Key Issues > High Risk > Restructuring the U.S. Postal Service to Achieve Sustainable Financial Viability
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Restructuring the U.S. Postal Service to Achieve Sustainable Financial Viability

This information appears as published in the 2017 High Risk Report.

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The U.S. Postal Service (USPS) faces a serious financial situation that is putting its mission of providing prompt, reliable, and efficient universal mail services at risk.1 It reported a net loss of $5.6 billion in fiscal year 2016—its 10th consecutive year of net losses. Additionally, it continues to face unfunded liabilities that have grown from 99 percent of USPS revenues in fiscal year 2007 to 169 percent of revenues in fiscal year 2016. These unfunded liabilities—totaling about $121 billion at the end of fiscal year 2016—consist mostly of retiree health and pension benefit obligations for which USPS has not set aside sufficient funds to cover. For example, since September 2010, USPS has not made almost $34 billion in required prefunding retiree health payments, which has led to an unfunded liability of about $52 billion.2 USPS's ability to make payments to cover its unfunded liabilities is challenged due to (1) continued expected declines in mail volumes; (2) growing expenses; (3) expiration of a temporary rate surcharge3 (which generated $4.6 billion in additional revenue from its January 2014 inception to its April 2016 discontinuation); and (4) no planned new major cost-savings initiatives. As a result, it is not likely that USPS will be able to make all of its required health and pension payments in fiscal year 2017.4

USPS's inability to make these payments may ultimately place taxpayers and the health care and pension benefits of USPS employees, retirees, and their beneficiaries at risk. Funded benefits protect the future viability of USPS by not saddling it with bills after employees have retired. USPS retirees participate in the same health and pension benefit programs as other federal retirees. Thus, if USPS ultimately does not adequately fund these benefits and if Congress wants these benefits to be maintained at current levels, funding from the U.S. Treasury and hence the taxpayer would be needed to continue the benefit at the same levels. Alternatively, unfunded benefits could pressure USPS to reduce benefits or pay for postal workers. In July 2009, we added USPS's financial condition to the list of high-risk areas needing attention by Congress and the executive branch to achieve broad-based restructuring.

[1] 39 U.S.C. § 101(a).

[2] Pub. L. 109-435, § 803, 120 Stat. 3198 (Dec. 20, 2006), codified at 5 U.S.C. § 8909a. The Postal Enhancement and Accountability Act of 2006 required USPS to begin prefunding health benefits for its current and future postal retirees, with predetermined annual payments of $5.4 billion to $5.8 billion for fiscal years 2007 through 2016, followed by actuarially determined payments beginning in 2017 and every year thereafter to address any unfunded liabilities. For more detail, see GAO-13-112.

[3] In December 2013, the Postal Regulatory Commission (PRC) approved USPS's request for an “exigent surcharge” which allowed USPS to raise postal rates for most mail above the statutory price cap that is generally limited to the rate of inflation, except under extraordinary or exceptional circumstances that necessitate a larger rate increase. In July 2015, PRC ruled that USPS could continue the surcharge until it collects $4.6 billion in incremental revenue, which represents USPS's approximate loss due to the decline in mail experienced during the Great Recession.

[4] In addition to making required payments for its retiree health benefits, in fiscal year 2017, USPS will be required to make payments to finance its postal pension benefits, specifically to address the unfunded liabilities under the Civil Service Retirement System, and to address any unfunded liabilities and normal costs of Federal Employees Retirement System benefits for current employees.

Restructuring the U.S. Postal Service to Achieve Sustainable Financial Viability

USPS has partially met all five of the criteria for removal from the High-Risk List. Although USPS has taken some steps to improve its financial situation, it has limited ability to resolve its financial difficulties, in part due to statutorily defined requirements, such as requirements to maintain 6-day delivery and resistance from external groups. USPS has made efforts to reduce its physical footprint, grow its shipping and package services, raise revenue, and reduce the gap between expenses and revenue. However, these initiatives are insufficient to restore USPS's financial viability. USPS has no plans to initiate new major initiatives that would achieve necessary cost savings—USPS has previously faced resistance to such efforts from customers and Congress.

USPS's Five Year Strategic Plan for fiscal years 2017 to 2021 identified specific legislative changes needed for USPS to return to long-term financial health. Furthermore, USPS continued to monitor its situation through public quarterly and annual financial reports that discuss its financial status and performance, but has also reported that it cannot secure its near- or long-term financial outlook without the passage of targeted postal reform legislation. The House Committee on Oversight and Government Reform approved a bill that addressed some of USPS's solvency challenges; however, the bill was not enacted and there continues to be a lack of consensus about how to address the trade-offs that are inherent with resolving USPS's financial difficulties.

USPS needs to continue taking action to reduce costs related to its operations, workforce, and facilities, and to increase revenues so that it can reduce its net losses, fully make its required payments to fund employee benefits, repay its debt, and generate capital for investments, such as replacing its aging vehicle fleet.

Congress and USPS need to agree on a comprehensive package of actions to improve USPS's financial viability. These actions include (1) modifying USPS's retiree health benefit payments in a fiscally responsible manner; (2) facilitating USPS's ability to better align costs with revenues; and (3) requiring any binding arbitration in the negotiation process for USPS labor contracts to take USPS's financial condition into account.

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