	USPS’s Financial Condition

USPS faces a dire financial situation and does not have sufficient  revenues to cover its expenses, putting its mission of providing prompt,  reliable, and efficient universal services to the public at risk. USPS  continues to incur operating deficits that are unsustainable, has not made  required payments of $11.1 billion to prefund retiree health benefit  liabilities,USPS lacks liquidity to maintain its financial solvency or finance needed   and has reached its $15 billion borrowing limit. Moreover,  capital investment. As presented in table 1, since fiscal year 2006, USPS  has achieved about $15 billion in savings and reduced its workforce by  about 168,000, while also experiencing a 25 percent decline in total mail  volume and net losses totaling $40 billion. USPS continues to face significant decreases in mail volume and  revenues as online communication and e-commerce expand. First-Class Mail—which is highly profitable and generates the  majority of the revenues used to cover overhead costs—declined 33  percent since it peaked in fiscal year 2001, and USPS projects a  continued decline through fiscal year 2020. One  of these liabilities, USPS’s debt to the U.S. Treasury, increased over this  period from $4 billion to its statutory limit of $15 billion. USPS continues to incur unsustainable operating  deficits. In this regard, the USPS Board of Governors recently directed  postal management to accelerate restructuring efforts to achieve greater  savings. At the end of  fiscal year 2012, USPS had $48 billion in unfunded retiree health benefit  liabilities. USPS has also reported that in the short term,  should circumstances leave it with insufficient liquidity, it may need to  prioritize payments to its employees and suppliers ahead of those to the  federal government. USPS Initiatives to Reduce Costs and Increase Revenues

USPS has several initiatives to reduce costs and increase its revenues to  curtail future net losses. In February 2012, USPS announced a 5-year  business plan with the goal of achieving $22.5 billion in annual cost  savings by the end of fiscal year 2016. This plan included savings from a  change in the delivery schedule; however, USPS has now put all changes  in delivery service on hold, which will reduce its ability to achieve the full  5-year business plan savings. To increase revenue, USPS is working to increase use of shipping and  package services. We recently reported that USPS is pursuing 55 initiatives to generate  revenue. We found that USPS’s mail  processing network exceeds what is needed for declining mail volume. Concluding Observations

In summary, to improve its financial situation, USPS needs to reduce its  expenses to close its gap between revenue and expenses, repay its  outstanding debt, continue funding its retirement obligations, and increase  capital for investment, such as replacing its aging vehicle fleet. In  addition, as noted in prior reports, congressional action is needed to (1)  modify USPS’s retiree health benefit payments in a fiscally responsible  manner; (2) facilitate USPS’s ability to align costs with revenues based on  changing workload and mail use; and (3) require that any binding  arbitration resulting from collective bargaining takes USPS’s financial  condition into account. As we have continued to underscore, Congress  and USPS need to reach agreement on a comprehensive package of  actions to improve USPS’s financial viability. In previous reports, we have  provided strategies and options, to both reduce costs and enhance  revenues, that Congress could consider to better align USPS costs with  revenues and address constraints and legal restrictions that limit USPS’s  ability to reduce costs and improve efficiency; we have also reported on  implications for addressing USPS’s benefit liabilities. If Congress does not  act soon, USPS could be forced to take more drastic actions that could  have disruptive, negative effects on its employees, customers, and the  availability of reliable and affordable postal services.
Why GAO Did This Study

USPS is in a serious financial crisis as its declining mail volume has not generated sufficient revenue to cover its expenses and financial obligations. First-Class Mail--which is highly profitable and generates the majority of the revenues used to cover overhead costs--declined 33 percent since it peaked in fiscal year 2001, and USPS projects a continued decline through fiscal year 2020. Mail volume decline is putting USPS's mission of providing prompt, reliable, and efficient universal services to the public at risk.
This testimony discusses (1) USPS's financial condition, (2) initiatives to reduce costs and increase revenues, and (3) actions needed to improve USPS's financial situation. The testimony is based primarily on GAO's past and ongoing work, its analysis of USPS's recent financial results, and recent information on USPS's proposal for a change in delivery service.
In previous reports, GAO has provided strategies and options that USPS and Congress could consider to better align USPS costs with revenues and address constraints and legal restrictions that limit USPS's ability to reduce costs and improve efficiency. GAO has also stated that Congress and USPS need to reach agreement on a comprehensive package of actions to improve USPS's financial viability.

What GAO Found

The U.S. Postal Service (USPS) continues to incur unsustainable operating deficits, has not made required payments of $11.1 billion to prefund retiree health benefits, and has reached its $15 billion borrowing limit. Thus far, USPS has been able to operate within these constraints, but now faces a critical shortage of liquidity that threatens its financial solvency and ability to finance needed capital investment. USPS had an almost 25 percent decline in total mail volume and net losses totaling $40 billion since fiscal year 2006. While USPS achieved about $15 billion in savings and reduced its workforce by about 168,000 over this period, its debt and unfunded benefit liabilities grew to $96 billion by the end of fiscal year 2012. USPS expects mail volume and revenue to continue decreasing as online bill communication and e-commerce expand.
USPS has several initiatives to reduce costs and increase its revenues. To reduce costs, USPS announced a 5-year business plan in February 2012 with the goal of achieving $22.5 billion in annual cost savings by the end of fiscal year 2016, which included a proposed change in the delivery schedule. USPS has now put all changes in delivery service on hold, which will reduce its ability to achieve the full 5-year business plan savings. USPS has begun implementing other parts of the plan, which includes needed changes to its network. To achieve greater savings, USPS's Board of Governors recently directed postal management to accelerate these efforts. To increase revenue, USPS is pursuing 55 initiatives. While USPS expects shipping and package services to continue to grow, such growth is not expected to fully offset declining mail volume.
USPS needs to reduce its expenses to avoid even greater financial losses, repay its outstanding debt, continue funding its retirement obligations, and increase capital for investment, including replacing its aging vehicle fleet. Also, Congress needs to act to (1) modify USPS's retiree health benefit payments in a fiscally responsible manner; (2) facilitate USPS's ability to align costs with revenues based on changing workload and mail use; and (3) require that any binding arbitration resulting from collective bargaining takes USPS's financial condition into account. No one action in itself will address USPS's financial condition; GAO has previously recommended a comprehensive package of actions. If Congress does not act soon, USPS could be forced to take more drastic actions that could have disruptive, negative effects on its employees, customers, and the availability of postal services. USPS also reported that it may need to prioritize payments to employees and suppliers ahead of those to the federal government.