The Government Accountability Office’s (GAO) today released its biennial “High Risk Series” report. The report identifies those agencies most at risk of waste, fraud, abuse, mismanagement, or in need of reform. The U.S. Postal Service’s long-term outlook remains on the GAO’s high-risk list.

The GAO first placed USPS on the high-risk list in April 2001 because of the growing risk that it would be unable to continue providing universal postal service at reasonable rates while staying self-supporting through postal revenue. In 2007, GAO removed USPS from the High-Risk List in part due to its implementation of  Strategic Transformation strategies and passage of the Postal Accountability and Enhancement Act of 2006. However, two years later “In July 2009, GAO added the U.S. Postal Service’s (USPS) financial condition to the list of high-risk areas needing attention by Congress and the executive branch to achieve broad-based restructuring. Amid challenging economic conditions, a changing business environment, and declining mail volumes, USPS is facing a deteriorating financial situation which it does not have sufficient revenues to cover its expenses and financial obligations.”

The report included the usual in its “Strategies and (USPS) Options to Facilitate Progress Toward Financial Viability” by: Reduce wage costs by creating a two-tiered pay system; use more part-time staff; reduce benefit costs by reducing USPS health and life insurance contribution rates for active employees to levels comparable to those paid by other federal agencies. The GAO report also listed  “outsourcing” as an option  for reducing USPS  workforce size. But in July 2008, GAO released a report titled “Data Needed to Assess the Effectiveness of Outsourcing,”  GAO noted:

“Without cost-savings data, postal managers, stakeholders and Congress cannot assess the risk and value of outsourcing.. To determine the effectiveness of postal outsourcing, improve management accountability and support congressional oversight in this area, we are recommending that the Postmaster General should establish a mechanism to measure the results, including any savings, of outsourcing initiatives that are subject to its collective bargaining agreements and better inform Congress by including these results in its annual operations report to Congress. The Service generally agreed with our findings and our first recommendation. However, it did not commit to implementing our second recommendation to provide Congress with information about the results of its outsourcing initiatives, which we continue to believe is necessary to support congressional oversight.”

So, GAO was unable to justify the cost-savings of outsourcing but yet its an “option” to “Faciliate Progress Toward (USPS) Financial Viability?” 

Other Highlights of the GAO report on USPS:

Mail volume has declined from 213 billion pieces in fiscal year 2006 to 1 billion pieces in fiscal year 2010—a decline of about 20 percent. USPS expects mail volume to decline further to about 150 billion pieces by 2020.This trend exposes weaknesses in USPS’s business model, which has relied on mail volume growth to help cover costs. USPS actions to improve its financial condition have been limited in part by statutory and regulatory requirements, such as those related to closing unneeded facilties.

USPS cannot fund its current level of service and operations from its revenues and urgently needs to restructure to reflect changes in mail volume, revenue, and use of the mail. Although USPS reports $12.5 billion in cost savings since fiscal year 2006, it has not been able to cut costs fast enough to offset the large decline in mail volume and revenue – particularly costs related to its workforce, retail and processing networks, and delivery services the GAO said. Further,its revenue initiatives have had limited results. USPS can borrow up to $3 billion from the Treasury annually but expects to reach its statutory $15 billion borrowing limit in fiscal year 2011. USPS must align its costs with revenues, generate sufficient funding for capital investment, and manage its growing debt.

In March 2010, USPS issued a 10-year Action Plan, as suggested by GAO when it added USPS to its High-Risk List that included actions for Congress and USPS to take to achive financial viability. The plan included:

• restructuring its retiree health benefits payments,
•  eliminating Saturday delivery,
• expanding access to retail services,
• establishing a more flexible workforce,
• and expanding products and services.

In April 2010, GAO reported on strategies and options for USPS to generate revenues, reduce costs, and increase efficiency (GAO-10-455). Options included

• reducing compensation and benefit costs—which constitute about 80 percent of expenses—and
• optimizing networks to eliminate excess capacity

Several bills introduced in 2010 included provisions for congressional action to restructure USPS’s benefit payments and address barriers to implementing USPS’s Action Plan. These bills were not enacted.

What Needs to Be Done

Congress needs to approve a comprehensive package of actions that would improve USPS’s financial viability by:

1. modifying its retiree health benefit cost structure in a fiscally responsible manner
2.. facilitating USPS cost reduction, such as by modernizing and optimizing postal networks and its workforce;and
3. requiring any binding arbitration in the negotiation process for USPS labor contracts to take USPS’s financial condition into account.

read the full report Restructuring  the U.S. Postal Service To Achieve Sustainable Financial Viability