Postal Service Faces Financial Crisis, GAO Warns

The Government Accountability Office warns that the U.S. Postal Service (USPS) is reaching a “tipping point” unless it can stop its rapidly deteriorating financial condition.

The problem is not complex: the post office is not taking in enough money to cover its expenses. But the solution may not be all that simple. The GAO, a non-partisan Congressional agency, says the USPS needs to take swift action to modernize and restructure its operations.

USPS experienced a net loss of $329 million in the first quarter of fiscal year 2011 and is projecting a $6.4 billion total net loss for fiscal year 2011. Mail volumes, USPS's main revenue source, have generally been decreasing as customers have shifted to electronic alternatives, GAO noted.

“This trend exposes weaknesses in USPS's business model, which has relied on mail volume growth to help cover costs,” the GAO said in a report released today. “While USPS continues to reduce employees' work hours, its cost reduction efforts have not been sufficient to offset lost revenue.”

Since fiscal year 2006, USPS has relied on debt to help cover its obligations. If it borrows $3 billion in fiscal year 2011 as its plans indicate, USPS will reach its $15 billion statutory debt limit.

President Obama proposes provide $4.5 billion in short-term help in fiscal year 2011 but the GAO says those actions don't address USPS' structural problems.

The GAO report says Congress, the administration, USPS and key constituencies must quickly agree on a modernization package that would “meet changing customer needs, and remove barriers restricting USPS actions.”

“This would allow USPS to optimize its networks and workforce so that it can become more efficient and reduce costs,” GAO said.

GAO recently reported on lessons learned from foreign postal services' modernization efforts, including using outreach and communication strategies to inform public officials and customers of increased access to products and services to help gain acceptance for retail network changes.

Some post offices also developed labor transition strategies that included training, relocation, job search services, and financial incentives to support employees who were negatively affected.

While USPS has taken steps to generate ideas for modernizing its retail and delivery networks, GAO said the experiences of foreign posts suggest that it will be “critically important for USPS to fully develop and implement similar outreach, communication, and labor transition strategies.”