This is the accessible text file for GAO report number GAO-11-244T 
entitled 'U.S. Postal Service: Legislation Needed to Address Key 
Challenges' which was released on December 2, 2010. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as 
part of a longer term project to improve GAO products' accessibility. 
Every attempt has been made to maintain the structural and data 
integrity of the original printed product. Accessibility features, 
such as text descriptions of tables, consecutively numbered footnotes 
placed at the end of the file, and the text of agency comment letters, 
are provided but may not exactly duplicate the presentation or format 
of the printed version. The portable document format (PDF) file is an 
exact electronic replica of the printed version. We welcome your 
feedback. Please E-mail your comments regarding the contents or 
accessibility features of this document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

United States Government Accountability Office:
GAO: 

Testimony: 

Before the Subcommittee on Federal Financial Management, Government 
Information, Federal Services, and International Security, Committee 
on Homeland Security and Governmental Affairs, U.S. Senate: 

For Release on Delivery: 
Expected at 10:00 a.m. EST: 
Thursday, December 2, 2010: 

U.S. Postal Service: 

Legislation Needed to Address Key Challenges: 

Statement of Phillip Herr, Director:
Physical Infrastructure Issues: 

GAO-11-244T: 

GAO Highlights: 

Highlights of GAO-11-244T, a testimony before the Subcommittee on 
Federal Financial Management, Government Information, Federal 
Services, and International Security, Committee on Homeland Security 
and Governmental Affairs, U.S. Senate. 

Why GAO Did This Study: 

The U.S. Postal Serviceís (USPS) financial condition and outlook 
deteriorated sharply during fiscal years 2007 through 2009. USPS 
actions to cut costs and increase revenues were insufficient to offset 
declines in mail volume and revenues. Mail volume declined from 213 
billion pieces in fiscal year 2006, to 171 billion pieces in fiscal 
year 2010-óor about 20 percent. Volume declines resulted from the 
recession and changes in the use of mail as transactions and messages 
continued to shift to electronic alternatives. In this environment, 
USPS initiatives to increase revenues had limited results. 

USPS expects mail volume to decline further to about 150 billion 
pieces by 2020. This trend exposes weaknesses in USPSís business 
model, which has relied on growth in mail volume to help cover costs. 
GAO and others have reported on options for improving USPSís financial 
condition, including GAOís April 2010 report on USPSís business model 
(GAO-10-455). Recently, legislation has been introduced that addresses 
USPSís finances and the need for flexibility to help modernize 
operations. 

This testimony discusses (1) updated information on USPSís financial 
condition and outlook, (2) the need to modernize and restructure USPS, 
and (3) key issues that need to be addressed by postal legislation. It 
is based primarily on GAOís past and ongoing work. In comments on our 
statement, USPS generally agreed with its accuracy and provided 
technical comments that were incorporated as appropriate. 

What GAO Found: 

USPSís financial condition continued to decline in fiscal year 2010 
and its financial outlook is poor for fiscal year 2011 and the 
foreseeable future. Key results for fiscal year 2010 included total 
revenue of $67.1 billion and total expenses of $75.6 billion, 
resulting in: 

* a record loss of $8.5 billionóup $4.7 billion from fiscal year 2009, 

* a $1.8 billion increase in outstanding debt to the Treasury, thus 
making the total outstanding debt $12 billion, and, 

* a $1.2 billion cash balance at the end of the fiscal year. 

USPSís budget for fiscal year 2011 projects: 

* a $6.4 billion loss, 

* a $3 billion increase in debt to the $15 billion statutory limit, 
and, 

* an end-of-year cash shortfall of $2.7 billion. 

USPS has reported achieving close to $13 billion in cost savings in 
the past 5 fiscal years. However, as its most profitable core product, 
First-Class Mail, continues to decline, USPS must modernize and 
restructure to become more efficient, control costs, keep rates 
affordable, and meet changing customer needs. To do so, USPS needs to 
become much leaner and more flexible. Key challenges include: changing 
use of the mail; compensation and benefit costs that are close to 80 
percent of total costs; difficulties realigning networks to remove 
costly excess capacity and improve efficiency; constrained capital 
investment, which has declined to one of the lowest levels in two 
decades and led to delays in buying new vehicles; lack of borrowing 
capacity when USPS reaches its statutory debt limit; and large 
unfunded financial obligations and liabilities of roughly $100 billion 
at the end of fiscal year 2010. 

Proposed postal legislation, including S. 3831, provides a starting 
point for addressing key issues facing USPS and facilitating changes, 
such as rightsizing networks, that will take time to implement and 
produce results. Also, decisions on postal issues may involve trade-
offs related to USPSís role as a federal entity expected to provide 
universal postal service while being self-financing through 
businesslike operations. Three key areas addressed by the bill include 
compensation and benefits; rightsizing USPS networks and workforce; 
and whether to allow USPS to expand its nonpostal activities. For 
example, resolving large USPS funding requirements for retiree health 
benefits is important, while continuing to prefund retiree health 
benefits to the extent USPSís finances permit. It is equally important 
to address constraints and legal restrictions, such as those related 
to closing facilities, so that USPS can take more aggressive action to 
reduce costs. Allowing USPS to expand into nonpostal activities raises 
issues of how to mitigate risks associated with new lines of business, 
assure fair competition with the private sector, and how to finance 
such efforts. Congress and USPS urgently need to take action to 
restore USPSís financial viability as business and consumer use of the 
mail continues to evolve. 

View [hyperlink, http://www.gao.gov/products/GAO-11-244T] or key 
components. For more information, contact Phillip Herr at (202) 512-
2834 or herrp@gao.gov. 

[End of section] 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to participate in this hearing on 
proposed legislation[Footnote 1] to address the U.S. Postal Service's 
(USPS) challenges to remain self-supporting while providing effective 
and efficient universal postal service to the nation. My statement 
will discuss (1) updated information on USPS's financial condition and 
outlook, (2) the need to modernize and restructure USPS, and (3) key 
issues that need to be addressed by postal legislation. 

This statement is based on our past and ongoing work, including our 
reviews of USPS's business model,[Footnote 2] financial condition, 
networks, service, and postal reform issues. We interviewed USPS 
officials and reviewed the POST Act of 2010; USPS's audited financial 
statements for the fiscal year ended September 30, 2010; and other 
reports, testimonies, and communications on USPS's financial 
condition, operations, and outlook.[Footnote 3] We conducted this 
performance audit in November 2010 in accordance with generally 
accepted government auditing standards. Those standards require that 
we plan and perform the audit to obtain sufficient, appropriate 
evidence to provide a reasonable basis for our findings and 
conclusions based on our audit objectives. We believe that the 
evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

USPS's Financial Condition Continues to Decline and Its Financial 
Outlook Is Poor: 

USPS's financial condition continued to decline over the past fiscal 
year and its financial outlook is poor for fiscal year 2011 and the 
foreseeable future. Key USPS results for fiscal year 2010 included a 
$1.0 billion decline in total revenue to $67.1 billion, and a $3.7 
billion increase in total expenses to $75.6 billion, resulting in: 

* a record loss of about $8.5 billion, 

* a $1.8 billion increase in outstanding debt (which left $1.2 billion 
of available borrowing authority),[Footnote 4] 

* a total of $12 billion in outstanding debt due to the Treasury, 
[Footnote 5] and: 

* a $1.2 billion cash balance at the end of the fiscal year. 

* USPS has recently released its budget for fiscal year 2011, 
projecting: 

* a $6.4 billion loss (see figure 1)--one of the largest in USPS 
history--including the impact of a $5.5 billion payment due in 2011 to 
prefund retiree health benefits; 

* a $3 billion increase in outstanding debt due to the Department of 
the Treasury (Treasury), thereby reaching its $15 billion statutory 
limit; and: 

* a $2.7 billion cash shortfall at the end of the fiscal year. 

Figure 1: USPS Net Income, Fiscal Years 1972 through 2011: 

[Refer to PDF for image: vertical bar graph] 

Dollars in billions: 

Fiscal Year: 1972; 
Actual Net Income (Loss): ($175). 

Fiscal Year: 1973; 
Actual Net Income (Loss): ($13). 

Fiscal Year: 1974; 
Actual Net Income (Loss): ($439). 

Fiscal Year: 1975; 
Actual Net Income (Loss): ($989). 

Fiscal Year: 1976; 
Actual Net Income (Loss): ($1,176). 

Fiscal Year: 1977; 
Actual Net Income (Loss): ($687). 

Fiscal Year: 1978; 
Actual Net Income (Loss): ($380). 

Fiscal Year: 1979; 
Actual Net Income (Loss): $470. 

Fiscal Year: 1980; 
Actual Net Income (Loss): ($306). 

Fiscal Year: 1981; 
Actual Net Income (Loss): ($588). 

Fiscal Year: 1982; 
Actual Net Income (Loss): $802. 

Fiscal Year: 1983; 
Actual Net Income (Loss): $616. 

Fiscal Year: 1984; 
Actual Net Income (Loss): $118. 

Fiscal Year: 1985; 
Actual Net Income (Loss): ($251). 

Fiscal Year: 1986; 
Actual Net Income (Loss): $304v 

Fiscal Year: 1987; 
Actual Net Income (Loss): ($223). 

Fiscal Year: 1988; 
Actual Net Income (Loss): ($597). 

Fiscal Year: 1989; 
Actual Net Income (Loss): $61. 

Fiscal Year: 1990; 
Actual Net Income (Loss): ($874). 

Fiscal Year: 1991; 
Actual Net Income (Loss): ($1,469). 

Fiscal Year: 1992; 
Actual Net Income (Loss): ($536). 

Fiscal Year: 1993; 
Actual Net Income (Loss): ($1,765). 

Fiscal Year: 1994; 
Actual Net Income (Loss): ($914). 

Fiscal Year: 1995; 
Actual Net Income (Loss): $1,770. 

Fiscal Year: 1996; 
Actual Net Income (Loss): $1,567. 

Fiscal Year: 1997; 
Actual Net Income (Loss): $1,264. 

Fiscal Year: 1998; 
Actual Net Income (Loss): $550. 

Fiscal Year: 1999; 
Actual Net Income (Loss): $363. 

Fiscal Year: 2000; 
Actual Net Income (Loss): ($199). 

Fiscal Year: 2001; 
Actual Net Income (Loss): ($1,680). 

Fiscal Year: 2002; 
Actual Net Income (Loss): ($676). 

Fiscal Year: 2003; 
Actual Net Income (Loss): $3,868. 

Fiscal Year: 2004; 
Actual Net Income (Loss): $3,065. 

Fiscal Year: 2005; 
Actual Net Income (Loss): $1,445. 

Fiscal Year: 2006; 
Actual Net Income (Loss): $900. 

Fiscal Year: 2007; 
Actual Net Income (Loss): ($5,142). 

Fiscal Year: 2008; 
Actual Net Income (Loss): ($2,806). 

Fiscal Year: 2009; 
Actual Net Income (Loss): ($3,794). 

Fiscal Year: 2010; 
Actual Net Income (Loss): ($8,500). 

Fiscal Year: 2011; 
Projected Net Income (Loss): ($6,400). 

Source: USPS. 

[End of figure] 

USPS's revenue drop in fiscal year 2010 was driven by continuing 
declines in total mail volume. In fiscal year 2010, mail volume 
decreased about 6 billion pieces from the previous fiscal year to 171 
billion pieces. This volume was about 20 percent below the peak of 213 
billion pieces delivered during fiscal year 2006. Most of the volume 
declines were in profitable First-Class Mail--which were particularly 
significant because the average piece of First-Class Mail generated 
about three times the profitability of the average piece of Standard 
Mail.[Footnote 6] 

USPS currently projects mail volume to increase by about 2 billion 
pieces in fiscal year 2011. In this fiscal year, First-Class Mail is 
expected to decrease by 3 billion pieces, but Standard Mail is 
expected to increase by 5 billion pieces. With these volume changes 
and expected small rate increases,[Footnote 7] USPS projects revenues 
to increase $0.6 billion in fiscal year 2011. 

Meanwhile, USPS's expenses increased by $3.7 billion in fiscal year 
2010 compared to fiscal year 2009 for several reasons. First, in 
fiscal year 2010, USPS made its statutorily required payment of $5.5 
billion to prefund health benefits for its retirees, in contrast to 
fiscal year 2009 when Congress deferred all but $1.4 billion of USPS's 
scheduled payment of $5.4 billion.[Footnote 8] Second, USPS's workers' 
compensation costs in fiscal year 2010 were $3.6 billion, up $1.3 
billion from the previous fiscal year, primarily from the non-cash 
effect of changes in the discount rates used to estimate the 
liability. Third, results of USPS cost savings efforts in fiscal year 
2010 were insufficient to offset rising costs in other areas. 

According to USPS, it achieved a total of close to $13 billion in cost 
savings from fiscal years 2006 through 2010 (see fig. 2), primarily by 
reducing 280 million work hours and its workforce by 131,000 
employees. Most savings resulted from attrition, reductions in 
overtime, and changes in postal operations. USPS reported saving $3 
billion in fiscal year 2010, primarily because of a reduction of 75 
million work hours--half the savings achieved in fiscal year 2009. 
Looking forward, USPS projects cost savings of $2 billion in fiscal 
year 2011, primarily from continued attrition and associated savings. 

Figure 2: Cost Savings Reported by USPS, Fiscal Years 2006 through 
2011: 

[Refer to PDF for image: vertical bar graph] 

Fiscal year: 2006; 
Actual Cost savings: $0.3 billion. 

Fiscal year: 2007; 
Actual Cost savings: $1.2 billion. 

Fiscal year: 2008; 
Actual Cost savings: $2.2 billion. 

Fiscal year: 2009; 
Actual Cost savings: $6.1 billion. 

Fiscal year: 2010; 
Actual Cost savings: $3.0 billion. 

Fiscal year: 2011; 
Projected Cost savings: $2.0 billion. 

Source: USPS data. 

[End of figure] 

Further Actions Are Needed to Modernize and Restructure USPS: 

As its core product--First-Class Mail--continues to decline, USPS must 
modernize and restructure to become more efficient, control costs, 
keep rates affordable, and meet changing customer needs. To do so, 
USPS will need to become much leaner and more flexible. Key challenges 
include the following: 

* Mail volume and changing use of the mail: USPS projects mail volume 
to continue declining to about 150 billion pieces by fiscal year 2020--
about 30 percent below its 2006 peak. Most of the declines are 
projected to be in profitable First-Class Mail. Use of the mail is 
changing as communications and payments continue to shift to 
electronic alternatives--a shift that is being facilitated by rapid 
adoption of broadband. These trends expose weaknesses in USPS's 
business model, which has relied on volume growth to help cover costs. 

* Postal revenues: USPS expects revenue to stagnate in the next decade 
as continued declines in mail volume are offset by rate increases. 
Rate increases are generally limited by the inflationary price cap on 
market-dominant products that generate close to 90 percent of USPS 
revenue. 

* Compensation and benefit costs: Compensation and benefits, including 
retiree health benefits and workers' compensation, totaled about $60 
billion in fiscal year 2010, or close to 80 percent of USPS costs. 
USPS pays a higher share of employee health and life insurance 
premiums than other federal agencies. 

* Difficulties achieving network realignment: Realigning USPS's mail 
processing and retail facilities will be crucial for it to achieve 
sustainable cost reductions and productivity improvements, but limited 
progress has been made in rightsizing these networks to eliminate 
costly excess capacity. Although USPS is working to consolidate some 
mail processing operations, it has closed few large mail processing 
facilities since 2005. Similarly, its network of post offices and 
postal retail facilities has remained largely static despite expanded 
use of retail alternatives and population shifts. 

* Capital investment: Continuing losses from operations have 
constrained funds for USPS capital investment. USPS's purchases of 
capital property and equipment and building improvements have declined 
in recent years, from $1.8 billion in fiscal year 2009 to $1.4 billion 
in fiscal year 2010. The deferral of maintenance could impede 
modernization and efficiency gains from optimizing mail processing, 
retail, and delivery networks. Further, USPS has delayed buying new 
delivery vehicles for lack of capital resources. We have an ongoing 
review of USPS's delivery fleet of about 185,000 vehicles, including 
about 140,000 long-life vehicles purchased in the late 1980s and early 
1990s that are nearing the end of their 24-year expected operating 
time frame. USPS has estimated replacing its delivery fleet will cost 
about $5 billion. 

* Lack of borrowing capacity: USPS expects to increase its outstanding 
debt to Treasury during fiscal year 2011 by $3 billion, thereby 
reaching its total statutory debt limit of $15 billion. Even with this 
debt increase, USPS projects a cash shortfall at the end of this 
fiscal year. Its cash outlook is uncertain, as indicated by recent 
experience. USPS reported in August 2010 that it "would likely 
experience a cash shortfall if legislation similar to that passed in 
September 2009 is not passed."[Footnote 9] USPS ended fiscal year 2010 
with cash of about $1.2 billion and remaining annual borrowing 
authority of an additional $1.2 billion, or slightly more than the 
funds needed for one biweekly payroll. USPS projects it will have 
insufficient cash at the end of fiscal year 2011 to meet all of its 
obligations. 

* Large unfunded financial obligations and liabilities: USPS's 
unfunded obligations and liabilities were roughly $100 billion at the 
end of fiscal year 2010. Looking forward, USPS will continue to be 
challenged by these financial obligations and liabilities, together 
with expected large financial losses and long-term declines in First-
Class Mail volume. 

Key Issues Need to Be Addressed by Postal Legislation: 

Proposed postal legislation, including S. 3831, provides a starting 
point for considering key issues where congressional decisions are 
needed to help USPS undertake needed reforms. This bill is based on 
legislative proposals USPS made this past spring. Resolving large USPS 
funding requirements for pension and retiree health benefits is 
important. It is equally important to USPS's future to address 
constraints and legal restrictions, such as those related to closing 
facilities, so that USPS can take more aggressive action to reduce 
costs. Urgent action is needed as some changes, such as rightsizing 
networks, will take time to implement and produce results. In 
addition, including incentives and oversight mechanisms would make an 
important contribution to assuring an appropriate balance between 
providing USPS with more flexibility and assuring sufficient 
transparency, oversight, and accountability. 

Congressional decisions may involve difficult trade-offs related to 
USPS's role as a federal entity expected to provide universal mail 
delivery and ready access to postal retail service while being self- 
financing through businesslike operations. Future USPS actions and 
other stakeholder actions are expected to be informed and guided based 
on congressional decisions related to public policy questions, such as: 

* Benefits: What changes, if any, should be made to USPS pension and 
retiree health benefit obligations and payment schedules? What would 
be the impact on the federal budget? 

* Delivery: Should the long-standing requirement for Saturday delivery 
be dropped so USPS can implement its proposal to reduce delivery 
frequency to 5 days a week? What would be the specific effects on 
operations, costs, workforce mix, employees, service, competition, the 
value of mail, mail volume, and revenue? How would shifting to 5-day 
delivery affect customers including business mailers and the public? 

* Post office closings: Should USPS have greater flexibility to 
rightsize its retail networks and workforce, which may involve closing 
post offices and moving retail services to alternative commercial 
locations that are often open more days and longer hours than postal 
facilities? Or should USPS retain its retail facilities and provide 
new nonpostal products and services? 

* Nonpostal products: Should USPS be allowed to offer new nonpostal 
products and services that compete with private-sector firms? If so, 
how should fair competition be assured? Would it need additional 
capital for such initiatives? If so, how would they be financed? 

* Processes for change: What role should Congress, the PRC, USPS, 
employees, and customers, including business mailers and the public, 
have in decisions on postal policy issues? What incentives and 
oversight mechanisms are needed as part of congressional actions to 
assure an appropriate balance between providing USPS with more 
flexibility and assuring sufficient transparency, oversight, and 
accountability? 

We have discussed several options that Congress and USPS could 
consider in a report we issued last April,[Footnote 10] and are 
currently conducting a congressionally requested review of USPS's 5-
day delivery proposal. In this testimony, we will highlight some 
options related to three areas that are also addressed by S. 3831--
compensation and benefits, rightsizing networks and workforce, and 
expanding nonpostal activities. 

Postal Compensation and Benefits: 

S. 3831 addresses key retiree health and pension benefit issues. 
Specifically, it requires OPM to recalculate USPS's CSRS pension 
obligation in a way expected to make the federal government 
responsible for a greater share of USPS's CSRS pension obligation. The 
bill also authorizes the USPS Board of Governors to transfer any part 
of a resulting pension surplus to the Postal Service Retiree Health 
Benefits Fund. The sponsor of S. 3831 has estimated that these 
legislative changes could result in an increase in the government's 
pension obligations of approximately $50 billion. Such an increase 
could impact the federal budget deficit and require funding over time. 

USPS has said it cannot afford its required prefunding payments to the 
retiree health benefit fund on the basis of its significant volume and 
revenue declines, large losses, debt nearing its limit, and limited 
cost-cutting opportunities under its current authority. We have 
reported that Congress should consider providing financial relief to 
USPS, including modifying its retiree health benefit cost structure in 
a fiscally responsible manner.[Footnote 11] Several legislative 
proposals have been made to defer costs by revising statutory 
requirements, including extending and revising prefunding payments to 
the Retiree Health Benefits Fund, with smaller payment amounts in the 
short term followed by larger amounts later. Deferring some prefunding 
of these benefits would serve as short-term fiscal relief. However, 
deferrals also increase the risk that USPS will not be able to make 
future benefit payments as its core business declines. Therefore, it 
is important that USPS fund its retiree health benefit obligations-- 
including prefunding these obligations--to the maximum extent that its 
finances permit. In addition to considering what is affordable and a 
fair balance of payments between current and future ratepayers, 
Congress would also have to address the impact of these proposals on 
the federal budget. Further, the Congressional Budget Office has 
raised concerns about how aggressive USPS's cost-cutting measures 
would be if prefunding payments for retiree health care were reduced. 
[Footnote 12] 

Congress could revisit other aspects of the postal compensation and 
benefits framework. USPS is required to maintain compensation and 
benefits comparable to the private sector, a requirement that has been 
a source of disagreement between USPS and its unions in collective 
bargaining and binding arbitration. If USPS and its unions go to 
arbitration, there is no statutory requirement for arbitrators to 
consider USPS's financial condition. We continue to favor such an 
arbitration requirement. The law also requires USPS's fringe benefits 
to be at least as favorable as those in effect when the Postal 
Reorganization Act of 1970[Footnote 13] was enacted. Career employees 
participate in federal pension and benefit programs, and USPS covers a 
higher proportion of its employees' health care and life insurance 
premiums than most other federal agencies. USPS is also required by 
law to participate in the federal workers' compensation program, and 
some benefits paid exceed those provided in the private sector. 
Furthermore, USPS employees in this program can choose not to retire 
when they become eligible to retire, and they often decide to remain 
on the more generous workers' compensation rolls. 

Rightsizing USPS's Networks and Workforce: 

Congressional action is needed to speed USPS's progress in rightsizing 
its networks and workforce, and S. 3831 seeks to address these issues. 
Such progress is limited by both stakeholder resistance and statutory 
requirements. USPS has costly excess capacity and inadequate 
flexibility to quickly reduce costs in its processing and retail 
networks. USPS has faced formidable resistance to facility closures 
and consolidations because of concerns about possible effects on 
service, employees, and communities, particularly in small towns or 
rural areas. We have suggested that Congress consider establishing a 
panel similar to the military Base Realignment and Closure Commissions 
to facilitate action and progress. Such panels have successfully 
informed prior difficult restructuring decisions. The panel could 
consider options for USPS's networks including the following: 

* Mail processing: Decisions to maintain or close facilities are best 
made in the context of a comprehensive, integrated approach for 
optimizing the processing network. Issues include how to inform 
Congress and the public, address resistance, and ensure employees will 
be treated fairly. Related issues include whether to relax current 
delivery standards to enable additional facility closures and 
associated savings. 

* Retail: USPS has retained most of its retail facilities in recent 
years despite the growing use of less costly alternatives to 
traditional post offices, such as self-service kiosks and stamp sales 
in grocery stores, drug stores, and over the Internet. USPS has called 
for statutory changes to facilitate modernizing its retail services. 

Expanding USPS Nonpostal Activities: 

USPS has asked Congress to change the law so it can diversify into 
nonpostal areas to find new opportunities for revenue growth, and S. 
3831 would authorize such action. This could involve USPS entering 
into new business areas or earning revenues from partners selling 
nonpostal products at USPS facilities. About 10 years ago, we reported 
that USPS incurred losses on early electronic commerce and other 
nonpostal initiatives, and its management of its electronic commerce 
initiatives was fragmented, with inconsistent implementation and 
incomplete financial information.[Footnote 14] Congress then 
restricted USPS from engaging in new nonpostal activities in the 
Postal Accountability and Enhancement Act of 2006.[Footnote 15] 
Allowing USPS to expand into new nonpostal activities would raise 
issues about the areas in which it should be allowed to compete with 
the private sector, how to assure fair competition, how to mitigate 
risks associated with entering new lines of business, and how to 
finance such efforts. Related issues could include whether USPS's 
mission and role as a government entity with a monopoly[Footnote 16] 
should be changed, what transparency and accountability would apply, 
whether USPS would be subject to the same regulatory entities and 
regulations as its competitors, and whether losses would be borne by 
postal ratepayers or taxpayers. 

A senior USPS official told us that USPS is studying various 
possibilities for introducing new products and services. A continued 
issue is whether USPS would make money if it was allowed to compete in 
new nonpostal areas. USPS has reported that if it could enter such 
areas, such as banking or sales of consumer goods, its opportunities 
would be limited by its high cost structure and the relatively light 
customer traffic of post offices compared with commercial retailers. 
(There are 600 weekly counter customers at the average post office, 
compared to 20,000 at the average major supermarket, according to 
USPS.) USPS has said that the possibility of building a sizable 
presence in logistics, banking, integrated marketing, and document 
management was currently not viable because of its net losses, high 
wage and benefit costs, and limited access to cash to support 
necessary investment. USPS concluded that building a sizable business 
in any of these areas would require "time, resources, new capabilities 
(often with the support of acquisitions or partnerships) and profound 
alterations to the postal business model."[Footnote 17] 

In summary, the need for postal reform continues as business and 
consumer use of the mail continues to evolve. Congress and USPS 
urgently need to reach agreement on a package of actions to restore 
USPS's financial viability and enable it to begin making necessary 
changes. 

Mr. Chairman, that concludes my prepared statement. I would be pleased 
to answer any questions that you or other Members of the Subcommittee 
may have. 

Contact and Staff Acknowledgments: 

For further information about this statement, please contact Phillip 
Herr at (202) 512-2834 or herrp@gao.gov. Individuals who made key 
contributions to this statement include Joseph Applebaum, Chief 
Actuary; Susan Ragland, Director, Financial Management and Assurance; 
Amy Abramowitz; Teresa Anderson; Joshua Bartzen; Kenneth John; Hannah 
Laufe; SaraAnn Moessbauer; Robert Owens; Crystal Wesco; and Jarrod 
West. 

[End of section] 

Footnotes: 

[1] Postal Operations Sustainment and Transformation Act of 2010 (POST 
Act of 2010), S. 3831, 111th Cong. (2010). 

[2] GAO, U.S. Postal Service: Strategies and Options to Facilitate 
Progress toward Financial Viability, [hyperlink, 
http://www.gao.gov/products/GAO-10-455] (Washington, D.C.: Apr. 12, 
2010). 

[3] Our review included considering information from: USPS audited 
financial statements and other information in the annual reports for 
the fiscal year ended September 30, 2010, including the report filed 
with the Postal Regulatory Commission (PRC) on Form 10-K dated 
November 15, 2010; USPS quarterly reports filed with the PRC on Form 
10-Q for the periods ended June 30, 2010; March 31, 2010; and December 
31, 2009; and the USPS Fiscal Year 2011 Integrated Financial Plan. 

[4] The statutory limit on annual increases in USPS outstanding debt 
is $3 billion. 39 U.S.C. ß 2005(a). 

[5] The statutory limit on total USPS outstanding debt is $15 billion. 
39 U.S.C. ß 2005(a). 

[6] First-Class Mail consists of single-piece mail (e.g., bill 
payments and letters) and bulk mail (e.g., bills, statements, and 
advertising). Standard Mail is mainly bulk advertising and direct mail 
solicitations. 

[7] USPS projects a small average rate increase for market-dominant 
products by the limit it expects under the inflation-based price cap. 
These products primarily include First-Class Mail, Standard Mail, 
Periodicals (mainly magazines and local newspapers), and some types of 
Package Services (primarily single-piece Parcel Post, Media Mail, 
library mail, and bound printed matter). 

[8] Pub. L. No. 111-68, ß 164(a), 123 Stat. 2023 (Oct. 1, 2009). 

[9] The September 2009 legislation deferred $4 billion from USPS's 
statutorily required payment to prefund retiree health benefits, 
reducing it from $5.4 billion to $1.4 billion. Pub. L. No. 111-68, ß 
164(a), 123 Stat. 2023 (Oct. 1, 2009). 

[10] [hyperlink, http://www.gao.gov/products/GAO-10-455]. 

[11] [hyperlink, http://www.gao.gov/products/GAO-10-455]. 

[12] Congressional Budget Office, H.R. 22: United States Postal 
Service Financial Relief Act of 2009 (Washington, D.C.: July 20, 
2009); S. 1507: Postal Service Retiree Health Benefits Funding Reform 
Act of 2009 (Washington, D.C., Sept. 14, 2009). 

[13] The Postal Reorganization Act eliminated the Post Office 
Department and created the United States Postal Service. Pub. L. No. 
91-375, 84 Stat. 719 (Aug. 12, 1970). 

[14] GAO, U.S. Postal Service: Development and Inventory of New 
Products, [hyperlink, http://www.gao.gov/products/GAO/GGD-99-15] 
(Washington, D.C.: Nov. 24, 1998); U.S. Postal Service: Update on E-
Commerce Activities and Privacy Protections, [hyperlink, 
http://www.gao.gov/products/GAO-02-79] (Washington, D.C.: Dec. 21, 
2001); U.S. Postal Service: Postal Activities and Laws Related to 
Electronic Commerce, [hyperlink, 
http://www.gao.gov/products/GAO/GGD-00-188] (Washington, D.C.: Sept. 
7, 2000). 

[15] Pub. L. No. 109-435, 120 Stat. 3198 (Dec. 20, 2006). 

[16] USPS has a monopoly over delivery of certain types of letter mail 
and access to mail boxes. 

[17] United States Postal Service, Ensuring a Viable Postal Service 
for America: An Action Plan for the Future (Washington, D.C., March 
2010). This plan is available at the following Web address: 
[hyperlink, 
http://www.usps.com/strategicplanning/_pdf/ActionPlanfortheFuture_March2
010.pdf] (accessed on Nov. 23, 2010). 

[End of section] 

GAO's Mission: 

The Government Accountability Office, the audit, evaluation and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the performance 
and accountability of the federal government for the American people. 
GAO examines the use of public funds; evaluates federal programs and 
policies; and provides analyses, recommendations, and other assistance 
to help Congress make informed oversight, policy, and funding 
decisions. GAO's commitment to good government is reflected in its core 
values of accountability, integrity, and reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each 
weekday, GAO posts newly released reports, testimony, and 
correspondence on its Web site. To have GAO e-mail you a list of newly 
posted products every afternoon, go to [hyperlink, http://www.gao.gov] 
and select "E-mail Updates." 

Order by Phone: 

The price of each GAO publication reflects GAOís actual cost of
production and distribution and depends on the number of pages in the
publication and whether the publication is printed in color or black and
white. Pricing and ordering information is posted on GAOís Web site, 
[hyperlink, http://www.gao.gov/ordering.htm]. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card,
MasterCard, Visa, check, or money order. Call for additional 
information. 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 

Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]: 
E-mail: fraudnet@gao.gov: 
Automated answering system: (800) 424-5454 or (202) 512-7470: 

Congressional Relations: 

Ralph Dawn, Managing Director, dawnr@gao.gov: 
(202) 512-4400: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7125: 
Washington, D.C. 20548: 

Public Affairs: 

Chuck Young, Managing Director, youngc1@gao.gov: 
(202) 512-4800: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7149: 
Washington, D.C. 20548: