This is the accessible text file for GAO report number GAO-02-694T
entitled 'U.S. Postal Service: Moving Forward on Financial and
Transformation Challenges' which was released on May 13, 2002.
This text file was formatted by the U.S. General Accounting 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 General Accounting Office:
GAO:
Testimony:
Before the Subcommittee on International Security, Proliferation and
Federal Services, Committee on Governmental Affairs, U.S. Senate:
For Release on Delivery:
10:00 a.m. EDT:
Monday, May 13, 2002:
U.S. Postal Service:
Moving Forward on Financial and Transformation Challenges:
Statement of David M. Walker:
Comptroller General of the United States:
GAO-02-694T:
Mr. Chairman and Members of the Subcommittee: We are pleased to be
here today to participate in this hearing on the financial and
transformation challenges facing the U.S. Postal Service (the
Service). Since we discussed these issues about a year ago, when we
placed the Service's long-term outlook and transformation efforts on
our High-Risk List, the Service's financial situation has continued to
decline, and its operational challenges have increased. As we recently
reported, the need for a comprehensive transformation of the Service
is more urgent than ever.[Footnote 1] The Service has also recognized
the need for reexamining and changing its existing business model.
Last month, the Service took a good first step when it issued its
Transformation Plan. The plan provides a wealth of information about
the Service's challenges, identifies numerous actions the Service
plans to take under its existing authority, and outlines steps that
would require congressional action. At the same time, the plan does
not adequately address certain key issues or include an action plan
with key milestones, which will be critical to assuring success and
assessing progress. In my testimony today, I will focus on the
Service's current financial outlook, which includes updated
information since our report was issued. I will also offer
observations on the Service's Transformation Plan.
Summary:
Overall, the Service continues to have significant difficulties in
getting its financial house in order. Specifically:
* The catastrophic events of September 11 and subsequent use of the
mail to transmit anthrax, plus the recent economic slowdown, have
served to exacerbate the Service's financial difficulties by
decreasing mail volumes and revenues. Only time will tell how much of
this decline is temporary and how long it will last.
* Despite additional cost-cutting efforts in the first half of fiscal
year 2002, the Service's revenues declined approximately twice as fast
as its expenses, in part because the Service has large fixed expenses
that are difficult to cut in the short term.
* The Service's budget, prepared before September 11, estimated a
$1.35 billion deficit for fiscal year 2002, which was recently updated
to an approximately $1.5 billion deficit. The Service is headed for
its third consecutive annual deficit since fiscal year 2000 despite
multiple rate increases over this period.
* Productivity increases continue to be difficult to achieve and
sustain. During the first 2 quarters of fiscal year 2002, productivity
fell below budgeted targets. For example, in the first quarter, which
was affected by the extraordinary events of last fall, productivity
fell by 1.1 percent compared with a budgeted 1 percent increase. In
the second quarter, productivity rose by 1 percent but was budgeted to
rise by 1.5 percent.
* Cash flow difficulties continue. However, Service officials express
confidence that the Service can pay its bills in fiscal year 2002
through postal revenues and borrowing.
* The Service's debt is budgeted to rise to $12.9 billion by the end
of fiscal year 2002, up $1.6 billion from the previous year and only
$2.1 billion less than the $15 billion statutory limit. To put this
situation into context, one biweekly postal payroll exceeds $1
billion. In addition, as we testified a year ago, the Service does not
have a debt reduction plan.
* To conserve cash and limit debt, the Service has continued its
freeze on capital spending for most facility projects, resulting in a
growing backlog—a situation that is unsustainable. Meanwhile, total
capital outlays are budgeted to decline in fiscal year 2002 for the
third consecutive year to $2.2 billion. This level of capital
investment is inadequate for the Service to maintain and modernize its
infrastructure and meet other capital needs. It could also limit the
Service's ability to cut costs and achieve productivity gains as well
as undertake major transformation efforts involving its retail and
mail-processing infrastructure.
* As the Service considers its infrastructure and capital investment
needs, it has the opportunity to rationalize its infrastructure to
provide more points of service while also reducing costs associated
with "brick and mortar" facilities. Further, it can consider how best
to enhance mail safety and security as it assesses its facility needs.
* The Service's major liabilities and obligations are estimated at
close to $100 billion, which include liabilities for pensions,
workers' compensation benefits, and debt to the Treasury; and other
obligations for post-retirement health benefits.
* The Service's financial condition is deteriorating as it liabilities
continue to exceed its assets. The Service's governmental status
provides insulation from the bankruptcy process that would be
applicable to private sector companies in a similar condition.
Addressing the underlying factors that are driving the Service's
financial condition cannot be ignored and is in large part what
transformation must be about.
The Service's financial difficulties are not just a cyclical
phenomenon that will fade as the economy recovers. The Service's basic
business model, which assumes that rising mail volume will cover
rising costs and mitigate rate increases, is increasingly questionable
as mail volumes stagnate or deteriorate in an increasingly competitive
environment. For example, alternatives to hard-copy mail are
proliferating and include numerous alternatives such as electronic
mail, automated bill payment and electronic presentment, faxes, and
cell phones with rates that do not include extra charges for long-
distance minutes.
The Service's Transformation Plan recognized that postal costs are
rising faster than revenues and identified numerous actions that the
Service plans to take under its existing authority, notably through
cutting costs and improving productivity. Historically the Service has
had difficulties in cutting costs and achieving and sustaining
increases in its productivity. In addition, the Service faces growing
retirement-related costs and potentially significant costs to improve
the safety and security of the mail. The plan stated that the Service
expects to achieve $5 billion in savings and cost avoidance through
2006. However, it is unclear from the Service's Plan whether the cost
cutting goals will be sufficient for the Service to hold rates steady
from mid 2002 calendar year until 2004, as it has planned, and reduce
debt and finance needed capital investments. In addition, it is
unclear what the potential financial impact would be, particularly in
the short-term, from the Service's planned actions during the
transformation period. More specifically, it is unclear what the
impact of planned actions would be on annual revenues and expenses or
when financial benefits may be realized. Further detail on the costs
and time frames associated with specific initiatives would be useful
to better understand the financial impact of the Service's planned
actions.
Overall, the Postal Service is to be commended for raising key postal
reform issues in its Transformation Plan, suggesting near-term
legislative changes, and outlining the statutory model that the
Service would prefer for its long-term future. The plan contained many
good suggestions and planned actions on short-term actions to improve
efficiency. (See app. I for key problems that we have identified and
actions and milestones in the Service's Transformation Plan to address
them.) The plan also raised some difficult long-term issues, such as
the Service's legal requirements and practical constraints that limit
transformation efforts. Further, the plan's appendixes contained
useful descriptions of actions the Service plans to take, such as its
strategies to improve efficiency and develop a performance-based
culture. Other appendixes contained detailed background information
and discussed how foreign postal administrations have dealt with
similar postal reform issues.
However, the plan did not adequately address some key transformation
issues that will need to be addressed for any transformation effort to
be successful. These issues include the definition of universal postal
service; strategies to address certain human capital matters such as
postal pay comparability, performance management issues, management
bonus arrangements, and workforce deployment and utilization; the
Service's governance structure, transparency, and accountability
mechanisms; and what mechanisms would be best suited for making
progress on unresolved transformation issues. Although the
Transformation Plan recommended that Congress give the Service much
more flexibility, particularly in the ratemaking and new products
areas, it will be important that any additional flexibility be coupled
with an appropriate level of transparency and accountability.
Where do we go from here? As the Service's Transformation Plan
emphasizes, the Service can and should make progress on the specific
actions it can take under its existing authority. Much progress can be
made through exploring constructive partnerships and relationships
between the Service and other key stakeholders, such as the mailing
community and the Postal Rate Commission (PRC). We applaud these
parties for taking constructive steps in this direction. Similarly, we
encourage the Service and its major labor unions and management
associations to build on their post-September 11 working relationship
by working in a partnership fashion to discuss and move forward on
difficult human capital issues. The Service also needs to work with
Congress to address a range of unresolved transformation issues. More
specific steps, time frames, and information on expected financial
impacts is needed in order for Congress to effectively monitor the
Service's progress in implementing its plan.
Further, progress on comprehensive legislative reform has been
difficult to achieve, in part because numerous stakeholders have
divergent needs and concerns. Given the vital role of the nation's
postal system to the American people and businesses, I urge the
parties to find common ground in building a viable postal system for
the 21st century. The time has come for comprehensive and fundamental
reform. As we have stated previously, this will likely require a
special commission to address the most difficult and controversial
issues that must be addressed (e.g., defining universal service and
rationalizing infrastructure). Make no mistake about it, shared
sacrifice from all stakeholders will be necessary to achieve a
successful postal transformation.
The Service's Current Financial Situation:
Overall, the Service's financial condition has continued to decline.
Large deficits continue as volumes and revenues decline; rates and
debt are spiraling upward; capital needs are going unmet; and the
Service's liabilities exceed its assets. Despite multiple rate
increases, the Service's net income continually declined from fiscal
year 1995 through fiscal year 2001(see figure 1). The rate increase
implemented in 1995 averaged 10.2 percent and was the largest
percentage rate increase during this period. Costs, in general, have
been difficult to reduce in the short term since the Service has high
fixed costs, such as 6 days per week delivery of mail to approximately
138 million addresses—a figure that grows by nearly 2 million annually—
and maintenance of a national retail infrastructure of 38,000 post
offices, branches, and stations. The Service is also nearing its $15
billion statutory debt limit. To conserve cash, it is cutting back on
its capital outlays, which will hinder modernization of the Service's
infrastructure.
Figure 1: Postal Service Net Income/Losses from Fiscal Years 1972 to
2002 (Dollars in millions):
[Refer to PDF for image: vertical bar graph]
Net income/losses plotted for the fiscal years 1972 through 2002;
(actual for 1972-2001; budgeted for 2002).
Source: Postal Service.
[End of figure]
Factors Affecting the Service's Net Income for Fiscal Year 2002:
In its budget prepared before September 11, the Service estimated that
it would incur a $1.35 billion deficit in fiscal year 2002, and
recently updated its deficit estimate to approximately $1.5 billion.
The Service reported almost a $200 million deficit for the first 2
quarters of fiscal year 2002 combined. The Service recently estimated
that it would lose an additional $400 million to $800 million in the
third quarter. Similarly, the Service has not updated its outlook for
the fourth quarter—which has a budgeted $1.4 billion deficit.[Footnote
2] It should also be noted that mail volumes in the third and fourth
quarters might fall below the budget targets if current trends persist.
Further, productivity increases continue to be difficult to achieve
and sustain. During the first 2 quarters of fiscal year 2002,
productivity fell below budgeted targets. For example, in the first
quarter, which was affected by the extraordinary events of last fall,
productivity fell by 1.1 percent, compared with a budgeted 1 percent
increase. In the second quarter, productivity rose by 1 percent but
was budgeted to rise by 1.5 percent. Productivity targets for the
remainder of this fiscal year are budgeted to decline.
On the other hand, the fourth quarter deficit is estimated to be
offset by about $1 billion in additional revenues from the rate
increase scheduled to occur June 30, 2002. Thus, the Service will have
implemented multiple rate increases since January 2001 (see table 1).
The scheduled increase averages 7.7 percent for all rates. In
addition, the price of a First-Class stamp will increase by 3 cents,
that is—an 8.8 percent increase. Despite this rate increase, the
Service is headed for its third consecutive annual deficit.
Table 1: 2001 and 2002 Rate Increases:
Date: January 7, 2001;
Details of rate increases: Service implemented rate increases
averaging 4.6 percent, with a 1-cent increase in the First-Class stamp
rate to 34 cents.
Date: July 1, 2001;
Details of rate increases: Service implemented rate increases
averaging 1.6 percent.
Date: June 30, 2002;
Details of rate increases: Service is to implement rate increases
averaging 7.7 percent, with a 3-cent increase in the First-Class stamp
rate to 37 cents.
Source: Postal Service.
[End of table]
The Service's poor financial outlook for fiscal year 2002 was
compounded by further declines in mail volume in the wake of incidents
of terrorism, including anthrax in the mail, and the economic
slowdown. Total mail volume declined 4.5 percent in the first 2
quarters of fiscal year 2002, compared with the first 2 quarters in
the previous fiscal year, while total revenues declined 0.4 percent-—a
revenue decline that was mitigated by rate increases implemented in
January and July 2001 that averaged a cumulative 6.2 percent. Mail
volumes declined in the first 2 quarters of fiscal year 2002 for First-
Class Mail, Priority Mail, Standard Mail (primarily advertising), and
Periodicals (see figure 2), leading to little revenue growth or
declining revenues in each of these categories. Only time will tell
how much of the recent volume decline is temporary and how long it
will last. (See appendix II for details on mail volumes and revenues
in the first 2 quarters of fiscal year 2002.)
Figure 2: Change in Selected Mail Volumes for the First 2 Quarters of
Fiscal Year 2002 Compared with the Same Period in Fiscal Year 2001:
[Refer to PDF for image: vertical bar graph]
First-Class Mail:
Percent change: -2.0%.
Priority Mail:
Percent change: -14.6%.
Standard Mail:
Percent change: -7.2%.
Periodicals:
Percent change: -3.0%.
Source: Postal Service.
[End of table]
On the positive side, the Service has budgeted and achieved
significant cost cutting in fiscal year 2002. For the first 2 quarters
of fiscal year 2002, the Service reported that its total costs were
2.7 percent below its budgeted estimates. The Service reported that it
reduced budgeted costs by decreasing the number of career employees
and by reducing work hours including overtime. The Service had nearly
16,000 fewer career employees at the end of the second quarter,
compared with the same period for fiscal year 2001, a decline of about
2 percent. Likewise, total work hours — including both career and
noncareer employees — fell by nearly 40 million in the first 2
quarters, a decline of 5.1 percent. Service officials have said that
these workhour savings were achieved in part because the Service had
less mail to deliver than it did a year ago, and in part through
efforts to improve the Service's efficiency. For example, mail
processing work hours fell by 8.1 percent in the first 2 quarters of
fiscal year 2002, compared with the same period in fiscal year 2001, a
gain aided by initiatives such as deployment of more efficient
machines to sort flat-sized mail (e.g., large envelopes and
periodicals). To make further progress in improving efficiency, the
Service could explore issues related to having sufficient flexibility
to redeploy staff as mail volumes fluctuate.
In addition to financial difficulties, the Service has also
experienced some slippages in service performance. Although the
Service has maintained high service levels for delivery of overnight
First-Class Mail, its on-time delivery scores for 2-day and 3-day
First-Class Mail have generally declined since fiscal year 1999. For
example, on-time delivery of 2-day First-Class Mail in the first
quarter declined annually from a peak of 86 percent in fiscal year
1999 to 82 percent in fiscal year 2002. Likewise, on-time delivery of
3-day First-Class Mail in the first quarter declined annually from a
peak of 87 percent in fiscal year 1999 to 72 percent in fiscal year
2002. Similar, but less pronounced, trends applied in the second
quarter over this period. The most recent available data for the
second quarter of fiscal year 2002 show on-time delivery of 82 percent
for 2-day First-Class Mail and 74 percent for 3-day First-Class Mail.
(See app. DT for detailed service performance data.) Recently,
security restrictions were imposed after September 11 that barred
First-Class Mail weighing over 16 ounces from transportation on
commercial airlines so that the Service increased its reliance on
trucks. It is unclear whether these shifts in transportation modes
have also affected on-time delivery of other types of mail, such as
the continuing erosion of on-time delivery performance for Priority
Mail.[Footnote 3]
The Capital Investment Outlook:
The Service's capital investment program continues to be severely
limited by the Service's financial problems. The Service budgeted $2.2
billion for capital outlays in fiscal year 2002, down from $2.9
billion in fiscal year 2001, and $3.3 billion in fiscal year 2000 (see
figure 3). Budgeted capital cash outlays for fiscal year 2002 are at
the lowest level since fiscal year 1995.
Figure 3: Postal Service Capital Cash Outlays, Fiscal Years 1990
through 2002:
[Refer to PDF for image: vertical bar graph]
Capital Cash outlays in constant 2001 dollars in millions for the
fiscal years 1990 through 2002 (outlays for 2002 are budgeted amounts).
Source: Postal Service.
Note: Figures were calculated using a chain-type price index for Gross
Domestic Product as computed by the U.S. Department of Commerce. The
fiscal year 2002 figure was calculated using an estimate from the
Congressional Budget Office.
[End of figure]
The Service has continued its capital freeze for most facility
investments to save cash and limit debt, resulting in a growing
backlog in planned facilities. Limitations on capital investment may
have a number of detrimental effects such as deterioration of the
Service's existing physical infrastructure, deferred efficiency gains,
and higher future capital costs. Looking forward, the gap between
resources and capital investment needs would be exacerbated by the
Service's plans to continue automation efforts, deploy an "information
platform" to provide better information on postal operations and the
status of mail, and implement any modernization or restructuring of
the Service's infrastructure.
Another concern is that the Service has continued to rely on debt to
finance its capital program. This trend could not continue if the
Service reaches its $15 billion statutory debt limit. The Service's
debt is budgeted to increase by $1.6 billion and reach $12.9 billion
by the end of fiscal year 2002, only $2.1 billion below the $15
billion statutory debt limit. Even the remaining $2.1 billion in
borrowing authority may not be available for capital investment in
future years, since fiscal prudence might suggest stabilizing debt
below the statutory limit to maintain liquidity. Further, the Service
has said that its goal is to reduce debt, which might preclude the use
of additional debt to finance capital investment. The Service's
Transformation Plan stated that "Since cash flow from operations is
linked to net incomes (or losses), stabilizing and reducing debt will
require that the Postal Service recover its prior years losses and
carefully plan its capital cash outlays so they do not exceed cash
flow. As the past two fiscal years have demonstrated, the Postal
Service cannot simultaneously generate net losses and reduce its
borrowings."
Looking ahead, expenses related to enhancing mail safety and security
are a key unknown cost factor. To date, the Service has relied
primarily on congressional appropriations to finance capital
investment in measures designed to improve mail safety and security.
However, uncertainties remain regarding the technologies to be
deployed, the associated capital costs, and the subsequent impact on
operating costs and postal operations, and the extent to which
Congress will pay for these costs in the future. The price tag is
likely to be substantial, with the Service requesting about $800
million in supplemental appropriations for fiscal year 2003 to improve
mail safety and security. This request is in addition to the $675
million that was appropriated in fiscal years 2001 and 2002 for
security purposes.
Another uncertainty that may affect the Service's capital program
involves its request for nearly $1 billion in congressional
appropriations for revenue foregone,[Footnote 4] which the Service has
said could be used to finance some capital facility projects.
Specifically, the Service has proposed accelerating payments for
revenue foregone from $29 million annually through 2035 to a single
lump-sum payment in fiscal year 2003—a change that would increase the
net present value of appropriations received by the Service for this
purpose.[Footnote 5] Congress did not act on a similar proposal last
year and has not acted on the Service's latest request.
Addressing the Service's Financial Problems:
In the short term, the Service may have to rely primarily on cutting
costs and raising rates to address its financial problems. The
Service's Transformation Plan identified numerous short-term steps the
Service plans to take under its existing authority to cut costs and
improve productivity. Regarding rate increases, an above-inflation
rate increase averaging 7.7 percent is scheduled to take effect June
30, 2002, including a 3-cent increase in the price of a First-Class
stamp from 34 to 37 cents. However, raising rates may cause mail
volumes to decrease and encourage mailers to shift more mail to
electronic and other delivery alternatives. Although the Service plans
to hold rates steady from June 2002 until calendar year 2004,
pressures to increase rates will continue in the long term to cover
rising expenses, such as wage increases and growing long-term
obligations. The Service's total liabilities on its balance sheet were
$61 billion, which exceeded total assets by $2.3 billion at the end of
fiscal year 2001.[Footnote 6] These liabilities include $32 billion
for pensions,[Footnote 7] $6 billion for workers' compensation
benefits, and $11 billion for debt to the Treasury. In addition, the
Service has other major obligations estimated at $49 billion for post-
retirement health benefits.[Footnote 8] These liabilities and
obligations amount to almost $100 billion and threaten the Service's
ability to continue to fulfill its mission by providing the current
level of universal postal services at reasonable rates on a self-
supporting basis.
In the long term, the Service's Transformation Plan recognizes that
the Service's basic business model is not sustainable and that much
larger declines in mail volume may be in the offing if mailers
increasingly shift to various electronic and other alternatives. Both
the Service and we agree that some progress is possible within the
current structure, but that a comprehensive postal transformation will
be required to fully address the Service's financial viability and the
statutory framework under which the Service operates. In our view,
modest tinkering with the existing system will be insufficient to
produce a lasting comprehensive transformation that will enable the
Service to fulfill its mission in the 21st century. The time has come
for comprehensive and fundamental reform. As we have stated
previously, this will likely require a special commission to address
the most difficult and controversial issues (e.g., defining universal
service and infrastructure rationalization).
Moving Forward to Transform the Postal Service:
Given the Service's deteriorating financial situation, progress on
comprehensive transformation is urgently needed, and the
Transformation Plan has made a valuable contribution by identifying
numerous specific steps for making improvements within the current
structure. The Service is to be commended for raising controversial
issues in its Transformation Plan and taking positions on the changes
that it believes are necessary. The Service's Transformation Plan
conveyed a needed sense of urgency when it stated that over the next 2
to 3 years, it is vital that significant progress be made toward
defining the long-term structure and role of the Postal Service. To
that end, the plan made a range of recommendations to deal with
transformation issues through near-term regulatory and legislative
reforms and long-term legislative solutions. For the near-term, the
plan recommended changes that would give the Service more flexibility
in ratemaking, facility closings, purchasing, labor negotiations, and
other employment areas. For long-term change, the plan outlined three
options and noted the Service's preferred option—a "Commercial
Government Enterprise." Under this option, the Service would remain an
independent establishment of the federal government but would be
structured and operated in "a much more businesslike manner." In
addition, the plan contained useful discussions in detailed
appendixes, such as how foreign postal administrations have dealt with
similar postal reform issues.
Although the Transformation Plan dealt with many difficult issues, it
did not include an adequate discussion of specific plans or proposals
related to some key transformation issues, including the following:
* the future nature of universal postal service, including its retail
and delivery components, and the associated infrastructure;
* several key human capital issues such as postal pay comparability,
performance incentives, labor-management relations, workforce
realignment, and management bonus arrangements;
* various governance, accountability, and transparency issues; and;
* a detailed action plan and recommendations on what mechanisms would
be best suited for making progress on certain transformation issues
beyond the Service's direct control.
Most importantly, the plan recognized the need for defining universal
service but declined to propose a definition of future universal
postal retail and delivery services for consideration. More clarity
about the scope and quality of universal postal services is needed to
facilitate consideration of a range of critical infrastructure and
human capital issues. Further, although the Transformation Plan
recommended that Congress give the Service much more flexibility,
particularly in the ratemaking and new products areas, it is important
that any additional flexibility be coupled with an appropriate level
of transparency and accountability—issues that the Transformation Plan
had less to say about. Because these issues are also critical to
postal transformation, I will offer some brief observations about them
in this testimony. Our recently issued report contains a more
comprehensive discussion of these and other transformation issues.
[Footnote 9]
Universal Service and Infrastructure Issues:
Vast changes in the communications and delivery sectors over the past
30 years—which are continuing at a rapid pace—as well as the Service's
growing financial difficulties, provide an impetus for reconsidering
what universal postal services will be needed for the 21st century.
Key issues include what postal services should be provided on a
universal basis to meet customer needs, how these services should be
provided, and how they should be financed—by ratepayers or taxpayers.
Some related issues include what quality of universal postal service
should be maintained—such as the frequency and speed of mail delivery,
the accessibility and scope of retail postal services—and whether
certain aspects of universal postal service should be allowed to vary
in urban and rural areas. In this regard, it will be important to
understand the current situation and opportunities for improvement.
The Service is planning to conduct an assessment of its retail, mail
processing, and transportation networks that is likely to provide
useful information to Congress and stakeholders including the public
on areas where service may be redundant, as well as areas where more
or better service may be needed. Some benefits that may result from
reassessing universal postal service might be maximizing the use of
facilities and reducing costs while also improving service. This could
be accomplished through the provision of more points of service,
improved hours of access, and greater customer convenience to some
postal retail services while reducing their cost, as compared with
more traditional means of service delivery through "brick and mortar"
facilities. For example, the Transformation Plan contained useful
discussion about ways to enhance access and reduce the cost of some
routine postal services, such as providing stamp sales at grocery
stores and through ATMs, making vending machines for stamp purchases
available 24 hours a day, and deploying self-service equipment that
can be used to mail packages while reducing the anonymity of this mail.
We recognize that universal postal service issues are highly
sensitive, given the long-standing role that the Service plays in
providing essential communications and delivery services to
communities across the nation. To make progress in modernizing the
infrastructure to support universal postal service—such as the
national network of post offices that provide universal access to
postal retail services—it will be important for the Service to engage
in frank and open discussions with all stakeholders, including the
Congress, on issues related to universal postal retail and delivery
service. Rationalizing the Service's infrastructure may entail closing
or consolidating certain facilities where there is excess capacity
while adding new facilities to address unmet needs, such as in growing
areas. Given the difficulty of these issues, Congress could establish
a mechanism similar to that used for closing military bases to make
progress in this important area. Such a process has been used to
overcome public concern about the economic effects of closures on
communities and the perceived lack of impartiality of the decision-
making process. Under this process, Congress could consider a proposed
package of closures and consolidations with an up-or-down vote.
Human Capital Challenges:
Strategic human capital approaches must be at the center of efforts to
transform the culture of federal entities, including the Postal
Service. Like the rest of the federal government, the Service's human
capital challenges are long-standing and will not be quickly or easily
addressed. To link human capital strategies to accomplishing
organizational goals and objectives, we have developed a model of
strategic human capital management.[Footnote 10] This model may be
useful for the Service as it develops its strategic human capital
planning, including a long-term workforce plan. Such strategies would
address workforce realignment, aligning individual performance with
organizational objectives, performance incentives, and pay
comparability.
Making changes to the Service's human capital, or workforce, will
include the challenge of dealing with legal requirements and practical
constraints. For example, the Service is required by law to maintain
employee compensation and benefits on a standard comparable to the
compensation and benefits paid for comparable levels of work in the
private sector. In addition, when contract disputes cannot be settled
between postal labor and management, they must be settled by a third
party through binding arbitration. Further, as a practical manner,
labor unions and management within the Service have had long-standing
adversarial relations. As an example of these limitations, the Service
and its major employee unions have often disagreed about how the pay
comparability standard should be applied and presented voluminous and
contradictory evidence when they have taken this matter to binding
arbitration.
In addition to compensation, labor-management differences have
extended to performance management issues involving incentives and
benefits as well as deployment and use of the workforce. Performance
management systems can include pay systems and incentive programs that
link employees' performance to specific results and desired outcomes.
In this regard, the Transformation Plan recognized the need for a
performance-based culture, noted that continuing to improve efficiency
and customer value is contingent on exceptional performance by the
Service's employees, and addressed plans for a new performance
management system for managers. However, the plan did not discuss how
performance-based compensation and incentive systems might cascade
throughout the organization—an issue that Service managers and unions
have repeatedly disagreed on in the past.
For transformation to be successful, it is vital for the Service and
its unions to share a common vision for the future and a shared
responsibility for finding solutions to the Service's financial and
workforce problems. As I testified before this subcommittee in March,
committed, sustained, and inspired leadership and persistent attention
will be essential if lasting changes are to be made in the human
capital area.[Footnote 11] In that vein, the postmaster general,
postal officials, and leaders of postal labor unions and management
associations demonstrated a positive and constructive approach by
holding daily meetings last fall to deal with issues related to mail
safety and security. The recent announcement of a tentative negotiated
settlement of contract talks between the Service and the National
Association of Letter Carriers was another positive example. These
parties also recently agreed on steps to streamline grievance and
arbitration procedures to limit the number of unresolved issues at the
local level and reduce the time in handling such disputes. These are
positive steps that provide a foundation on which to build; however,
much remains to be done.
Governance, Transparency, and Accountability Issues:
Congress has recently been focusing significant attention on corporate
governance, transparency, and accountability issues in light of
Enron's recent decline. Recent events have raised a range of questions
regarding what can happen when one or more key players fail to
adequately perform their responsibilities. I want to underscore that
serving on a board of directors is an important and difficult
responsibility that requires being knowledgeable about the industry
and finances, asking the right questions, and doing the right thing to
protect the public interest. This responsibility is especially
challenging in directing the Service, which is facing increasing
competition in a rapidly changing market environment. In addition, the
board's audit committee has an important role to play in ensuring fair
presentation and appropriate accountability of management in
connection with financial reporting, internal control, compliance, and
related matters.
We believe that a range of governance issues needs to be addressed as
part of the Service's transformation plan. However, the Service's
transformation plan had little to say on these matters other than
proposing that the Service be transformed into a Commercial Government
Enterprise that would act much more like a business, and, as part of
that proposal, its board of governors would be "refocused on fiduciary
duties." Under its current framework, the Service is intended to
function in a businesslike manner, which raises the following
questions related to its governance structure:
* What type of governing board would be most appropriate considering
the Service's size, importance, and challenges?
* How should board members, including the postmaster general and
deputy postmaster general, be selected, paid, and held accountable?
* What should be the roles and functions of the governing board, and
is its current part-time status appropriate?
* Is the present governance structure best suited to selecting well-
qualified individuals to direct a $70 billion entity? Or, should the
framework follow recent changes in the private sector to (1) develop
better-defined criteria for board membership and (2) recognize that
various roles on the board may require certain specific backgrounds
and skills?
Transparency and accountability are fundamental principles to ensuring
public confidence in the Service. As part of the proposed change to a
more commercial enterprise, questions remain related to whether the
Service should be held more directly accountable for its performance
and if so, to what extent, to whom, and with what mechanisms. Other
questions include:
* What oversight is needed to protect the public interest, including
the interest of customers with few or no alternatives to using the
mail?
* How should the PRC and/or other pertinent authorities exercise
oversight regarding pricing, competition, and antitrust issues, among
other areas?
* What recourse should customers and competitors have to lodge
complaints?
* What should be the role of Congress and other federal agencies in
providing oversight and accountability?
* What information should the Service be required to provide Congress
and the public on its performance, including areas such as financial
performance, productivity, and mail delivery?
Another issue we have noted, related to transparency and
accountability, involves improvements needed in the Service's
financial reporting. The principles for the Service's financial
information are the same as those in our recent testimony on financial
reporting issues: financial statements, which are at the center of
present-day business reporting, must be timely, relevant, and reliable
to be useful for decision-making.[Footnote 12] We have recently
reported that the Service's financial outlook was repeatedly revised
in fiscal year 2001 with little or no public explanation and that
greater transparency is needed regarding the Service's financial and
operating results and projections. Accordingly, we have recommended
that the Service improve the transparency of its financial information
by providing monthly and quarterly financial reports in a user-
friendly format on its Web site in a more timely manner.[Footnote 13]
The Service has agreed with our recommendation to improve the
transparency of its financial data and stated that it was providing
financial reports on its Web site in a more timely and user-friendly
manner. To date, the Service has begun to provide monthly financial
reports on its Web site. It has also provided one quarterly financial
report—for the third quarter of fiscal year 2001. Currently, the
Service has posted on its Web site the chief financial officer's
financial presentation for the second quarter of fiscal year 2002.
This presentation has less information than the previous publicly
available quarterly report—it does not include cash flow data, year-to-
date analysis, or changes in outlook. In our opinion, this publicly
available information has not provided sufficiently detailed
information for stakeholders to understand the Service's current and
projected financial condition or how its financial outlook has
changed. More timely, accessible, and reliable financial information
is sorely needed.
Next Steps:
Stakeholders are looking for positive, constructive ways to work
through difficult postal transformation issues and the Service's
Transformation Plan was a good start. Many postal transformation
issues are complex, and consensus is likely to be hard to achieve on
key areas such as a new definition of universal postal service, the
associated infrastructure, human capital, governance, accountability,
and transparency issues, among others. Further, a successful
transformation of the Service will require shared sacrifice. However,
given the vital role of our postal system in communications and
commerce, and the Service's declining financial outlook, it's time for
all stakeholders to roll up their sleeves and engage in postal
transformation issues. In this regard, we note that the Service and
mailers have already made progress, such as through the Mailing
Industry Task Force, in identifying concrete ways to enhance
efficiency and improve the value of the mail. We also applaud the
initiative of the Postmaster General John Potter and PRC Chairman
George Omas in agreeing to convene a summit to discuss ways to improve
the rate structure and the rate setting process. The Service has a
similar opportunity to build working partnerships with its major labor
unions and management associations so that the parties can make
progress on human capital issues.
Another critical partnership involves the Congress and postal
stakeholders in working through a range of important, complex, and
controversial transformation issues. As we noted in our report, we
believe that the Service's worsening financial situation and outlook
intensify the need for Congress to act on meaningful postal reform and
transformation legislation. Accordingly, we stated in our recently
issued report that Congress should consider and promptly act on
incremental legislative change that could help the Service deal with
its financial situation.
We believe that comprehensive legislative change will be needed to
address key unresolved transformation issues—some of which have not
been fully addressed by proposed legislation or by the Service's
Transformation Plan. One option is to use the legislative process to
enact postal reform legislation, and some major proposals have been
made in this area. Another option could be to create an independent
commission that would address key unresolved issues and develop a
comprehensive proposal for Congress to consider.
Meanwhile, the Service's growing financial problems call for
continuing close congressional oversight of its current financial
condition and progress in implementing its Transformation Plan. In
this regard, it will be important to have greater transparency of the
Service's financial information to minimize possible unexpected
surprises and expectation gaps. It will also be important to have
greater clarity about the time frames and financial impact associated
with the actions outlined in the Transformation Plan that the Service
plans to take immediately. To assist the Congress in its oversight
responsibilities, we are monitoring the Service's financial condition
and the implementation of its plan. Committed leadership and sustained
attention in these areas will be important in order to achieve the
results necessary for us to reassess our inclusion of the Postal
Service's transformation efforts and long-term outlook on our High-
Risk List.
Your strong support for the Service to develop a transformation plan
has helped move the discussion forward, and this hearing is further
highlighting the need for change. We look forward to working with the
Congress in addressing this and other important government
transformation issues. In many ways, the challenges facing the Service
represent a microcosm of a range of challenges facing other federal
agencies. I would be pleased to respond to any questions that you or
other members of the subcommittee may have.
Contact and Acknowledgments:
For further information regarding this testimony, please call Bernard
L. Ungar, Director, Physical Infrastructure Issues, on (202) 512-8387
or at ungarb@gao.gov. Individuals making key contributions to this
testimony included Teresa L. Anderson, Hazel J. Bailey, Tida E.
Barakat, Gerald P. Barnes, Joshua M. Bartzen, Alan N. Belkin, William
J. Doherty, Frederick T. Evans, Michael J. Fischetti, Kenneth E. John,
Robert P. Lilly, and Jill P. Sayre.
[End of section]
Appendix I: Key Problems Identified by GAO and Actions in the Postal
Service's Transformation Plan to Address Them:
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 1. Net Income: The Service has difficulty
generating positive net income, despite recent rate increases, and
expects a large deficit in FY 2002.
Follow-up responsibility for actions and milestones: [Empty].
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 1.1 Replace the break-even requirement with a
provision for a reasonable rate of return.
Follow-up responsibility for actions and milestones: Postal Service,
Congress.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 1.2 Increase the amount of funds in rate cases
for capital purposes for new facilities.
Follow-up responsibility for actions and milestones: Postal Service,
PRC.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 2. Cost-cutting/productivity: Costs are
increasing faster than revenues and are hard to cut. The Service has
difficulty making and sustaining productivity increases.
Follow-up responsibility for actions and milestones: [Empty].
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 2.1 Deploy more automation (Postal Automated
Redirection System, Automated Flat Sorting Machine (AFSM 100) and tray
handing systems for AFSM 100 and 1000; low-cost tray sorters, next
generation parcel sorting equipment—the parcel Singulate, Scan,
Induction Unit and Automated Package Processing System).
Follow-up responsibility for actions and milestones: Postal Service,
milestones from 2002-2004.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 2.2 Increase throughput and reduce nonautomated
letter mail stream through equipment modifications and customer
incentives (FSM 1000 automated flats feeders and optical character
readers; technology upgrades to improve address recognition and
enhance feeder systems).
Follow-up responsibility for actions and milestones: Postal Service,
milestones from 2002-2004.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 2.3 Develop more automation (e.g., Universal Tray
System, automated delivery point sequencing equipment for flats,
automation of processing of Business Reply Mail and Courtesy Reply
Mail cards).
Follow-up responsibility for actions and milestones: Postal Service;
Universal Tray System in one site by end 2002.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 2.4 Move toward long-term vision of one bundle of
mixed letters and flats for each delivery point called the Delivery
Point Packaging after delivery point sequencing of flats mail is
implemented.
Follow-up responsibility for actions and milestones: Postal Service;
one bundle: 4 years for R&D; flats-delivery point sequencing: pursue
32 month time table for development and selection.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 2.5 Deploy flats remote encoding system to
consolidate flats keying systems and minimize idle time.
Follow-up responsibility for actions and milestones: Postal Service,
milestones from 2002-2003.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 2.6 Reduce tray and piece handlings and improve
efficiency of postal operations by working with customers and the
mailing industry to explore product redesign and worksharing options.
Postal Service; mailing industry.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 2.7 Improve delivery productivity through
deployment/use of the Delivery Operations Information System to
provide data to delivery supervisors; the Managed Service Points
system to scan bar codes at the delivery unit and along the carrier's
route of travel; the Delivery Performance Achievement and Recognition
System to benchmark, set goals, and give recognition for both city and
rural delivery; initiatives to improve rural delivery; and test
optimizing city carrier routing and travel paths and the Segway Human
Transporter.
Follow-up responsibility for actions and milestones: Postal Service,
milestones in 2002 and 2003.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 2.8 Modernize purchasing procedures by changing
postal regulations.
Follow-up responsibility for actions and milestones: Postal Service.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 2.9 Implement supply chain management.
Consolidate purchases for better quality and lower costs (redesign
purchasing organization into interdisciplinary commodity teams; reduce
low-dollar value transactions; and forge stronger, more effective
relations with key strategic suppliers).
Follow-up responsibility for actions and milestones: Postal Service.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 2.10 Revise certain statutory requirements
relating to the Service's supply chain management, such as the Service
Contract Act and the Davis-Bacon Act, to reduce costs and
administrative requirements not applicable to commercial businesses.
Follow-up responsibility for actions and milestones: Postal Service,
Congress.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 2.11 Reduce injury compensation costs by
expanding the Preferred Provider Organization program throughout the
Service, to reduce medical fees below what the Department of Labor's
Office of Workers' Compensation Program (OWCP) allows, and identify
duplicate payments that get through OWCP's system.
Follow-up responsibility for actions and milestones: Postal Service,
OWCP; milestones in 2002-2003.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 2.12 Reduce injury compensation costs by moving
all Federal Employees' Compensation Act (FECA) recipients to FECA
annuity at age 65. The FECA annuity would equate to the same costs as
a normal retirement for all present and former Service employees over
age 65 on OWCP compensation rolls.
Follow-up responsibility for actions and milestones: Postal Service,
Congress, Office of Management and Budget, OWCP; milestone: 2002-2003.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 2.13 Reduce injury compensation costs by
encouraging OWCP to revise its regulations to allow direct contact
with the treating physician by the employing agency (i.e., the
Service).
Follow-up responsibility for actions and milestones: Postal Service,
OWCP; milestone: 2002-2003.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 2.14 Reduce injury compensation costs by
developing joint strategies with OWCP, such as an accelerated private
sector placement program that reduces time for private sector
outplacement of injured Service employees from up to 2 years to less
than 1 year. Create new internal positions to accommodate injured
workers.
Follow-up responsibility for actions and milestones: Postal Service,
OWCP; milestone: 2002-2003.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 2.15 Reduce and deter criminal misuse of workers'
compensation.
Follow-up responsibility for actions and milestones: Postal Service.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 2.16 Address issues contributing to escalating
FECA costs: Compensation rates are too generous; should be only one
rate (66 2/3 percent); no waiting period before wage-loss compensation
is paid.
Follow-up responsibility for actions and milestones: Postal Service,
Congress.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 2.17 Optimize the transportation and distribution
networks: the Network Integration and Alignment initiative is designed
to create a flexible logistics network to reduce the Service and
customer costs, increase overall operational effectiveness, and
improve consistency of service. Streamline and simplify the
distribution network. Consolidate sorting facilities, eliminate excess
resources, and determine facility roles and functions. Deploy Surface
Air Management System and Surface Air Support System, develop
transportation optimization planning and scheduling, develop
transportation contract support system; and increase utilization of
mail transport equipment.
Follow-up responsibility for actions and milestones: Postal Service,
milestones in 2002-2003.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 2.18 Increase retail/customer service
productivity (operational standardization, continued automation of
mail processing operations that occur in the back rooms of post
offices), implement facility design changes where feasible to enable
24-hour access to critical products and services.
Follow-up responsibility for actions and milestones: Postal Service,
milestones in 2002-2003.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 2.19 Expand access to postal services by moving
simple transactions out of post offices (communicate information on
alternative services (i.e., advertising), provide an on-line postage
label application so packages can be dropped in a P.O. box, or handed
to/picked up by carriers).
Postal Service; milestones: online postage label by fall 2002 mailing
season.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 2.20 Create new low-cost retail alternatives.
Expand self-service alternatives (kiosk services, such as ATMs, new
technology for basic stamp purchases and mailing services, automated
postage printers, automated postal center—enabling self-service
purchase of stamps and mailing of packages).
Follow-up responsibility for actions and milestones: Postal Service,
milestones in 2002-2003.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 2.21 Improve performance management around best
practices, including standardizing mail processing. Consolidate mail-
processing activities and centralize or relocate these activities.
Also conduct other labor reviews and standardize mail-processing
operations, including those for Priority Mail operations. Implement
complement planning, tracking, and management processes.
Follow-up responsibility for actions and milestones: Postal Service,
milestones in 2002-2003.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 2.22 Manage realty assets to maximize return by
reducing costs related to properties for sale, short-term and
development leasing, developmental added value properties, and other
programs.
Follow-up responsibility for actions and milestones: Postal Service.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 2.23 Achieve savings in international air
transportation by deregulation to convey to the Service authority to
competitively contract in the open market.
Follow-up responsibility for actions and milestones: Postal Service,
Congress.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 3. Safety/security: Expenditures and funding to
enhance mail safety and security are uncertain. Safety and security
needs exacerbate the Service's financial problems.
Follow-up responsibility for actions and milestones: [Empty].
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 3.1 Implement comprehensive plan for improving
mail safety and security.
Follow-up responsibility for actions and milestones: Postal Service,
Congress (appropriations).
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 3.2 Enhance security across technology to avoid
disruptions in critical operations and protect sensitive information
from unauthorized disclosure or modification (education and training,
certification process, contingency planning, intrusion protection,
automated monitoring).
Follow-up responsibility for actions and milestones: Postal Service;
milestones in 2002-2007, annually, and ongoing.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 3.3 Ensure safe, secure, and drug-free work
environment (reduce and deter employee-on-employee assaults and
credible threats, robberies, illegal drugs).
Follow-up responsibility for actions and milestones: Postal Service.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 3.4 Provide for the security of the mail and
postal products, services, and assets (reduce and deter mail theft,
related identify theft and takeovers, criminal attacks on postal
products, services, and assets).
Follow-up responsibility for actions and milestones: Postal Service.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 3.5 Combat crimes using the postal system (e.g.,
mail fraud, and prohibited, illegal, and dangerous mailings).
Follow-up responsibility for actions and milestones: Postal Service.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 3.6 Ensure the Service maintains its trusted
brand and provides top-rate privacy protection (standardize privacy
policies and procedures, streamline compliance procedures, work with
internal and external groups to build privacy into data-oriented
initiatives).
Follow-up responsibility for actions and milestones: Postal Service
and external groups.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 4. Cash flow: Cash-flow pressures continue
because of cost/revenue trends.
Follow-up responsibility for actions and milestones: [Empty].
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 4.1 Improve cash flow by generating net income,
cost-cutting, moderate rate increase (not until 2004), and planning
capital outlays so that they do not exceed cash flow.
Follow-up responsibility for actions and milestones: Postal Service.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 5. Debt: The Service has no debt reduction plan
as its debt nears the $15 billion limit.
Follow-up responsibility for actions and milestones: [Empty].
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 5.1 Reduce debt and remain within the current
statutory debt limits. This strategy will be modified as necessary to
ensure that the Service preserves its ability to meet all of its cash
obligations. To stabilize and reduce debt, the Service will need to
recover prior years' losses and plan capital cash outlays so that they
do not exceed cash flow. Also, the Service cannot simultaneously
generate net losses and reduce its borrowings.
Follow-up responsibility for actions and milestones: Postal Service.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 5.2 Manage the Service's mix of short- and long-
term debt to lower interest expense over time.
Follow-up responsibility for actions and milestones: Postal Service.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 6. Basic Business Model: Mail volumes have
declined in major revenue producing areas. The Service's business
model, which relies on rising mail volumes to cover rising costs, is
not sustainable and needs a comprehensive transformation.
Follow-up responsibility for actions and milestones: [Empty].
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 6.1 Transform the Service into a commercial
government enterprise (model recommended by the Service).
Follow-up responsibility for actions and milestones: Congress.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 6.2 Enhance the value of the mail through
technology (identify/track mail pieces through Confirm).
Follow-up responsibility for actions and milestones: Postal Service,
PRC milestones: Postal Service filed for Confirm classification on
April 24, 2002.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 6.3 Improve the access, speed, and reliability of
accountable mail services (Internet access to delivery time and date
of Certified Mail and Return Receipt; other product enhancements).
Follow-up responsibility for actions and milestones: Postal Service;
milestones in 2002 (e.g., Internet access to Certified Mail, Return
Receipt).
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 6.4 Design rates and mail preparation to match
customer needs (simplify rate structure, preparation and acceptance
requirements for moderate users of bulk mail, and for mailing books
and parcels).
Follow-up responsibility for actions and milestones: Postal Service,
PRC, mailers; product redesign to take about 3 years, implementation
by summer of 2004.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 6.5 Position mail as a key communications medium
and as a customer relationship management tool (customize postal
products to enable small- and medium-sized business customers to
leverage mail for promotion).
Follow-up responsibility for actions and milestones: Postal Service,
milestones: ongoing.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 6.6 Enhance package services (acceptance scanning
of return parcels, new parcel categories—reduce number of categories,
rate structures, and confusing requirements) by providing, merchandise
return, new mail categories, and an on-line postage label application.
Follow-up responsibility for actions and milestones: Postal Service;
milestones same as Product Redesign (implementation by summer 2004)
except for labels by fall 2002 mailing season.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 6.7 Promote greater ease-of-use to improve
customer satisfaction and sales. Transform the Domestic Mail Manual
and make rules and regulations more market-responsive.
Follow-up responsibility for actions and milestones: Postal Service;
milestones: none.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 6.8 Develop a corporate-based pricing plan and a
set of strategies to develop market-based pricing. Retain and increase
international market share.
Follow-up responsibility for actions and milestones: Postal Service;
milestones: none.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 7. Rates Increases: Rates for certain categories
of mail are rising faster than inflation and more increases possible.
Follow-up responsibility for actions and milestones: [Empty].
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 7.1 No rate increases are planned until calendar
year 2004.
Follow-up responsibility for actions and milestones: Postal Service.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 7.2 Next rate increase is planned to be a
moderate and negotiated settlement.
Follow-up responsibility for actions and milestones: Postal Service,
mailers, competitors, PRC.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 8. Infrastructure/capital investment: Changes to
infrastructure are limited by legal requirements and practical
constraints. Further, the capital program freeze is unsustainable.
Follow-up responsibility for actions and milestones: [Empty].
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 8.1 Lift the self-imposed moratorium on post
office closings and consolidations.
Follow-up responsibility for actions and milestones: Postal Service,
done by PMG in April 2002.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 8.2 Close unnecessary contract postal units.
Follow-up responsibility for actions and milestones: Postal Service.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 8.3 Implement retail access strategies to ensure
that customers retain adequate access to products and services.
Follow-up responsibility for actions and milestones: Postal Service.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 8.4 Work with the PRC to streamline the post
office closing process to minimize turnaround time.
Follow-up responsibility for actions and milestones: Postal Service
and PRC.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 8.5 Repeal statutory administrative notice
procedures mandated for closing post offices (see 39 U.S.C. 404(b)),
or replace them with more flexible procedures.
Follow-up responsibility for actions and milestones: Postal Service,
Congress.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 8.6 Eliminate appropriations language that
discourages post office closings and freezes service levels at the
1983 level.
Follow-up responsibility for actions and milestones: Congress.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 8.7 Optimize the retail network (through
development of a network database, baseline the current retail
network; accommodate retail growth demand via a logical system that
matches appropriate channel with demonstrated marketplace needs;
replace redundant post offices, stations, and branches that do not
provide appropriate value with alternative retail channels).
Follow-up responsibility for actions and milestones: Postal Service
and Congress; milestones in 2002 for completing the network database.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 8.8 Upgrade and reengineer the computing
infrastructure to support current and new business requirements, as
well as to enable the Service to become more efficient and to reduce
operating costs. (Upgrade distributed, midrange, and mainframe
computing infrastructure and implement technical and corporate shared
services initiatives.)
Follow-up responsibility for actions and milestones: Postal Service,
milestones in 2002-2009 and annually.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 8.9 Provide universal computing connectivity
(consolidate voice, data, and video network and implement wireless
technology initiative).
Follow-up responsibility for actions and milestones: Postal Service,
milestones in 2002-2008.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 9. Human capital: The Service faces difficult
human capital challenges, including workforce planning and
realignment, performance management, compensation and benefit issues,
and labor-management relations.
Follow-up responsibility for actions and milestones: [Empty].
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 9.1 Retain employees with skills critical to the
Service's success. (Study retention trends and develop plans for
retention and recruitment incentives to allow the Service to compete
for talent.)
Follow-up responsibility for actions and milestones: Postal Service,
milestones in 2003.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 9.2 Concentrate recruitment efforts on bringing
talent, skills, and experience from within and from outside the
Service to address potential loss of Service leadership. (Implement
Associate Supervisor Program and Management and Professional
Specialist Intern programs, use third parties for marketing/attracting
candidates to specialized skill positions, deploy an automated
screening process, pilot centralize recruitment structures for hard-to-
fill bargaining and nonbargaining positions nationwide, and use Web
technology to enhance recruitment and hiring processes.)
Follow-up responsibility for actions and milestones: Postal Service,
milestones in 2002-2004.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 9.3 Remove statutory salary cap for Service
employees to help recruit and retain selected managers, executives,
and officers.
Follow-up responsibility for actions and milestones: Postal Service,
Congress.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 9.4 Utilize succession planning to identify,
develop, and select current and future leaders. (Continue executive
development programs; hold officers and executives accountable for
having/implementing individual development plans for successors.)
Follow-up responsibility for actions and milestones: Postal Service,
milestones in 2002-2003.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 9.5 Ensure that a dynamic training curriculum is
available to develop a pool of talent to fill leadership positions.
(Maximize available training and development programs to have a pool
of potential successors at all levels. Establish defined career path
for supervisors and managers to facilitate succession at low-level to
mid-level positions. Implement more technology-based training. Develop
learning management system to coordinate administration, scheduling,
tracking, assessment, and testing of learners.)
Follow-up responsibility for actions and milestones: Postal Service,
milestones in 2002-2006.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 9.6 Create a performance-based pay system.
Redesign performance-based pay systems and assessment systems from
executives to front line supervisors and EAS grade-level 15. A new pay
system will place a greater focus on rewarding individual rather than
group achievement. The Service will consult with postal management
associations and then phase in the new performance assessment system.
Follow-up responsibility for actions and milestones: Postal Service,
management associations; milestones in 2002-2004.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 9.7 Build a highly effective and motivated
workforce. Use existing programs and measures to hold district, area,
and headquarters leadership accountable for the following activities:
improving percentage of favorable responses to Voice of the Employee
survey, identifying troubled worksites and develop effective plans to
correct problems, supporting District Joint Employee Assistance
Program Advisory Committee, supporting Diversity's continuous
education initiatives, maintaining trained Threat Assessment Team and
properly prepared Crisis Management Team, providing violence awareness
and sexual harassment training according to policy. Organize the most
predictive workplace data for use by districts and areas to create
proactive interventions: Form predictive profiles to allow the Service
to become more proactive in dealing with potential workplace
environment issues.
Follow-up responsibility for actions and milestones: Postal Service,
milestones in 2002-2004.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 9.8 Improve workforce planning. Move to an
integrated workforce planning process with a single function
responsible for reporting trends and issues. Fully utilize the
provisions of collective bargaining agreements to reposition the
workforce as needed to meet customer demands and operational
requirements. Execute reduction-in-force avoidance strategies,
including voluntary early retirement offerings and internal movement
of employees. Consider reductionin-force alternatives (voluntary
reduced hours, retirement incentives, layoffs, voluntary sabbaticals).
Seek cost-efficient ways to move people from positions that are no
longer necessary. Modify applicable placement, training, and right-
sizing processes.
Follow-up responsibility for actions and milestones: Postal Service,
milestones in 2002-2005.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 9.9 Expand shared services in accounting and
human resources (i.e., sharing technology, people, and other resources
within and across administrative functions to reduce costs and improve
the quality of administrative services).
Follow-up responsibility for actions and milestones: Postal Service,
milestones in 2002-2004.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 9.10 Explore outsourcing/implement outsourcing
initiatives with potential to increase service/quality levels, better
utilize resources, reduce costs, and allow greater emphasis on the
Service's core business. Labor Relations is pursuing the establishment
of an Employee Stock Ownership Plan for Equal Employment Opportunity
investigative work. The Service will evaluate cost savings derived
from outsourcing and Employee Stock Ownership Plan initiatives and use
existing quality and performance measures to determine if these are
improved by the initiatives.
Follow-up responsibility for actions and milestones: Postal Service.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 9.11 Meet with craft union leaders to seek
agreement on modifications to the current interest arbitration process
to include mediation by the next cycle of negotiations.
Follow-up responsibility for actions and milestones: Postal Service,
craft union leaders; milestones in 2002-2003.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 9.12 Replace the statutory mediation and binding
arbitration provisions with a process similar to the Railway Labor
Act, including a mandated mediation process (a single mediator
selected by the secretary of labor, who by law would be of national
reputation and professional stature and a member of the National
Academy of Arbitrators) and strike and lockout provisions.
Follow-up responsibility for actions and milestones: Postal Service,
Congress.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 9.13 Improve labor-management relations. (Expand
various joint employee involvement and quality of work-life
initiatives with labor unions. Develop and provide contract
administration and labor/management training to management and
bargaining unit employees. Continue to have the Service's leadership,
employee unions, and management associations participate in joint
initiatives. Improve ability to resolve issues and disputes, and
decrease grievance activity by developing joint handbooks and manuals.
Develop and expand alternatives to traditional discipline and dispute
resolution methods, including further development and refinement of
the REDRESS program and the use of labor and management Dispute
Resolution Teams.)
Follow-up responsibility for actions and milestones: Postal Service,
labor unions, management associations.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 10. Liabilities: Liabilities exceed assets, and
long-term retirement liabilities are growing.
Follow-up responsibility for actions and milestones: [Empty].
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 10.1 Increase income generation and minimize the
increase in deferred retirement costs by allowing postal retirement
fund assets to be invested in other than federal securities at higher
rates of return. This would involve investment of postal-related Civil
Service Retirement System and Federal Employees Retirement System
retirement fund assets currently managed by the Office of Personnel
Management.
Follow-up responsibility for actions and milestones: Postal Service,
Congress.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 11. Transparency and reporting: Greater
transparency is needed regarding the Service's financial operating
results and projections.
Follow-up responsibility for actions and milestones: [Empty].
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 11.1 Eliminate the postal fiscal year and use
only the government fiscal year for internal and external reporting.
Convert the Service's reporting (financial and all other) from the
existing accounting period format (i.e., 4-week accounting periods) to
a calendar month format, with monthly and quarterly reporting.
Follow-up responsibility for actions and milestones: Postal Service;
milestones from January 2002 to September 2003.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 11.2 Publish quarterly financial reports for the
first, second, and third quarters.
Follow-up responsibility for actions and milestones: Postal Service.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 12. Accountability: Limited mechanisms are in
place to promote accountability.
Follow-up responsibility for actions and milestones: [Empty].
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 12.1 Redesign the performance-based pay system.
Follow-up responsibility for actions and milestones: Postal Service.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 13. Incentives: Legal framework (monopoly, break-
even requirement, rate-setting) limit incentives to cut/restrain costs
or to innovate.
Follow-up responsibility for actions and milestones: [Empty].
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 13.1 Replace the break-even requirement with a
provision for a reasonable rate of return (also listed as 1.1 above).
Follow-up responsibility for actions and milestones: Postal Service,
Congress.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 13.2 Replace cost-of-service rate regulation (see
15 below).
Follow-up responsibility for actions and milestones: Congress.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 14. Rate-setting process: The Service's rate-
setting process is lengthy, adversarial and provides limited
incentives to control costs.
Follow-up responsibility for actions and milestones: [Empty].
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 14.1 Work with the PRC to improve the rate-
setting process and change the rate and classification structure.
Initiatives: phased rate changes, operationally targeted experiments,
major reclassification effort, segmentation for major products,
negotiated service agreements, volume discounts. Initiatives to be
considered: contract/customized pricing, bundle pricing for multiple
products/services, seasonal discounts and premiums. Improve rate-
setting process by streamlining process to allow reasonable pricing
changes without extensive regulatory hearings.
Follow-up responsibility for actions and milestones: Postal Service,
PRC, mailing community; the Service plans a "summit" with PRC and
other stakeholders on changes to ratemaking and classification
processes.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 14.2 Review the statutory rate-setting process to
identify potential changes for improvement. For example, replace the
existing statutory system with some form of incentive regulation
giving the Service pricing flexibility for competitive products,
subject to rules to protect the market from anticompetitive Service
activities.
Follow-up responsibility for actions and milestones: Postal Service,
PRC, Congress
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 15. Universal service mission/role: The Service
has not defined what universal postal services are needed by the
American people in the 21st century and the Service's role in
providing such services.
Follow-up responsibility for actions and milestones: [Empty].
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 15.1 Obtain greater flexibility to adjust the
number of delivery days.
Postal Service, Congress.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 15.2 Obtain greater statutory and regulatory
flexibility to redefine universal retail postal service, including
standards for access and levels of service.
Follow-up responsibility for actions and milestones: Postal Service,
Congress, PRC.
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 16. Governance: The Service's business model and
governance structure are problematic and need to be reassessed as part
of transformation.
Follow-up responsibility for actions and milestones: [Empty].
Summary of Key Service Problems and Actions in the Service's
Transformation Plan: 16.1 The Service's proposed commercial government
enterprise model refocuses the board of governors on fiduciary duties.
Follow-up responsibility for actions and milestones: Postal Service,
Congress.
Source: Postal Service and GAO-02-355.
[End of section]
Appendix II: Postal Service Mail Volume and Revenue Information:
Table 2: Mail Volume by Category for the First 2 Quarters of Fiscal
Year 2002 Compared with the Same Period in Fiscal Year 2001 (Pieces in
thousands):
Category: First Class Mail;
FY 2002 Q1: 23,312,681;
FY 2002 Q2: 25,015,392;
FY 2002 Total: 48,328,073;
FY 2001 Q1: 23,862,319;
FY 2001 Q2: 25,460,191;
FY 2001 Total: 49,322,510;
Percent change: -2.0.
Category: Priority Mail;
FY 2002 Q1: 228,615;
FY 2002 Q2: 261,309;
FY 2002 Total: 489,923;
FY 2001 Q1: 275,249;
FY 2001 Q2: 298,492;
FY 2001 Total: 573,741;
Percent change: -14.6.
Category: Express Mail;
FY 2002 Q1: 13,382;
FY 2002 Q2: 14,888;
FY 2002 Total: 28,270;
FY 2001 Q1: 15,901;
FY 2001 Q2: 16,488;
FY 2001 Total: 32,389;
Percent change: -12.7.
Category: Mailgrams;
FY 2002 Q1: 895;
FY 2002 Q2: 281;
FY 2002 Total: 1,176;
FY 2001 Q1: 870;
FY 2001 Q2: 875;
FY 2001 Total: 1,745;
Percent change: -32.6.
Category: Periodicals;
FY 2002 Q1: 2,290,100;
FY 2002 Q2: 2,249,606;
FY 2002 Total: 4,539,706;
FY 2001 Q1: 2,323,486;
FY 2001 Q2: 2,354,447;
FY 2001 Total: 4,677,932;
Percent change: -3.0.
Category: Standard Mail (primarily advertising);
FY 2002 Q1: 22,103,683;
FY 2002 Q2: 18,728,591;
FY 2002 Total: 40,832,274;
FY 2001 Q1: 24,295,808;
FY 2001 Q2: 19,719,809;
FY 2001 Total: 44,015,617;
Percent change: -7.2.
Category: Package Services;
FY 2002 Q1: 247,632;
FY 2002 Q2: 267,714;
FY 2002 Total: 515,346;
FY 2001 Q1: 254,641;
FY 2001 Q2: 263,588;
FY 2001 Total: 518,228;
Percent change: -0.6.
Category: International Mail;
FY 2002 Q1: 215,122;
FY 2002 Q2: 241,579;
FY 2002 Total: 456,701;
FY 2001 Q1: 271,854;
FY 2001 Q2: 306,055;
FY 2001 Total: 577,909;
Percent change: -21.0.
Category: U.S. Postal Service Mail;
FY 2002 Q1: 126,372;
FY 2002 Q2: 86,079;
FY 2002 Total: 212,451;
FY 2001 Q1: 87,826;
FY 2001 Q2: 81,626;
FY 2001 Total: 169,452;
Percent change: 25.4.
Category: Free Mail for the Blind and Handicapped;
FY 2002 Q1: 12,942;
FY 2002 Q2: 12,801;
FY 2002 Total: 25,743;
FY 2001 Q1: 10,898;
FY 2001 Q2: 8,514;
FY 2001 Total: 19,412;
Percent change: 32.6.
Category: Total;
FY 2002 Q1: 48,551,424;
FY 2002 Q2: 46,878,239;
FY 2002 Total: 95,429,663;
FY 2001 Q1: 51,398,851;
FY 2001 Q2: 48,510,084;
FY 2001 Total: 99,908,936;
Percent change: -4.5.
Source: Postal Service.
[End of table]
Table 3: Mail Revenue by Category for the First 2 Quarters of Fiscal
Year 2002 Compared with the Same Period in Fiscal Year 2001 (Dollars
in thousands):
Category/service: First-Class Mail;
FY 2002 Q1: $8,186,087;
FY 2002 Q2: $8,719,882;
FY 2002 Total: $16,905,969;
FY 2001 Q1: $8,173,027;
FY 2001 Q2: $8,702,737;
FY 2001 Total: $16,875,764;
Percent change: 0.2.
Category/service: Priority Mail;
FY 2002 Q1: $1,049,492;
FY 2002 Q2: $1,257,527;
FY 2002 Total: $2,307,019;
FY 2001 Q1: $1,092,471;
FY 2001 Q2: $1,328,586;
FY 2001 Total: $2,421,057;
Percent change: -4.7.
Category/service: Express Mail;
FY 2002 Q1: $194,463;
FY 2002 Q2: $220,669;
FY 2002 Total: $415,133;
FY 2001 Q1: $222,716;
FY 2001 Q2: $240,212;
FY 2001 Total: $462,929;
Percent change: -10.3.
Category/service: Mailgrams;
FY 2002 Q1: $426;
FY 2002 Q2: $138;
FY 2002 Total: $565;
FY 2001 Q1: $331;
FY 2001 Q2: $347;
FY 2001 Total: $678;
Percent change: -16.7.
Category/service: Periodicals;
FY 2002 Q1: $519,301;
FY 2002 Q2: $485,883;
FY 2002 Total: $1,005,183;
FY 2001 Q1: $505,868;
FY 2001 Q2: $498,138;
FY 2001 Total: $1,004,006;
Percent change: 0.1.
Category/service: Standard Mail (primarily advertising);
FY 2002 Q1: $3,979,001;
FY 2002 Q2: $3,337,462;
FY 2002 Total: $7,316,463;
FY 2001 Q1: $4,053,900;
FY 2001 Q2: $3,401,326;
FY 2001 Total: $7,455,226;
Percent change: -1.9.
Category/service: Package Services;
FY 2002 Q1: $488,206;
FY 2002 Q2: $542,798;
FY 2002 Total: $1,031,004;
FY 2001 Q1: $451,797;
FY 2001 Q2: $493,031;
FY 2001 Total: $944,828;
Percent change: 9.1.
Category/service: International Mail;
FY 2002 Q1: $370,041;
FY 2002 Q2: $420,671;
FY 2002 Total: $790,711;
FY 2001 Q1: $408,162;
FY 2001 Q2: $462,045;
FY 2001 Total: $870,207;
Percent change: -9.1.
Category/service: Services;
FY 2002 Q1: $506,659;
FY 2002 Q2: $535,025;
FY 2002 Total: $1,041,683;
FY 2001 Q1: $422,604;
FY 2001 Q2: $452,559;
FY 2001 Total: $875,163;
Percent change: 19.0.
Category/service: Other revenue[A];
FY 2002 Q1: $73,296;
FY 2002 Q2: $105,442;
FY 2002 Total: $178,738;
FY 2001 Q1: $95,390;
FY 2001 Q2: $100,895;
FY 2001 Total: $196,285;
Percent change: 9.8.
Category/service: Total;
FY 2002 Q1: $15,366,971;
FY 2002 Q2: $15,625,498;
FY 2002 Total: $30,992,468;
FY 2001 Q1: $15,426,266;
FY 2001 Q2: $15,679,876;
FY 2001 Total: $31,106,143;
Percent change: -0.4.
[A] Other revenue includes investment income, reimbursement revenue,
revenue foregone, advertising, e-commerce initiatives, retail
initiatives, and miscellaneous services such as passport services.
Note: Totals may not add due to rounding. Source: Postal Service.
[End of table]
[End of section]
Appendix III: Postal Service Performance Scores:
Table 4: Overnight First-Class Mail (Percent on-time delivery):
Year: 1993;
Q1: 83.29%;
Q2: 83.01%;
Q3: 84.30%;
Q4: 83.59%.
Year: 1994;
Q1: 83.53%;
Q2: 78.80%;
Q3: 82.75%;
Q4: 82.56%.
Year: 1995;
Q1: 84.09%;
Q2: 84.52%;
Q3: 86.82%;
Q4: 87.23%;
Year: 1996;
Q1: 87.76%;
Q2: 87.31%;
Q3: 90.41%;
Q4: 91.21%.
Year: 1997;
Q1: 90.77%;
Q2: 90.75%;
Q3: 92.15%;
Q4: 92.35%.
Year: 1998;
Q1: 92.86%;
Q2: 92.66%;
Q3: 93.51%;
Q4: 93.02%.
Year: 1999;
Q1: 92.78%;
Q2: 93.15%;
Q3: 93.54%;
Q4: 93.74%.
Year: 2000;
Q1: 93.43%;
Q2: 93.53%;
Q3: 94.44%;
Q4: 93.89%.
Year: 2001;
Q1: 93.02%;
Q2: 92.80%;
Q3: 94.06%;
Q4: 93.96%.
Year: 2002;
Q1: 92.93%;
Q2: 93.46%;
Q3: N/A;
Q4: N/A;
Note: N/A = No data available for Q3 and Q4 of fiscal year 2002.
Source: Postal Service.
[End of table]
Table 5: Two-Day First-Class Mail (Percent on-time delivery):
Year: 1993;
Q1: 77.76%;
Q2: 74.73%;
Q3: 78.27%;
Q4: 78.10%.
Year: 1994;
Q1: 76.52%;
Q2: 66.72%;
Q3: 72.37%;
Q4: 74.36%.
Year: 1995;
Q1: 75.53%;
Q2: 75.04%;
Q3: 79.07%;
Q4: 80.10%.
Year: 1996;
Q1: 79.49%;
Q2: 75.54%;
Q3: 80.04%;
Q4: 80.25%.
Year: 1997;
Q1: 75.90%;
Q2: 71.74%;
Q3: 78.59%;
Q4: 78.58%.
Year: 1998;
Q1: 78.88%;
Q2: 78.70%;
Q3: 86.06%;
Q4: 87.66%.
Year: 1999;
Q1: 86.47%;
Q2: 83.36%;
Q3: 86.89%;
Q4: 88.37%.
Year: 2000;
Q1: 86.41%;
Q2: 83.60%;
Q3: 87.02%;
Q4: 87.87%.
Year: 2001;
Q1: 85.70%;
Q2: 81.15%;
Q3: 84.77%;
Q4: 86.08%.
Year: 2002;
Q1: 82.06%;
Q2: 82.24%;
Q3: N/A;
Q4: N/A.
Note: N/A = No data available for Q3 and Q4 of fiscal year 2002.
Source: Postal Service.
[End of table]
Table 6: Three-Day First-Class Mail (Percent on-time delivery):
Year: 1993;
Q1: 81.92%;
Q2: 77.16%;
Q3: 80.18%;
Q4: 81.62%.
Year: 1994;
Q1: 79.24%;
Q2: 65.44%;
Q3: 76.84%;
Q4: 78.55%.
Year: 1995;
Q1: 80.16%;
Q2: 75.52%;
Q3: 82.19%;
Q4: 82.72%.
Year: 1996;
Q1: 82.24%;
Q2: 70.93%;
Q3: 82.44%;
Q4: 82.82%.
Year: 1997;
Q1: 79.01%;
Q2: 70.03%;
Q3: 80.20%;
Q4: 80.14%.
Year: 1998;
Q1: 80.49%;
Q2: 74.24%;
Q3: 83.68%;
Q4: 86.44%.
Year: 1999;
Q1: 86.69%;
Q2: 79.18%;
Q3: 86.87%;
Q4: 88.12%.
Year: 2000;
Q1: 85.59%;
Q2: 78.87%;
Q3: 85.60%;
Q4: 86.38%.
Year: 2001;
Q1: 83.77%;
Q2: 73.76%;
Q3: 81.00%;
Q4: 83.18%.
Year: 2002;
Q1: Q1: 72.35%;
Q2: 73.51%;
Q3: N/A;
Q4: N/A.
Note: N/A = No data available for Q3 and Q4 of fiscal year 2002.
Source: Postal Service.
[End of table]
[End of section]
Footnotes:
[1] U.S. General Accounting Office, U.S. Postal Service: Deteriorating
Financial Outlook Increases Need for Transformation, [hyperlink,
http://www.gao.gov/products/GAO-02-355] (Washington, D.C.: Feb. 28,
2002).
[2] In fiscal year 2001, the Service reported a $1.68 billion deficit,
including a $256 million deficit in the first 2 quarters, $166 million
deficit in the third quarter, and a $1.26 billion deficit in the
fourth quarter.
[3] For trends in Priority Mail service, see Report of the Consumer
Advocate on Quality of Services Provided by the Postal Service to the
Public by the PRC Office of the Consumer Advocate (March 6, 2002).
[4] The Service has asked for nearly $1 billion in fiscal year 2003
appropriations for the total amount of revenue forgone for free and
reduced rate mail between 1991 and 1998 for which the Service has not
yet received appropriations. This request would be in lieu of the
current payment schedule established by a 1993 law for $29 million in
annual appropriations over 42 years.
[5] The present value of remaining payments of revenue foregone is
$422 million (at an interest rate of 5.8 percent) according to a
recent Congressional Research Service report. See The Postal Revenue
Foregone Appropriation: Overview and Current Issues, by the
Congressional Research Service (CRS Report RS21025, Updated November
23, 2001).
[6] Total assets on the balance sheet include a $32 billion deferred
retirement asset, which is an intangible asset that is not an economic
resource that can be applied to cover the Service's liabilities.
[7] In addition to the $32 billion in pension liabilities, the Service
would also pay $16 billion in associated interest if the Service made
the annual scheduled minimum payments over the amortization periods
prescribed by statute.
[8] The Office of Personnel Management recently told us that its
estimate of the Service's post-retirement health benefits obligation
was about $49 billion as of September 30, 2000, of which about $17
billion was attributed to current retirees. The Service's financial
statements do not record or disclose an obligation for retiree health
benefits, because the Service accounts for its participation in the
Federal Employees Health Benefits Program as participation in a multi-
employer plan. Thus, the Service reports that it is not required under
accounting standards to include post-retirement health benefits
obligations in its balance sheet.
[9] [hyperlink, http://www.gao.gov/products/GAO-02-355].
[10] U.S. General Accounting Office, A Model of Strategic Human
Capital Management, [hyperlink,
http://www.gao.gov/products/GAO-02-373SP] (Washington, D.C.: Mar. 15,
2002).
[11] U.S. General Accounting Office, Managing for Results: Building on
the Momentum for Strategic Human Capital Reform, [hyperlink,
http://www.gao.gov/products/GAO-02-528T] (Washington D.C.: Mar. 18,
2002).
[12] U.S. General Accounting Office, Protecting the Public's Interest:
Considerations for Addressing Selected Regulatory Oversight, Auditing,
Corporate Governance, and Financial Reporting Issues, [hyperlink,
http://www.gao.gov/products/GAO-02-601T] (Washington, D.C.: Apr. 9,
2002).
[13] [hyperlink, http://www.gao.gov/products/GA0-02-355].