U.S. Postal Service: Actions Needed to Stave off Financial Insolvency Page: 2 of 22
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Accountablllty * Integrity * Reliability
Highlights of GAO-11-926T, a testimony
before the Committee on Homeland Security
and Governmental Affairs, U.S. Senate.
Why GAO Did This Study
By the end of this fiscal year-in less
than one month-the U.S. Postal
Service (USPS) projects that it will
incur a $9 billion loss; reach its $15
billion borrowing limit; not make its
$5.5 billion retiree health benefits
payment; and thus, become insolvent.
USPS recently summarized this
situation as the equivalent of facing
Chapter 11 bankruptcy. In August
2011, USPS outlined new proposals to
address the crisis. USPS seeks
legislation to remove itself from the
federal health benefit program and
sponsor its own program; change
pension benefits for new employees;
and eliminate the layoff provisions it
negotiated with its unions in collective
bargaining to accelerate its delivery,
processing, and retail network and
workforce downsizing. Other USPS
proposals, such as moving to 5-day
delivery, and pending legislation
include additional options for
This statement discusses (1) updated
information on USPS's financial crisis
and (2) GAO's review and analysis of
proposals to address this crisis,
including USPS's new proposals, and
options in current legislation. The
testimony is based primarily on GAO's
review of pending legislation, past and
ongoing work related to postal issues,
as well as USPS's recent financial
results and GAO's discussions with
senior postal officials regarding
USPS's recent proposals. GAO has
reported that action by Congress and
USPS is urgently needed to restore
USPS's financial viability. GAO
provided a draft statement to USPS for
comments and did not receive any
View GAO-11-926T. For more information,
contact Phillip Herr at (202) 512-2834 or
U.S. POSTAL SERVICE
Actions Needed to Stave off Financial Insolvency
What GAO Found
USPS has experienced a cumulative net loss of nearly $20 billion over the last 5
fiscal years, including an $8.5 billion loss in 2010, and a net loss of $5.7 billion in
the first 9 months of fiscal year 2011. USPS does not now have-nor does it
expect to have-sufficient revenue to cover its costs without legislative changes.
To conserve cash, USPS discontinued making its employer's contribution for the
defined-benefit portion of the Federal Employees Retirement System (FERS) in
June 2011, which it estimated would reduce its costs by about $800 million this
fiscal year. USPS has said that mail volume decline has outpaced even its most
pessimistic forecasts. USPS urgently needs to restructure its networks and
workforce as its financial condition and outlook have reached a crisis level.
A variety of proposals have been made to address USPS's financial crisis. These
proposals affect USPS cost savings, postal rates, customer convenience,
pension benefits for new employees, employee health benefits, collective
bargaining agreements, and delivery and retail services. GAO has identified key
issues needing consideration in determining the merits of these proposals.
Examples of specific proposals and key considerations include:
* USPS proposal to sponsor its own health benefit plan: USPS expects to save
costs by increasing employee contribution rates, fully utilizing Medicare
benefits, and administering its plan more efficiently than OPM. However, it is
not clear whether USPS can achieve planned cost savings and what the
implications are for the federal budget, as USPS has requested about $42
billion in retiree health benefit assets be transferred from Treasury to a USPS
* USPS proposal to seek reimbursement of its $6.9 billion FERS surplus:
Reimbursing the entire surplus all at once is a risk as the current FERS
surplus is an estimate that could change as economic or demographic
assumptions change. The President's Fiscal Year 2012 Budget Request
proposed amortizing the reimbursement over 30 years, which would be
consistent with the approach taken for any deficits.
* USPS proposal on workforce optimization: USPS expects to reduce costs by
closing about 300 mail processing plants and 12,000 retail facilities; reducing
service; and eliminating layoff protections in collective bargaining
agreements so that it can reduce its total workforce by about 125,000 career
employees by 2015. This proposal accelerates the pace of USPS actions in
this area, but it is not clear how USPS will address public resistance to facility
closures that could lengthen the timeframes for implementation; employee
resistance to making legislative changes to layoff protections; and potential
loss of customers if service declines or costs increase.
Little time remains to prevent USPS-the largest federal civilian employer-from
insolvency. The stark reality is that USPS's business model is broken. The
decline in mail volumes is continuing. The gap between revenues and expenses
is growing. USPS cannot continue providing services at current levels without
dramatic changes in its cost structure. Difficult choices must be made. Now is the
time to decide USPS's future.
United States Government Accountability Office
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United States. Government Accountability Office. U.S. Postal Service: Actions Needed to Stave off Financial Insolvency, text, September 6, 2011; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc292869/m1/2/: accessed November 17, 2018), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.