addressing  challenges under the new law related to generating sufficient revenues,  achieving efficiencies through automation, and improving service. Some  of the key areas for continued oversight include changes in mail volumes  in response to more frequent, predictable rate increases; efforts to control  costs by modernizing and optimizing the Postal Service’s infrastructure  and workforce; the transition to new automation and mail-tracking  systems; the level of transparency in measuring and reporting delivery  performance; and the implementation of the new rate-setting processes  and regulations. This challenge  became more evident after the Service’s revenue and volume results for  the first quarter of 2008 were released. While  actions taken to implement the reform act put pressure on costs—the  Service expects a net increase of $1 billion in costs in 2008—the act also  eliminates other payments and provides opportunities to offset some of  these cost pressures through efficiency gains that could restrain future  rate increases. Managing Its Workforce

The Service will be challenged to manage its workforce as it transitions to  operating in a new postal environment. Required Information Can Guide Future Postal Reform Discussions

Information required under the act can be used to facilitate constructive  dialogue and debate about postal reform issues related to universal  service, the postal monopoly, fair competition, consumer protection, and  transparency and accountability. Specifically, the act included provisions  for reports required over the next 5 to 10 years related to key postal  reform issues aimed at continually examining and reporting on the Postal  Service’s mission, role, and oversight structure in an increasingly  competitive environment. The information can be useful to Congress when it is  considering key postal reform issues including:    What universal postal service will be needed in the future and how should  it be defined, given past changes and future challenges? While the act requires the PRC to  provide annual reviews of service quality and the estimated costs of  providing universal service, the act requires a more comprehensive study  from the PRC on the scope and standards of universal postal service and  the postal monopoly. These comments will assist  the PRC in fulfilling the act’s requirement to establish accounting practices  and principles for the Service to follow, and issue regulations for the  Service’s reporting of its costs, revenue, rates, and volumes.
Why GAO Did This Study

In December 2006, Congress passed the first comprehensive postal reform legislation in over 30 years. The Postal Accountability and Enhancement Act (the act) provided opportunities to address many of the financial, operational, and human capital challenges facing the Postal Service (the Service), which contributed to GAO's decision to remove the Service's transformation efforts from its High-Risk List last year. Specifically, the act provides tools and mechanisms that can be used to establish an efficient, flexible, fair, transparent, and financially sound Postal Service--one that can more effectively operate in an increasingly competitive environment not anticipated under the Postal Reorganization Act of 1970. This testimony focuses on (1) the actions to date resulting from implementing the act and how it affected the Service's 2007 financial condition, (2) the implementation challenges and areas for continued oversight, and (3) how information required under the law can contribute to future postal reform decisions. The testimony is based on GAO's past work; a review of the implementation of the postal reform law, including actions already taken; and updated information on the Service's financial and operational condition. The Postal Service had no comments on this testimony.

What GAO Found

Over the last 14 months, key actions have been taken to implement the act. For example, a new rate-setting system and regulatory agency were established, the Service began prefunding its retiree health benefit obligations, service standards were updated, and key reports were issued. These actions have required the collective efforts of many postal stakeholders including the Service and the Postal Regulatory Commission. The Service reported a $5.1 billion net loss for fiscal year 2007. Some of the actions taken to implement the act, such as funding changes to its retiree health benefit obligations and pension requirements, directly impacted these results, as did other events such as the January 2006 and May 2007 rate increases. The uncertain economic environment serves to exacerbate the challenges facing the Service and contributed to lower than expected mail volumes and revenues in the first quarter of fiscal year 2008. The Service projects a $600 million net loss for 2008 as it faces challenges such as generating volumes as rates increase again in May; managing its costs and improving operational efficiencies through accelerated cost reduction strategies; maintaining, measuring, and reporting service; and managing its workforce. Some key areas for continued oversight include changes to mail volumes and revenues, efforts to control costs by optimizing the Service's infrastructure and workforce, transition to new automation and technology to enhance mail sorting and tracking, transparency in measuring and reporting delivery performance, and implementation of the new rate-setting regulations. Information required under the act can be used to facilitate constructive dialogue about complex postal reform issues that may eventually need to be revisited by Congress. The act requires multiple reports and studies over the next 5 to 10 years that can be used to continually examine and assess the Postal Service's position in an environment of increasing competition and technological advances. Specifically, these reports and studies will provide key information on the Service's mission and role, monopoly protections, universal service requirements, rate-setting and other regulatory issues, oversight structure, competition issues, and consumer protection.