Postal Service remains financially ‘at-risk,’ says GAO report

By Matt Wingfield
Federal News Radio

The United States Postal Service’s (USPS) ability to carry out its duties and remain financially self-sustaining continues to be at risk, according to a performance audit conducted over the last year by the U.S. Government Accountability Office (GAO).

Initiated at the request of Rep. Darrell Issa (R-Calif.), chairman of the Committee on Oversight and Government Reform, GAO’s report found that “USPS has insufficient revenues to cover its expenses and financial obligation … that continues to rise by approximately $2 billion per year or more.”

The report also said USPS has reached its statutory borrowing limit of $15 billion and has projected “unsustainable losses” through fiscal year 2020. “Since 2009, USPS’ financial condition has been on our High Risk list,” the report said. (The high risk list is updated every two years with agencies and program areas that are most vulnerable or in need of transformation.)

GAO found three main reasons for USPS’ perilous financial situation: The average hourly wage and benefits costs have increased due to cost-of-living allowances, increased health-benefits costs and wage increases from collective-bargaining agreements. Other expenses, such as transportation, have also increased. Lastly, many of the agency’s expenses are fixed and therefore do not vary with changes in mail volume.

In its latest Five-Year Business Plan, which was issued in April 2013, USPS officials said the agency needs to save up to $20 billion annually through FY 2017 to help it regain financial self-sufficiency. GAO’s report said the size and cost of USPS’ workforce accounts for 78 percent of its expenses ($56 billion of a total $72 billion), and is therefore “a key area for potential cost savings. … However, any reduction in the size of the USPS workforce … may be offset by inflationary pressure on compensation and benefits.”

USPS’ revenue has fluctuated since 2006, the report said, but has generally decreased. In 2006, the agency made $72.7 billion. By 2013, that number had declined to $67.3 billion — a 7 percent drop. USPS has already tried downsizing, the report said, though it hasn’t had the desired effect.

“From the end of fiscal year 2006 through fiscal year 2013, USPS decreased the size of its workforce … from approximately 796,000 employees to 618,000 employees, or by about 22 percent. The total number of work hours decreased by approximately 24 percent over this time, from 1.46 billion hours in fiscal year 2006 to 1.11 billion in 2013. Despite USPS’ reductions in the numbers of employees and work hours … its total expenses have not decreased. … Total expenses were $71.8 billion in fiscal year 2006 and $72.3 billion in fiscal year 2013.”

That reduction has come primarily through retirements and attrition, instead of laying off employees. USPS is prohibited by collective bargaining agreements with the American Postal Workers Union, the National Association of Letter Carriers, the National Postal Mail Handlers Union and the National Rural Letter Carriers’ Association from laying off certain employees. These agreements also contain clauses that prohibit it from laying off career employees who have worked for the agency for a certain period of time.

In May, however, USPS announced a reduction for postmasters beginning in January 2015 as part of the POStPlan Initiative, which reduces retail hours at selected post offices to two, four or six hours per day, replaces postmasters with career and non-career clerks, and adds more self-service kiosks.

Additionally, the agency has offered an incentives program to encourage retirement among several classes of employees. From 2010 to 2013, approximately 122,000 employees retired, with around 53,000 taking advantage of a separation incentive. Those incentives, GAO said, require upfront costs for USPS, but result in long- term savings from fewer employees receiving wages and benefits.

That incentive applies to postmasters as well. On June 27, the Postal Service announced a $10,000 separation incentive for 3,817 postmasters affected by the POStPlan. As of Sept. 30, 1,380 employees had accepted, which cost the agency approximately $14 million.

“In addition to offering separation incentives, USPS has reduced its workforce costs since fiscal year 2006 through various initiatives,” the report said. “One major source of cost savings was downsizing the workforce through attrition as mail volume and workload declined. In addition, USPS consolidated mail-processing operations and realigned its transportation network.” The agency’s five-year plan said it aims to reduce its workforce by 146,000 employees by 2017.

Despite USPS delivering to 153 million delivery points last year, GAO’s report found that mail volume has decreased by 26 percent since 2006 and shows no signs of stopping. First-class mail — the most profitable type — has declined by 33 percent since 2006, and USPS projects a continued decline through 2017. Standard mail volume has also declined by about 21 percent since it peaked in 2007. That rate is projected to remain roughly flat through 2017. USPS expects mail volume to continue decreasing as more and more people migrate from traditional mail to electronic media.

Though GAO’s report made no suggestions, it did note that USPS has some additional suggestions for cutting costs, some of which require congressional approval.

First, USPS officials said they want to eliminate door-to-door delivery, which costs more than delivering to either a curbside or centralized mailbox. By converting just one-third of door-to-door deliveries to something else, the agency estimated it could save $2 billion annually. However, agency officials are somewhat reluctant to implement this change, as they anticipate resistance from customers, employees and mailing-industry stakeholders. There are also concerns over package and carrier safety, officials said.

Among the actions that would require congressional approval is a proposed new five-day delivery schedule that would save approximately $2 billion annually, when fully implemented. However, since 1987, Congress has included language in appropriation acts which requires USPS to continue six-day delivery at “not less than the 1983 level.” All four major postal labor organizations have strongly opposed five-day delivery, the report said.

Other options the agency has identified include modifying its own health care plan within the Federal Health Benefits Program (FEBHP) to make Medicare the primary payer; granting the agency the authority to expand its products and services to include non-postal services; reforming workers’ compensation; requiring a defined contribution system for future employees where they save for their own retirement and USPS can match some or all of those savings; and eliminating a projected surplus in USPS obligations for the Federal Employees Retirement System (FERS).

Though the agency is in financial trouble, GAO’s report did not suggest it’s impossible to save.

“Incorporating key principles for workforce planning, such as developing performance measures, is important for USPS to demonstrate to Congress and other stakeholders how USPS’ current, planned and proposed workforce initiatives will achieve its targets and goals, and to help it move toward a point where it can be self-sustaining,” the report said.

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