Congressional Action Is Essential to Enable a Sustainable Business Model (GAO-20-385)
Summary
A GAO report to congressional requesters, GAO-20-385, dated May 2020, on the U.S. Postal Service (USPS). It states that since GAO's 2009 high-risk designation, USPS's financial viability has progressively worsened because of declining mail volume, rising employee compensation and benefit costs, and growing unfunded liabilities and debt. GAO reports that First-Class Mail volume has declined 44 percent since fiscal year 2006 and that USPS lost about $78 billion from fiscal years 2007 through 2019. Its workforce fell from about 786,000 in fiscal year 2007 to about 617,000 in fiscal year 2013, then rose to about 630,000 in fiscal year 2019. The report's title states that congressional action is essential to enable a sustainable business model.
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United States Government Accountability Office
Report to Congressional Requesters
U.S. POSTAL
May 2020
SERVICE
Congressional Action
Is Essential to Enable
a Sustainable
Business Model
GAO-20-385
May 2020
U.S. POSTAL SERVICE
Congressional Action Is Essential to Enable a
Sustainable Business Model
Highlights of GAO-20-385, a report to
congressional requesters
Why GAO Did This Study What GAO Found
An independent establishment of the Since GAO’s 2009 high-risk designation, the U.S. Postal Service’s (USPS)
executive branch, USPS is required financial viability has progressively worsened due to declining mail volume,
to provide prompt, reliable, and increased employee compensation and benefit costs, and increased unfunded
efficient services to the public. While liabilities and debt. First-Class Mail volume has declined 44 percent since fiscal
USPS is to be self-sustaining, it lost year 2006. Additionally, employee compensation and benefits costs have been
about $78 billion from fiscal years increasing. Although USPS’s work force declined from about 786,000 in fiscal
2007 through 2019 due primarily to year 2007 to about 617,000 in fiscal year 2013, USPS’s work force increased to
declining mail volumes and about 630,000 in fiscal year 2019. Finally, total unfunded liabilities and debt
increased costs. Given USPS’s poor
continue their steady upward trend (see figure).
financial condition, in 2009 GAO
identified USPS’s financial viability Total U.S. Postal Service’s (USPS) Unfunded Liabilities and Debt, Fiscal Years 2007 through
as a high-risk area, a designation it 2019
retains today.
GAO was asked to explore issues
related the transformation of USPS
and potential implications for
stakeholders. This report (1)
examines major challenges facing
USPS, (2) identifies how selected
domestic businesses and foreign
posts reportedly have addressed
serious challenges, (3) examines
critical foundational elements of
USPS’s current business model, and
(4) identifies key previously issued
GAO matters for congressional
consideration regarding USPS and
actions taken in response.
GAO reviewed its prior reports and
related matters for congressional
consideration, analyzed laws and
regulations, and assessed USPS
documents on financial and
Note: Negative unfunded liabilities for pension benefits in fiscal years 2007 and 2010 represent
operational performance. It also projected funding surpluses.
reviewed reports by the USPS Office
of Inspector General, the Postal
Regulatory Commission, and other To address these challenges, USPS has taken a variety of actions such as
selected groups such as the 2018 providing increased self-service options and reducing facility hours. Statutory
Task Force on the United States requirements, however, limit USPS’s ability to make changes in areas such as
Postal Service. certain service offerings, pricing, and its employee compensation and benefits.
In confronting similar types of challenges that are facing USPS, GAO selected
large domestic businesses (companies) and foreign postal entities (widely known
as “foreign posts”) that have seen significant change in foundational elements of
their business models. Specifically, according to GAO’s analysis of publicly
View GAO-20-385. For more information, available reports and interviews of cognizant officials, these organizations have
contact Lori Rectanus at (202) 512-2834 or had major changes in services and products, financial self-sustainment, and
rectanusl@gao.gov.
institutional structure:
United States Government Accountability Office
To identify how domestic businesses
and foreign posts addressed similar • Companies and foreign posts have modified services and products to focus
serious challenges, GAO selected for on profitable offerings, and two countries’ posts reduced postal service
review (1) six domestic organizations levels. For example, New Zealand Post reduced its mail delivery’s frequency
in the airline, automobile, and railroad from 5 to 3 days per week in urban areas.
industries and (2) five foreign posts in • Companies have reduced their workforce, infrastructure, and operational
five countries—Australia, France, costs, and some accepted government financial assistance to help remain
Germany, New Zealand, and the financially viable. Cost reduction has also been a priority for all countries’
United Kingdom. The businesses and posts, especially in compensation and benefits, while three countries’
countries had characteristics similar to governments provided financial assistance to their posts.
USPS, such as large unionized work • Four of the selected companies declared bankruptcy leading to restructured
forces, and had reportedly made
corporations; some merged with other companies to increase their revenues.
significant changes to their business
Two countries privatized their posts, and three others restructured their posts
models. For each of these businesses
and countries, GAO analyzed public from government departments into government-owned corporations.
reports on financial and operational
performance, as well as institutional Regarding USPS, reassessing its business model should start with the level of
structure and requirements. GAO also required postal services. For example, delivery is USPS’s most costly operation;
interviewed government and postal USPS officials estimate annual savings of $1.4 billion to $1.8 billion if delivery of
officials from three selected countries mail were reduced to 5 days rather than 6 days per week. Second, USPS is to
and officials from the National Audit
function as a financially self-sustaining entity; however, it does not. A
Offices of two of the selected
reassessment could include determining whether some of USPS’s costs and
countries. Because questions were
raised regarding the application of the
liabilities should be borne by taxpayers. Third, alternative institutional structures
U.S. Bankruptcy Code to USPS, GAO for USPS range from a federal agency to a private company. A bankruptcy
also requested the National proceeding is not an effective or appropriate means to address the issues
Bankruptcy Conference to assess associated with a potential USPS restructuring, according to the National
whether USPS could use bankruptcy Bankruptcy Conference.
or other restructuring processes. Prior GAO reports have included suggestions for Congress to address USPS’s
To examine critical USPS business financial viability. For example, GAO’s 2010 report identified strategies to reduce
model elements, GAO reviewed its compensation, benefits, and operational costs. GAO stated that Congress,
prior reports and reports from among other things, consider all options available to reduce costs. While bills in
numerous other organizations, and this area were introduced and in some cases passed congressional committees,
obtained the views of stakeholders. legislation was not enacted. In 2018, GAO reported that the financial outlook for
the Postal Service Retiree Health Benefits Fund was poor—the Office of
What GAO Recommends Personnel Management forecasted the fund would be depleted by 2030 if USPS
Congress should consider reassessing continued not making payments into it. Legislation has not been enacted to place
and determining the (1) level of postal postal retiree health benefits on a more sustainable financial footing. Postal
services the nation requires, (2) extent reform legislation has not taken place in part because of the difficulty in obtaining
to which USPS should be financially compromise among various stakeholders with divergent views (see figure below).
self-sustaining, and (3) appropriate However, since GAO’s 2010 report, USPS’s financial condition has significantly
institutional structure for USPS. Both worsened raising fundamental questions about key elements of USPS’s business
USPS and the Postal Regulatory model. Such questions warrant congressional action.
Commission (PRC) generally
concurred with the matters. United States Postal Service’s (USPS) Key Stakeholders
Contents
Letter 1
Background 4
USPS Cannot Become Financially Self-Sustaining under Its
Current Business Model due to Three Key Challenges 8
Selected Domestic Companies and Foreign Posts Took Key Steps
to Address Major Challenges 16
USPS’s Transformation Involves Reassessment of Three Critical
Foundational Elements of Its Business Model 29
GAO’s Calls for Congressional Action to Address USPS’s
Solvency Remain Unaddressed 42
Conclusions 43
Matters for Congressional Consideration 43
Agency Comments and Our Evaluation 44
Appendix I Reprint of National Bankruptcy Conference’s Report on U.S. Postal
Service Bankruptcy Issues 46
Appendix II Selected Legal Requirements Applicable to the U.S. Postal Service
(USPS) 70
Appendix III U.S. Postal Service Financial Information for Fiscal Years 1972
through 2019 72
Appendix IV Comments from the U.S. Postal Service 74
Appendix V Comments from the Postal Regulatory Commission 77
Appendix VI GAO Contact and Staff Acknowledgments 79
Page i GAO-20-385 USPS Transformation
Table
Table 1: Examples of Potential Institutional Structures for the U.S.
Postal Service (USPS) 36
Figures
Figure 1: United States Postal Service’s (USPS) Key Stakeholders 6
Figure 2: Total U.S. Postal Service’s (USPS) Unfunded Liabilities
and Debt, Fiscal Years 2007 through 2019 14
Abbreviations
Code U.S. Bankruptcy Code
CRS Congressional Research Service
CSRS Civil Service Retirement System
FEHBP Federal Employees Health Benefits Program
EU European Union
FERS Federal Employees Retirement System
GM General Motors
NBC National Bankruptcy Conference
Ofcom United Kingdom’s Office of Communications
OIG U.S. Postal Service’s Office of Inspector General
OPM Office of Personnel Management
PAEA Postal Accountability and Enhancement Act
PBGC Pension Benefit Guaranty Corporation
PRA Postal Reorganization Act
PRC Postal Regulatory Commission
SEC Securities and Exchange Commission
TFP total factor productivity
UPS United Parcel Service
UAW International Union, United Automobile, Aerospace and
Agricultural Implement Workers of America
USPS U.S. Postal Service
VEBA voluntary employee beneficiary association
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Page ii GAO-20-385 USPS Transformation
Letter
441 G St. N.W.
Washington, DC 20548
May 7, 2020
The Honorable Ron Johnson
Chairman
Committee on Homeland Security and Governmental Affairs
United States Senate
The Honorable Jim Jordan
Ranking Member
Committee on Oversight and Reform
House of Representatives
The U.S. Postal Service (USPS) plays a critical role in the nation’s
communications and commerce. USPS is the largest postal service in the
world, delivering an estimated 47 percent of all mail sent globally. USPS’s
financial viability, however, has been on GAO’s High Risk List since 2009
due to USPS’s poor financial condition, which has worsened in recent
years due to declining mail volumes and rising costs. For example,
USPS’s net losses totaled approximately $78 billion from fiscal years
2007 through 2019, and its productivity has declined in recent years—a
trend that has contributed to its cost pressures. 1
USPS has been unable to make broad changes to address its financial
and other challenges because Congress, the Administration, USPS and
USPS’s stakeholders—including labor unions, mailers, and competitors—
have been unable to agree on how to do so. As a result, while major
postal reform legislation was enacted in 2006, further postal reform
legislation has not been enacted.
You asked us to explore issues related to the transformation of USPS and
their potential implications for stakeholders. For purposes of this report,
we use the term “business model” to refer to three key aspects of postal
service operations: “to bind the nation together” by providing universal
1USPS’s Total Factor Productivity (TFP) is an index that measures how efficiently USPS
uses resources to handle all aspects of its workload. TFP has declined in 4 of the last 5
fiscal years, reaching its lowest level in fiscal year 2019 since fiscal year 2013. USPS
attributes the decline in fiscal year 2019 to lower labor productivity, declining mail
volumes, increased transportation expenses and increased investments. See USPS,
FY2019 Annual Report to Congress (Washington, D.C.: December 2019).
Page 1 GAO-20-385 USPS Transformation
postal service; 2 to be financially self-sustaining by covering its costs,
primarily with revenues generated from its postal operations; and to be an
independent establishment of the executive branch. 3 This report: (1)
examines major challenges facing USPS, (2) identifies how selected
domestic businesses and foreign posts reportedly have addressed
serious challenges, (3) examines critical foundational elements for
transforming USPS’s business model, and (4) identifies key previously
issued GAO matters for congressional consideration regarding USPS and
actions taken in response.
For all of our objectives, we reviewed relevant federal laws and
regulations and interviewed USPS officials. To determine key challenges
to making USPS’s business model financially sustainable, we reviewed:
• USPS’s documents on financial and operational performance,
• our prior work, and
• reports by the USPS Office of Inspector General (OIG), the Postal
Regulatory Commission (PRC), the 2003 President’s Commission on
the United States Postal Service, and the 2018 Task Force on the
United States Postal Service, among others. 4
To examine how selected domestic businesses and foreign posts have
transformed their business models to become more financially viable, we
selected six domestic businesses in the airline, automobile, and railroad
industries. These businesses have or had large unionized workforces and
national network operations and significantly changed their business
models through bankruptcy or other restructuring options in response to
2USPS’s universal service obligation is governed by several statutory provisions, including
the requirement to provide a maximum degree of effective and regular postal services to
rural areas, communities, and small towns where post offices are not self-sustaining. See
39 U.S.C. § 101. For more information, see GAO, U.S. Postal Service: Strategies and
Options to Facilitate Progress toward Financial Viability, GAO-10-455 (Washington, D.C.:
Apr. 12, 2010) and Postal Regulatory Commission, Report on Universal Postal Service
and Postal Monopoly (Washington, D.C.: Dec. 19, 2008).
339 U.S.C. § 201.
4President’s Commission on the United States Postal Service, Embracing the Future:
Making the Tough Choices to Preserve Universal Mail Service (Washington, D.C.: July 31,
2003) and Task Force on the United States Postal System, United States Postal Service:
A Sustainable Path Forward (Washington, D.C.: Dec. 4, 2018).
Page 2 GAO-20-385 USPS Transformation
market changes in the last 10 to 40 years. 5 We also selected foreign
posts in five industrialized countries that made changes during the same
time period. 6 We selected these five countries based on prior work that
identified them as having made changes to adapt to the changing use of
mail; diverse characteristics, including the extent of privatization of their
postal operators and geography with both urban and rural areas; and the
availability of information in English. We reviewed and summarized key
findings of public reports on the financial and operational performance as
well as institutional structure and requirements of the selected domestic
businesses and the selected countries’ postal operators. Our review
included private company reports filed with the Securities and Exchange
Commission (SEC), annual reports by the private companies and foreign
posts, reports by GAO and the Congressional Research Service (CRS),
books, and academic articles, among other sources. We also conducted
site visits to France, Germany, and the United Kingdom to interview
government officials and representatives of foreign posts, a labor union, a
private-sector mail delivery company, postal economists, and two former
chief executives of foreign posts, about the changes to postal operations
in their countries. We did not conduct interviews with representatives of
the selected domestic businesses.
To identify the key issues for consideration involved in transformation, we
reviewed our prior work and reports from the USPS OIG and others on
different options. We used information on how our selected domestic
industries and foreign posts made significant changes to provide
examples of how different aspects of USPS’s business model could
change and their potential effects on USPS’s stakeholders. We also
interviewed representatives from three postal labor unions, a mailer group
that represents commercial mailers, and four third-party experts on postal
policy regarding their views on how USPS can change and the potential
effects of such a transformation on mailers, postal employees,
ratepayers, and competitors. We selected the mailer group and the third-
party experts based on our prior work and their differing positions on
USPS reform. While the views of the stakeholders and experts we
5The six businesses we selected were American Airlines, Delta Airlines, and United
Airlines; General Motors (GM) and Ford Motor Company (automobile); and Conrail
(railroad). We did not independently verify the information contained in the public reports
we analyzed from these companies.
6The five postal operators we selected were Australia Post (Australia); La Poste (France);
Deutsche Post (Germany); New Zealand Post (New Zealand); and Royal Mail (the United
Kingdom). We did not analyze applicable foreign postal laws. Instead, we relied on
documentation and interviews with foreign post officials.
Page 3 GAO-20-385 USPS Transformation
interviewed are not generalizable, they provide information and different
perspectives on options for USPS.
To provide expert insight into how USPS might be able to use the U.S.
Bankruptcy Code (Code) or other restructuring processes, we consulted
with the National Bankruptcy Conference (NBC). NBC is a non-partisan,
non-profit organization formed in the 1940s and today consists of
approximately 60 lawyers, law professors, and bankruptcy judges who
are leading experts in bankruptcy law. NBC’s primary purpose is to advise
Congress on the operation of bankruptcy and related laws and on any
proposed changes to those laws. NBC provided a report on whether
USPS could use the Code or other restructuring processes to address its
financial obligations and achieve a sustainable business model. We also
asked NBC what factors Congress should consider in deciding whether to
amend the Code or enact other legislation to address USPS’s financial
condition.
To describe GAO’s previously issued “Matters for Congressional
Consideration” regarding USPS, we reviewed and summarized our 2010
report on USPS’s business model, our 2018 report on Postal Retiree
Health Benefits, and our 2019 High Risk update. 7 We also reviewed
Congressional actions since 2010 regarding our proposed matters.
We conducted this performance audit from October 2018 to May 2020 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
USPS has the mission of providing prompt, reliable, and efficient
Background universal postal service, and federal law requires USPS to “provide postal
services to bind the Nation together through the personal, educational,
literary, and business correspondence of the people.” 8 USPS is required
7GAO-10-455; GAO, Postal Retiree Health Benefits: Unsustainable Finances Need to Be
Addressed, GAO-18-602 (Washington, D.C.: Aug. 31, 2019); and GAO, High Risk Series:
Substantial Efforts Needed to Achieve Greater Progress in High Risk Areas,
GAO-19-157SP (Washington, D.C.: Mar. 6, 2019).
839 U.S.C. § 101.
Page 4 GAO-20-385 USPS Transformation
to serve, as nearly as practicable, the entire population of the United
States. 9
USPS has a number of key stakeholders, each with different interests in
USPS and its operations (see fig. 1). USPS is a key part of the mailing
industry, and over time, it has become both a competitor and partner to
private companies that also operate in the broader mail and delivery
industries. For example, although United Parcel Service (UPS) and
FedEx both pay USPS to deliver packages that they enter into USPS’s
system at local post offices where carriers pick up their mail, they also
compete with USPS for end-to-end package delivery business, such as
moving packages from the retailer to the purchaser. Similarly, FedEx is
USPS’s largest contractor, providing air transportation for Priority Mail
Express (formerly Express Mail), Priority Mail, and First-Class Mail. UPS
is also one of USPS’s largest contractors, providing long-distance mail
transportation.
939 U.S.C. § 403(a).
Page 5 GAO-20-385 USPS Transformation
Figure 1: United States Postal Service’s (USPS) Key Stakeholders
Over the years, legislation has changed key aspects of the business
model used to provide the nation’s postal services. Until 1970, the federal
government provided postal services via the U.S. Post Office Department,
a government agency that received annual appropriations from
Congress. 10 At that time, Congress was involved in many aspects of the
10In fiscal year 1971, the last fiscal year before USPS was created, the U.S. Post Office
Department’s appropriations were approximately 25 percent of its expenses and
commitments.
Page 6 GAO-20-385 USPS Transformation
department’s operations, such as selecting postmasters and setting
postal rates and wages. In addition, the President controlled the hiring
and firing of Postmasters General, as it was a cabinet-level position. By
the late 1960s, the department had several major problems including
financial losses, management problems, service breakdowns, and low
productivity. Because key postal business decisions were made by
Congress through the legislative process, postal management had limited
ability to plan and finance department operations and capital investments
in accordance with postal needs. 11
In order to improve and modernize postal services, the Postal
Reorganization Act (PRA) was enacted in 1970 and replaced the U.S.
Post Office Department with USPS, an independent establishment of the
executive branch of the government of the United States. 12 Congress
designed USPS to be a self-sustaining, business-like entity headed by a
Board of Governors that would cover its operating costs primarily with
revenues generated through the sales of postage and postal-related
products and services. 13
However, by the early 2000s, USPS faced a bleak financial outlook that
put its mission of providing universal postal service at risk, according to
the 2003 Presidential Commission on the United States Postal Service. 14
The Commission evaluated USPS’s business model and concluded that
USPS must have greater flexibility to operate in a business-like fashion,
but that this latitude required enhanced transparency to enable effective
11In response to these growing challenges, President Lyndon B. Johnson appointed a
commission to identify recommendations for improving the nation’s postal services. In
1968, the commission, referred to as the “Kappel Commission,” concluded that the U.S.
Post Office Department should be restructured to become financially self-supporting and
that management authority should be invested in a Board of Directors. See President’s
Commission on Postal Organization, Towards Postal Excellence (Washington, D.C.: June
1968).
12Pub. L. No. 91-375 (1970); 39 U.S.C. § 201.
13USPS received an annual appropriation as a general public service subsidy until 1982.
See USPS, The United States Postal Service: An American History, 1776-2006
(Washington, D.C.: Nov 2012). Currently, USPS receives an annual appropriation for
revenue forgone for providing (1) free and reduced rate mail for the blind and (2) overseas
voting materials for U.S. elections. See e.g., Pub. L. No. 116-93 (2019). Congress
appropriated about $55.2 million to USPS for these purposes in fiscal year 2019. USPS
earned $71.1 billion in operating revenue in fiscal year 2019.
14President’s Commission on the United States Postal Service, Embracing the Future:
Making the Tough Choices to Preserve Universal Mail Service.
Page 7 GAO-20-385 USPS Transformation
management and congressional oversight. The Postal Accountability and
Enhancement Act (PAEA) was enacted in 2006. 15 PAEA provided USPS
additional pricing flexibility for mail products, 16 but with provisions for
increased transparency, oversight, and accountability, among other
things.
Specifically, PAEA gave USPS broader latitude to change postal rates in
a more streamlined process that included review by the newly created
Postal Regulatory Commission (PRC). 17 The PRC, which replaced the
former Postal Rate Commission, is an independent establishment of the
executive branch responsible for regulating USPS. PRC is required to
make annual determinations of USPS’s compliance with mail delivery
standards and postal rate requirements. 18 If PRC finds noncompliance, it
is required to specify USPS actions to restore compliance. 19
USPS’s current business model is not financially sustainable due to
USPS Cannot declining mail volumes, increased compensation and benefits costs, and
Become Financially increased unfunded liabilities and debt. USPS’s costs continue to rise
faster than its revenues, and although USPS has made changes over the
Self-Sustaining under years to address these challenges, its efforts have been limited by
Its Current Business stakeholder opposition and statutory requirements.
Model due to Three
Key Challenges
Declining Mail Volumes As online communication and payments have expanded, USPS continues
to face decreases in mail volume, its primary revenue source. First-Class
Mail volume has declined 44 percent since fiscal year 2006, the year that
15Pub. L. No. 109-435 (2006).
16USPS’s products are divided into market-dominant and competitive categories. Market-
dominant products are those for which USPS “exercises sufficient market power that it can
effectively set the price of such product substantially above costs, raise prices
significantly, decrease quality, or decrease output, without risk of losing a significant level
of business to other firms offering similar products.” 39 U.S.C. § 3642. PAEA also
authorized USPS to raise average rates for market-dominant products up to a defined
annual cap of the consumer price index. Competitive products are all other products.
1739 U.S.C. §§ 501, 3622, 3632.
1839 U.S.C. § 3653.
1939 U.S.C. § 3653.
Page 8 GAO-20-385 USPS Transformation
total mail volume peaked. The long-term decline of First-Class Mail
volume, which USPS has stated was exacerbated by the Great
Recession and expects to continue for the foreseeable future, 20 has
fundamental implications for USPS’s business model because First-Class
Mail is USPS’s most profitable class of mail. USPS Marketing Mail—
which comprises most other mail volume—declined 27 percent from fiscal
year 2007 to fiscal year 2019, in part due to electronic advertising
alternatives. The volume of USPS competitive products more than tripled
since fiscal year 2007. This volume, however, began to decline in the
second half of fiscal year 2019 due to growing competition for package
delivery. 21
USPS has taken steps to right size its operations in response to declining
mail volumes. For example, in both 2009 and 2011, USPS announced
plans to close several thousand USPS retail facilities. However, due to
stakeholder opposition—including from members of Congress, postal
unions, and local communities, among others—USPS instead closed a
few hundred retail facilities. USPS also expanded the alternative options
for customers to access retail postal products and services outside of
USPS-operated postal facilities—such as self-service kiosks and
partnerships with other retailers such as contract postal units. According
to USPS, as a compromise effort to right size the retail network and due
in part to USPS’s efforts to expand retail alternatives, USPS began
reducing retail hours at selected post offices in 2012, ultimately
decreasing retail hours at approximately 13,000 post offices. Another
major cost-cutting effort was its 2011 Network Rationalization Initiative, a
multi-part plan to consolidate its mail processing network. USPS
consolidated more than 160 mail processing facilities, but did not fully
implement this initiative following opposition from various stakeholders.
In addition to stakeholder opposition to changing postal services, federal
laws also factor into USPS’s limited ability to respond to declining mail
20The National Bureau of Economic Research reported that the Great Recession lasted
from December 2007 to June 2009.
21Competitive mail volume was 4 percent of total mail volume but about 33 percent of
USPS revenues in fiscal year 2019. Nearly all of USPS’s remaining revenue—about 2/3 of
its total revenue—was generated from the sale of market-dominant products such as First-
Class Mail and USPS Marketing Mail.
Page 9 GAO-20-385 USPS Transformation
volumes. For example, federal laws define the level of postal services
USPS is to provide, postal products, and pricing. 22
• Postal services to be provided: USPS has limited ability to make
changes in the postal services it provides. Specifically, USPS is
required to provide 6-days-a-week delivery and to operate postal
facilities across the country. 23 Federal law requires USPS to provide
the maximum degree of effective and regular postal services to rural
areas, communities, and small towns where post offices are not self-
sustaining. 24 Federal law also limits USPS’s ability to close retail
facilities. For example, USPS cannot close a small post office solely
because it is unprofitable. 25 As of the end of fiscal year 2019, there
were approximately 34,600 postal retail outlets nationwide, including
approximately 31,300 USPS-managed post offices, branches, and
stations, and, as we recently reported, USPS’s analysis showed that
about 36 percent of its retail facilities were unprofitable in fiscal year
2018. 26
• Postal products and pricing: USPS’s pricing flexibility is limited by a
price cap on market-dominant products that generally limits rate
increases for these products to a common measure of inflation. Each
competitive product is required to cover its attributable costs;
competitive products collectively are required to recover their
attributable costs; and competitive products collectively are required
to cover a PRC-specified minimum of USPS’s institutional costs. In
addition, USPS is prohibited from providing new nonpostal products
and services. Such requirements affect USPS’s ability to increase
revenues.
22See appendix II for more information on selected legal requirements applicable to
USPS.
23See Pub. L. No. 116-93 (2019); 39 U.S.C. § 403(b)(3).
2439 U.S.C. § 101(b).
2539 U.S.C. § 101(b).
26GAO, U.S. Postal Service: Expanding Nonpostal Products and Services at Retail
Facilities Would Likely Present Benefits and Challenges, GAO-20-354 (Washington, D.C.:
Mar. 10, 2020). USPS defines profitable retail facilities as those with a positive net retail
revenue contribution, which is defined as retail revenue less retail costs. Facilities with a
negative net retail revenue contribution are defined as unprofitable. This figure includes
USPS-managed retail facilities including USPS-operated post offices, postal stations,
branches, and carrier annexes, as defined in USPS’s Annual Reports to Congress.
Page 10 GAO-20-385 USPS Transformation
Increased Compensation While mail volumes have decreased, USPS’s compensation and benefits
and Benefits Costs costs for current employees have been increasing since 2014, despite
USPS’s efforts to control these costs. Although USPS reduced its total
workforce (career and non-career employees) from 785,900 in fiscal year
2007, to 617,700 in fiscal year 2013, its workforce increased to about
630,000 in fiscal year 2019. 27 Similarly, as we previously reported, 28
recent trends show total work hours increased from a combination of new
hiring and increased work hours for current employees. Specifically, we
reported that from fiscal years 2014 through 2018, work hours increased
by 5.4 percent. The number of work hours associated with higher costs—
overtime and penalty overtime—have also been increasing. 29 According
to USPS, total compensation and benefits costs increased by almost $1
billion in fiscal year 2019 alone.
USPS has implemented changes to help control employee compensation
and benefits costs, including lowering pay for new career employees and
increasing use of non-career employees. 30 For example, as we previously
reported, starting about 10 years ago, USPS’s collective bargaining
agreements have included the ability to hire up to 20 percent of the
workforce as non-career employees. 31 Non-career employees are less
costly because they generally have lower pay rates and are not entitled to
the full federal benefits received by career employees. According to
USPS officials, non-career employees are also “more flexible” because
27In addition to being classified by occupation type (e.g., letter carrier and mail handler),
USPS employees are also divided into “career” and “non-career” employees. Career
employees are considered permanent and are entitled to a range of benefits (e.g., health
and retirement) and privileges. USPS stated that non-career employees include those with
lower-paid positions such as city carrier assistants and postal support employees and
temporary employees hired during times of large mail volume such as holidays.
28GAO, U.S. Postal Service: Additional Guidance Needed to Assess Effect of Changes to
Employee Compensation GAO-20-140 (Washington, D.C.: Jan. 17, 2019).
29Overtime hours are paid at one and one-half times the employee’s basic hourly rate and
penalty overtime hours are paid at twice the employee’s basic hourly rate for hours as
provided for in applicable collective bargaining agreements. USPS stated that while
overtime hours have been increasing, its use of regular overtime is less expensive than
hiring additional employees.
30GAO-20-140.
31Collective Bargaining Agreements (CBAs) with postal labor unions generally specify
caps for the percentage of non-career employees that USPS may use in positions covered
by the agreements. GAO-20-140. USPS hires non-career employees to supplement its
regular workforce in a select number of positions including “mail service handler
assistant.” Non-career employees do not receive full employee benefits and privileges.
Page 11 GAO-20-385 USPS Transformation
there are fewer restrictions on their tasks and schedules. We recently
reported that our analysis estimated that USPS likely saved about $6.6
billion from fiscal years 2016 through 2018 from increased use of non-
career employees. 32 USPS has recognized trade-offs in increasing the
use of non-career employees in entry-level positions, such as a high
turnover rate, as would be expected for almost any entry-level position in
the private sector.
With respect to benefits costs for current postal employees, we have
recently reported that USPS has also achieved savings by gradually
decreasing its contribution percentage for employee health insurance
premiums over the past decade, with corresponding increases in the
contribution percentage paid by employees. 33 These changes were
negotiated with the four major postal labor unions and were included in
successive collective bargaining agreements, each of which covered a
multi-year period. 34 We found that the reduction in USPS health insurance
contributions generated estimated savings of about $1.4 billion for fiscal
years 2016 through 2018. 35
A number of restrictions limit USPS’s ability to control employee
compensation and benefits costs. As we recently reported, USPS
compensation and benefits costs—which represent about three-fourths of
its total costs—are driven by a mix of USPS contracts and policies,
including collective bargaining agreements negotiated with unions
representing 92 percent of USPS employees, and statutory requirements
governing USPS employee pay and benefits. 36 When USPS and its
unions are unable to agree, the parties are required to enter into binding
arbitration by a third-party panel. USPS’s collective bargaining
agreements with these labor unions, some of which were established
through binding arbitration, have established salary increases and cost-
of-living adjustments and, as mentioned above, have also capped the
number of non-career employees at approximately 20 percent of the
32GAO-20-140.
33GAO-20-140. For this report’s analysis, fiscal year 2018 was the most recent fiscal year
covered.
34USPS’s contribution percentage for retiree health benefits is governed by statute. 5
U.S.C. § 8906(g). For more information, see GAO-18-602.
35GAO-20-140.
36GAO-20-140.
Page 12 GAO-20-385 USPS Transformation
number of employees covered by the agreements. Federal law requires
USPS to participate in the Federal Employees Health Benefits Program
(FEHBP), which covers current employees and retirees, as well as federal
pension and workers’ compensation programs. 37 Further, USPS must
provide fringe benefits that, as a whole, are no less favorable than those
in effect when the Postal Reorganization Act of 1970 was enacted. 38
Increased Unfunded USPS’s unfunded liabilities and debt, 39 which consist mostly of unfunded
Liabilities and Debt liabilities for retiree health and pension benefits, have become a
significant financial burden, increasing from 99 percent of USPS’s annual
revenues at the end of fiscal year 2007 to 226 percent of its fiscal year
2019 revenues. 40 At the end of fiscal year 2019, USPS’s unfunded
liabilities and debt totaled approximately $161 billion. However, it has
begun paying down this debt in recent years, leaving a balance of $11
billion at the end of fiscal year 2019 (see fig. 2).
375 U.S.C. §§ 8901 et seq., 39 U.S.C. § 1005(f). USPS is required to participate in FEHBP
unless USPS and its unions agree to an alternative health benefits program.
3839 U.S.C. § 1005(f).
39As of the end of fiscal year 2019, USPS was authorized to borrow up to $15 billion. 39
U.S.C. § 2005(a).
40Unfunded benefit liabilities are the estimated amount USPS has not sufficiently set aside
to cover the benefits earned by its current and retired employees that are attributable to
service already rendered.
Page 13 GAO-20-385 USPS Transformation
Figure 2: Total U.S. Postal Service’s (USPS) Unfunded Liabilities and Debt, Fiscal Years 2007 through 2019
a
Negative unfunded liabilities for pension benefits in fiscal years 2007 and 2010 represent projected
funding surpluses.
Total unfunded liabilities have risen in part due to USPS not making
payments to fund its retiree health and pension benefits. USPS has
stated that it prioritizes its “primary universal service mission” when it is
unable to fulfill all of its financial obligations, and that it therefore did not
make payments to fund its postal retiree health benefits and pensions to
minimize the risk of running out of cash. 41 In doing so, USPS cited its
41USPS, 2019 Report on Form 10-K (Washington, D.C.: Nov. 14, 2019).
Page 14 GAO-20-385 USPS Transformation
precarious financial condition and the need to cover current and
anticipated costs and any contingencies. It has not paid $55.4 billion in
required payments for funding these benefits through fiscal year 2019,
including $47.2 billion in missed funding payments for retiree health
benefits since fiscal year 2010, and $8.2 billion for funding pension
benefits since fiscal year 2014. In addition, for many years, USPS had
been at its statutory debt limit of $15 billion; however, it has begun paying
down this debt in recent years, leaving a balance of $11 billion at the end
of fiscal year 2019.
A number of federal laws define the requirements for USPS’s retiree
health and pension benefits that comprise most of its unfunded liabilities.
Retiree health benefits: Federal law establishes certain requirements for
postal retiree health benefits, including basic requirements for coverage
eligibility and contributions. In administering the FEHBP, the Office of
Personnel Management (OPM) negotiates with the insurance providers to
establish the level of benefits provided to beneficiaries. 42 USPS is
required to prefund its share of health benefits for its retirees. Under
PAEA, the first 10 years of prefunding payments were fixed—ranging
from $5.4 billion to $5.8 billion annually from fiscal years 2007 to 2016. 43
From fiscal years 2007 through 2016, USPS was also required to
continue “pay-as-you-go” payments for its share of premiums for current
retirees. The permanent schedule for USPS payments to prefund postal
retiree health benefits under PAEA required USPS to make annual
payments starting in fiscal year 2017. 44 Currently, USPS no longer makes
payments for retiree health benefits premiums. Starting in 2016, these
premiums are paid out of the RHB Fund until it is depleted, whereupon
USPS will resume paying premiums on a pay-as-you-go basis. 45 As we
42GAO-18-602.
43USPS’s required prefunding payment due in 2009 was reduced from $5.4 billion to $1.4
billion. Pub. L. No. 111-68, § 164(a) 123 Stat. 2023, 2053 (Oct.1, 2009).
44Under the permanent payment schedule, USPS’s payments are based on annual
actuarial determinations of the following component costs: (1) a statutorily determined
amortization schedule to address the unfunded liabilities for postal retiree health benefits
by 2056, or within 15 years, whichever is later, and (2) the “normal costs” of retiree health
benefits for current employees. The “normal cost” is the annual expected growth in liability
attributable to an additional year of employees’ service. OPM is required to annually re-
estimate future expenses for retiree health benefits and adjust USPS’s payment schedule.
See 5 U.S.C. § 8909a.
455 U.S.C.§ 8906(g)(2)(A).
Page 15 GAO-20-385 USPS Transformation
previously reported, survey data we reviewed indicated that most
companies do not offer retiree health benefits and that the number of
companies providing such benefits is decreasing over time. Many
companies that have retained their retiree health benefits have done so
by making changes to control costs, including tightening eligibility and
restructuring benefits. 46 However, all approaches we identified have
different potential effects and would require congressional action.
Pension benefits: Federal law also requires USPS to finance its pension
benefits under the Federal Employees Retirement System (FERS) and
the Civil Service Retirement System (CSRS) and contains specific
provisions defining USPS’s required contribution level to fund these
benefits. USPS’s payments consist of a rolling 30-year amortization
schedule to address unfunded FERS liabilities, an amortization schedule
to address unfunded CSRS liabilities by 2043, and the normal costs of
FERS benefits for current employees.
The large domestic companies we selected in the airline, auto, and
Selected Domestic railroad industries took actions over a number of years to address major
Companies and business challenges. Airlines such as Delta, American, and United faced
competition from low-cost airlines, downward pressure on airfares, and
Foreign Posts Took rising compensation, benefits, and volatile fuel costs. These challenges
Key Steps to Address were exacerbated by the economic downturn that began in 2000, the
terrorist attacks of September 11, 2001, and the Great Recession that
Major Challenges began in December 2007, all of which temporarily depressed demand for
airline travel. 47 Similarly, General Motors (GM) and Ford Motor Company
(Ford) faced competition from lower cost competitors, the Great
Recession, a workforce and networks too large to be supported by
smaller sales volumes, and other changes in the market. 48 Likewise, large
U.S. railroads competed for freight and passengers from other
46GAO-18-602. For example, the percentage of all private and public organizations (e.g.,
state or local governments) with more than 200 employees that offer employee health
benefits and that also offer retiree health benefits is estimated to have declined from 40
percent in 1999 to 25 percent in 2017, according to annual surveys conducted by the
Henry J. Kaiser Family Foundation and the Health Research & Educational Trust.
47GAO, Airline Competition: The Average Number of Competitors in Markets Serving the
Majority of Passengers Has Changed Little in Recent Years, but Stakeholders Voice
Concerns about Competition, GAO-14-515 (Washington, D.C.: June 11, 2014) and
Commercial Aviation: Legacy Airlines Must Further Reduce Costs to Restore Profitability,
GAO-04-836 (Washington, D.C.: Aug. 11, 2004).
48GAO, Auto Industry: Summary of Government Efforts and Automakers’ Restructuring to
Date, GAO-09-553 (Washington, D.C.: Apr. 23, 2009).
Page 16 GAO-20-385 USPS Transformation
transportation modes, such as the trucking and airline industries that
operated over publicly provided infrastructure, while railroads had to
invest in their own infrastructure.
Based on our review of the selected companies’ annual reports and
statements to the SEC as well as selected federal laws, and GAO, CRS,
and other organizations’ reports, books, and academic articles, among
other sources, we found that selected companies made changes to (1)
products and services, (2) financial self-sustainment, and (3) use of the
bankruptcy process. While some of the selected businesses restructured
through a bankruptcy proceeding, other businesses took similar actions
outside of the bankruptcy process. 49 Mergers also played an important
role for the airlines and railroads.
Actions Taken by
Companies to Address
Challenges
Actions Regarding Products The selected companies made multiple changes to their products and
and Services services. Specifically:
• Airlines: Selected airlines altered pricing by changing route structure
to focus on more profitable routes and adding fees, such as for
checked baggage. 50 In addition, all three selected airlines merged
with other major airlines, thereby broadening their routes and
revenues. 51
• Automakers: Selected automakers focused on producing more
profitable brands and models, discontinuing some models and
introducing others. For example, during its financial difficulties about a
decade ago, GM discontinued a number of unprofitable brands. In
2018, after years of declining car sales, Ford said it would eliminate
some of its most well-known cars in North America, allowing it to
devote more resources to sport utility vehicles and trucks.
49GAO, Commercial Aviation: Bankruptcy and Pension Problems Are Symptoms of
Underlying Structural Issues, GAO-05-945 (Washington, D.C.: Sept. 30, 2005).
50GAO, Commercial Aviation: Information on Airline Fees for Optional Services,
GAO-17-756 (Washington, D.C.: Sept. 20, 2017).
51GAO-14-515 and GAO, Airline Mergers: Issues Raised by the Proposed Merger of
United and Continental Airlines, GAO-10-778T (Washington, D.C.: May 27, 2010).
Page 17 GAO-20-385 USPS Transformation
• Railroads: Large railroads focused on more profitable routes and
abandoned unprofitable routes or sold them to other railroads. For
example, the federal government created a new freight railroad,
Conrail, by merging several bankrupt railroads in the Northeast and
Midwest. 52 As we have reported previously, federal government
deregulation of railroad pricing and contracts after 1980 also helped
Conrail to reach profitability and increase capital investment. 53
Actions Regarding Financial Cost reduction was a major theme for the selected businesses in the
Self-Sustainment airline, automotive, and rail industries, particularly with respect to
compensation, benefits, and infrastructure costs. Specifically:
• Airlines: The three selected airlines negotiated wage cuts and work
rule changes with their unions; made workforce reductions, in part by
outsourcing work; and cut pension and retiree health benefit
programs. 54 Wage cuts included all levels of employees, such as
management, pilots, flight attendants, and mechanics. Benefit cuts
involved reducing the level of pensions and retiree health benefits and
transitioning pension programs from defined benefits plans to defined
52In 1974, the federal government created the Consolidated Railroad Corporation
(Conrail), a government-owned and financed freight railroad and authorized its initial
capitalization. Eighty-five percent of Conrail’s shares were owned by the federal
government and 15 percent of the shares were owned by Conrail’s employees. See GAO,
Budget Issues: Privatization/Divestiture Practices in Other Nations GAO/AIMD-96-23
(Washington, D.C.: Dec.15, 1995).
53GAO, Guidelines for Rescuing Large Failing Firms and Municipalities, GAO/GGD-84-34
(Washington, D.C.: Mar. 29, 1984); GAO, Railroad Regulation: Economic and Financial
Impacts of the Staggers Rail Act of 1980, GAO/RCED-90-80, (Washington, D.C.: May 16,
1990); and GAO/AIMD-96-23.
54Work rules specify the work that employees are expected to do and the amount of
compensation they will receive for performing this work. Although such agreements can
and do include changes designed to increase employee productivity by increasing or
broadening the types of tasks that employees can perform, such agreements can also
affect productivity by limiting the amount or type of work that employees can perform.
GAO, Intercity Passenger Rail: National Policy and Strategy Needed to Maximize Public
Benefits from Federal Expenditures, GAO-07-15 (Washington, D.C.: Nov.13, 2006).
Page 18 GAO-20-385 USPS Transformation
contribution plans that were structured to be less costly. 55 Airlines also
reduced infrastructure costs by eliminating some hubs, reducing the
total number of aircraft, and changing the mix of aircraft in their fleet to
save on maintenance and fuel costs. The airlines further cut costs by
restructuring debt, reducing facility leasing costs, and renegotiating
aircraft leases and vendor contracts.
While in bankruptcy, the airlines took major actions to reduce their
costs. For example, United implemented steep pay cuts, cut retiree
health benefits, and terminated its defined benefit pension plans,
resulting in the Pension Benefit Guaranty Corporation (PBGC)
assuming responsibility for some of its pension payments, 56 and a
reduction in benefits for the plan’s participants. 57 United also cut its
workforce size by 31 percent, reduced the number of airplanes by 19
percent, and reduced the total number of flights by 13 percent. Delta
and American also reduced pay and pension benefits while in
bankruptcy, and the PBGC assumed responsibility for some of Delta’s
pension liabilities.
• Automakers: The two selected automakers negotiated pay cuts, lower
wages for entry-level employees, and changes to work rules designed
to increase competitiveness; cut the workforce size in about half;
made changes to employee benefits; closed many auto plants and
dealerships; eliminated some vehicle brands and models; and
changed the production process to increase efficiency. Specifically,
The International Union, United Automobile, Aerospace and
Agricultural Implement Workers of America (UAW) agreed to cuts in
55Defined benefit plans are employer-sponsored retirement plans that traditionally promise
to provide a benefit for the life of the participant, based on a formula specified in the plan
that typically takes into account factors such as an employee’s salary, years of service,
and age at retirement. In contrast, defined contribution plans allow participants to
accumulate savings in an individual account based on the contributions made to the
accounts, and the performance of the investments in those accounts, which may fluctuate
in value. For additional details, see GAO, The Nation’s Retirement System: A
Comprehensive Re-evaluation Is Needed to Better Promote Future Retirement Security,
GAO-18-111SP (Washington, D.C.: Oct.18, 2017).
56The Employee Retirement Income Security Act of 1974 established the PBGC to insure
the pension benefits of participants in qualified defined benefit plans should the plans be
terminated with insufficient funds or become insolvent. See GAO, Retirement Security
Trends in Corporate Restructurings and Implications for Employee Pensions,
GAO-19-447R (Washington, D.C.: July 12, 2019).
57GAO-05-945.
Page 19 GAO-20-385 USPS Transformation
compensation for the automakers’ employees to levels paid by GM
and Ford’s competitors. UAW also agreed to move retiree health care
benefits into a private Voluntary Employee Beneficiary Association
(VEBA) 58 for current and former UAW-represented employees in
2007; the VEBA took over health benefits for retirees starting in 2010.
The automakers also closed defined benefit pension plans to new
participants and moved to defined contribution pension plans for
eligible new employees.
• Railroads: The Staggers Rail Act of 1980 was enacted to improve the
financial stability of the railroad system. 59 Subsequently, railroads
improved their financial health through, among other things, cost
reduction measures such as reducing their workforce through layoffs
and federal buyouts agreed to by unions, and abandoned or sold off
unprofitable rail lines to reduce infrastructure and operating costs. 60
Overall railroad employment fell greatly as railroads consolidated,
reduced service, and changed work rules. For example, Conrail
reduced its workforce from about 82,000 employees in 1977 to about
21,000 in 1996. Congress specifically facilitated Conrail’s downsizing
by passing the Northeast Rail Service Act of 1981, which among other
things, directed a $200 million a year reduction in labor costs and
authorized Conrail to terminate employees. 61
The U.S. government provided assistance to selected companies in
various forms, including appropriated funds, loans, and other actions that
helped enable companies to reduce their expenses. For example:
• Automakers: The federal government committed $49.5 billion in
funding to help GM continue to operate while restructuring. After the
government became the majority owner of the GM that emerged from
bankruptcy, the Administration laid out core principles that included
58A VEBA is an entity that provides and administers health benefits separately from an
employer. The VEBA determines the specific benefits that are provided, the level of
contributions from the VEBA members, and the investing of its assets. GAO-18-602.
59Pub. L. No. 96-448, §§ 101, 201 (1980).
60GAO/RCED-90-80.
61Pub. L. No. 97-35, §§ 1134, 1136, 1143(a) (1981).
Page 20 GAO-20-385 USPS Transformation
managing its ownership in a hands-off manner and voting as a
shareholder only on core governance issues. 62
• Airlines: Under the 2001 Air Transportation Safety and System
Stabilization Act, the federal government provided nearly $5 billion in
compensation to airlines for losses due to the September 11, 2001
terrorist attacks, including $856 million for American, $668 million for
Delta, and $782 million for United. 63 Additionally, under the
Emergency Wartime Supplemental Appropriations Act, $2.4 billion
was appropriated to the Transportation Security Administration to
compensate airlines for certain security expenses and fees, including
$358 million to American, $411 million to Delta, and $300 million to
United. 64
• Railroads: The federal government spent about $8 billion creating,
subsidizing, and preparing Conrail for sale to the private sector. 65 This
funding included $7 billion through 1988 for purchasing properties of
bankrupt railroads, operating subsidies, and capital improvements and
employee buyouts. Amtrak, the national passenger railroad, took over
money-losing intercity and commuter passenger rail services 66 and
funded federal payments of up to $25,000 for each laid-off employee
as authorized by legislation. 67
Use of Bankruptcy Some airlines, automakers, and railroads made changes through the
bankruptcy process. Specifically:
• Airlines: All three selected airlines went through bankruptcy
proceedings—United in December 2002, Delta in September 2005,
62GAO, TARP: Treasury’s Exit from GM and Chrysler Highlights Competing Goals, and
Results of Support to Auto Communities Are Unclear, GAO-11-471 (Washington, D.C.:
May 10, 2011) and CRS, The Role of TARP Assistance in the Restructuring of General
Motors (Washington, D.C.: Mar. 18, 2014).
63Pub. L. No. 107-42, § 101 (2001).
64Pub. L. No. 108-11 (2003). Appropriation amounts are those reported by each airline in
annual 10-K reports to SEC.
65GAO/AIMD-96-23.
66GAO, Amtrak: Better Reporting, Planning, and Improved Financial Information Could
Enhance Decision Making, GAO-16-67 (Washington, D.C.: Jan. 6, 2016), GAO-07-15, and
CRS, Improving Intercity Passenger Rail Service in the United States, R45783
(Washington, D.C.: June 25, 2019).
67Pub. L. No. 91-518, § 305 (1970); Pub. L. No. 97-35, §§ 1137, 1143 (a) (1981).
Page 21 GAO-20-385 USPS Transformation
and American in November 2011. The actions these airlines took to
reduce costs while in bankruptcy are discussed above.
• Automakers: GM declared bankruptcy in June 2009 to implement its
restructuring plan. 68 The federal government became GM’s majority
shareholder and continued to provide financial assistance while GM
was in bankruptcy. The bankruptcy court approved the sale of
substantially all of old GM’s assets to a newly formed company (“new
GM”) in June 2009 as well the old GM’s amended bankruptcy plan in
March 2011, and its assets and liabilities were transferred to
liquidating trusts. These actions and the restructuring—which included
major cost reductions described above—helped enable GM to report
positive net income in every year from 2010 through 2019.
• Railroads: In 1970, the Penn Central Railroad, one of the largest in
the country at the time, filed for bankruptcy. As Penn Central’s losses
continued while in bankruptcy, the value of whatever assets that might
have been available to satisfy its creditors’ claims was further eroded.
Therefore, the bankruptcy proceeding was initiated to liquidate the
railroad to meet the demands of its creditors. Faced with the potential
cessation of railroad service for an entire section of the country, the
federal government created Conrail to take over and operate specified
portions of Penn Central as well as several other bankrupt railroads in
the Northeast United States. Legislation was enacted that, combined
with Conrail actions described above, enabled Conrail to become
profitable. 69
Foreign Governments and In the countries we selected, foreign governments also took actions to
Foreign Posts Took develop goals for their postal operators that enabled changes in the
postal operators’ institutional structures and actions to address
Actions to Address
competitive pressures, economic downturns, and market changes. Based
Challenges on our review of the selected countries’ government reports, including
summaries of postal reform legislation, annual reports from foreign posts,
and interviews with foreign government officials and representatives of
68In contrast, Ford obtained private financing secured by many of its assets; as a result, it
did not declare bankruptcy.
69See e.g., Pub. L. No. 93-236 (1974); Pub. L. No. 97-35 (1981). Legislation was enacted
that, combined with Conrail actions described above, enabled Conrail to become
profitable. See GAO/AIMD-96-23. In 1986, the Conrail Privatization Act authorized a
public stock offering for the government-owned Conrail shares. Pub. L. No. 99-509, tit. IV
(1986). These shares were sold through a public offering in 1987, earning about $1.6
billion.
Page 22 GAO-20-385 USPS Transformation
foreign posts, we found that changes were made to foreign posts’: (1)
products and services; (2) financial self-sustainment; and (3) institutional
structure. Some of these actions were authorized by legislation that
changed the status and duties of the postal operators; others were taken
over a lengthy period that predated passage of key legislation. Some
foreign posts also diversified into nonpostal products and services;
however, postal-specific challenges and changes are the focus of this
discussion.
Actions Regarding Products The selected foreign posts made multiple changes to their products and
and Services services. We found that, when transforming their postal operations,
selected countries determined the level of postal services they deemed
necessary to adequately serve the public. The main product changes
involved expansion of their package delivery business by enhancing
service and investing in facilities and sorting equipment dedicated to
handling packages. Large increases in their package volumes and
revenues helped offset declining letter mail volume and revenues.
Two of the selected foreign posts reduced service levels to help control
costs. For example, according to New Zealand Post officials, in response
to reduced mail volume, New Zealand Post reduced its required
frequency of mail delivery in urban areas from 5 to 3 days while
maintaining 5-day delivery in rural areas with the stated goal of ensuring
that postal service remained viable without government subsidization. 70
Australia Post revised the service standards it provided for delivery of
letter mail in 2016, resulting in slower delivery of some mail.
In addition, the main pricing changes have involved price increases for all
mail, as well as the introduction of discounted postal rates for letter mail
entered at processing facilities that generally were closer to the final
destination of the mail. For example, Royal Mail raised postal rates above
the rate of inflation after relaxation of its price cap. 71 In France, the postal
regulator established a price cap in 2015 of 3.5 percent per year (in
addition to inflation) and established a new cap in 2018 of 5 percent
70New Zealand Post media release, Rural Delivery Changes, Feb. 15, 2017, accessed
Mar. 2, 2020, https://www.nzpost.co.nz/about-us/media-centre/media-release/rural-
delivery-changes.
71According to Ofcom, Royal Mail’s First Class letter mail prices increased 40.5 percent
(adjusted for inflation) between 2009 and 2018, averaging around 4 percent per year. The
steepest increase of about 27 percent came between 2011 and 2012, right after relaxation
of its price cap.
Page 23 GAO-20-385 USPS Transformation
annual rate increases (including inflation) for 2019 through 2022 for letter
mail and packages considered part of universal postal service. The 2018
price cap allows La Poste more price flexibility than the previous one.
Likewise, Australia Post implemented an above-inflation rate increase in
January 2020, citing the need to generate revenues to offset growing
financial pressures from declining letter mail volume. 72
Actions Regarding Financial Cost reduction was a major theme for the selected foreign posts,
Self-Sustainment particularly with respect to compensation, benefits, and infrastructure
costs. These actions were stimulated in part by reductions in mail volume
and the associated revenues and workload, and in part by legislative or
regulatory changes that allowed greater competition and created
incentives, such as privatization, which resulted in shareholder pressure
to enhance or encourage organizational profitability and efficiency.
Because postal operations are labor-intensive, actions to address
workforce costs were particularly important to improving financial results.
These often went hand in hand with outsourcing, network restructuring,
reductions in service levels to better align service with demand, and other
changes to increase productivity and achieve cost savings. The
governments and the postal operators of selected countries also
considered the effects on stakeholders when making postal reform
decisions. Specific changes varied from one foreign post to another.
• Workforce: In Germany, Deutsche Post officials told us that its
employees hired after 1990 were designated private sector
employees with lower pay and benefits than postal employees who
were previously hired as civil servants. In France, La Poste officials
told us that La Poste likewise transitioned its workforce in the 1990s
from civil servants to private employees and ended recruitment of civil
servants in 2000. They also said that this transition provided La Poste
with a more flexible workforce and reduced its pension liability.
Australia Post closed its defined benefit pension plan to new
employees in 2012, while Royal Mail is transitioning to a defined
contribution pension plan that it introduced in 2018. Royal Mail and
New Zealand Post also have reduced the size of their workforce in
recent years.
• Infrastructure: Some selected foreign posts consolidated their mail
processing networks to reduce costs. For example, following the
72In addition, Australia Post also raised its basic postal rate 13.7 percent above inflation in
2014 and by 41.8 percent above inflation in 2016. See Australia Post, Annual Report 2018
(Melbourne, Victoria).
Page 24 GAO-20-385 USPS Transformation
reunification of Germany, Deutsche Post replaced more than 320 mail
processing facilities with 82 such facilities. Royal Mail and La Poste
reduced the number of mail sorting centers by about 40 percent over
the past two decades.
In addition, all five selected postal operators have made changes to
reduce retail network costs. As we reported in 2011, some foreign
posts reduced the number of postal operator-owned and -operated
facilities and in some cases closed facilities in an effort to reduce
costs. 73 At the same time, some minimized this disruption by
expanding retail access through alternatives such as Internet sales
and partnerships with retail businesses such as grocery stores or
pharmacies. We reported that these changes either reduced operating
and labor costs or improved customer service, in some cases
because the partner retail facility stays open longer, or both.
This trend continues. Deutsche Post, Post Office Limited in the United
Kingdom, La Poste, Australia Post, and New Zealand Post have
outsourced or franchised most of their postal retail functions to private
nonpostal operators. For example, Deutsche Post franchised its
postal retail outlets to local businesses to not only reduce expenses,
but also increase the availability of postal retail services nationwide by
putting retail counters in stores that were open longer than traditional
post offices. Deutsche Post representatives stated that while there
was some initial resistance to these changes, these concerns abated
after a few months as customers realized they received better service
and longer hours. The representatives also said the number of retail
outlets has increased in recent years in response to increased
demand for e-commerce package returns. La Poste has a substantial
and growing proportion of retail facilities operated by private providers
(in partnership with small shops, especially in rural areas) or co-
located in local government-owned buildings (in partnership with local
town halls in rural areas). In addition, Australia Post combined its
letter and parcel delivery networks in 2018 to obtain efficiencies.
• Productivity: All of the postal operators in the selected countries took
actions to enhance productivity, such as improving automation of mail
processing, modernizing and streamlining operations, and changing
work processes. For example, Deutsche Post officials stated they had
streamlined their parcel sorting process and went from 140 parcel
sorting centers in 1990 to 34 in 2019. Deutsche Post officials stated
that this streamlining improved service performance for parcels;
73GAO, U.S. Postal Service: Foreign Posts’ Strategies Could Inform U.S. Postal Service’s
Efforts to Modernize, GAO-11-282 (Washington, D.C.: Feb. 16, 2011).
Page 25 GAO-20-385 USPS Transformation
previously, most parcels were delivered within 3 or 4 days; by 2019,
93 percent of parcels were delivered within 1 day. Royal Mail officials
also stated that they increased their level of automation and
introduced new methods of parcel delivery, such as new high-capacity
equipment for mail carriers, to increase efficiency as well.
• Government Assistance: The governments of some of the selected
countries provided assistance to their postal operators in various
forms, including assuming pension costs, granting tax exemptions,
and providing subsidies to postal retail operations. For example, the
governments of France and the United Kingdom assumed costs of
defined benefit pensions for postal employees who are civil servants,
while the government of Germany assumed these costs to the extent
that they exceed the costs of private sector pensions. While all new
employees are employed as private sector employees, German audit
officials stated that the government’s pension obligation for postal
employees who are or were civil servants and their dependents will
last until 2079 and cost the government about €306 billion. 74
The assumption of these pension plans was important in facilitating
the privatization of these postal operators, according to Royal Mail
and Deutsche Post officials, because without the reduced unfunded
pension liabilities, the stock offerings for the newly created companies
would have been much less attractive to private investors. 75 France
also provides subsidies for certain postal activities. 76 In addition, the
United Kingdom split off the postal retail network from Royal Mail into
74About $333 billion in April 2020.
75Royal Mail representatives stated that its pension deficit meant that Royal Mail was
insolvent according to its balance sheet prior to the government assuming the historic
assets and liabilities of its pension plan. According to Deutsche Post representatives,
Deutsche Post continues to employ former public sector postal employees who are civil
servants and public employees. According to German government officials, those
employees, retained and newly recruited, are subject to private sector working conditions
and enrolled in statutory pension insurance. Pension liabilities for postal civil servants are
covered by a pension fund established by German law. In the course of the postal
transformation, Deutsche Post assumed a fixed share to finance this pension fund. Since
that share does not cover all pension liabilities, the German government contributes the
complementary funds needed.
76According to La Poste, these subsidies included local tax exemptions for locations
where maintaining a retail postal presence is unprofitable (such as rural areas, poor city
suburbs, and overseas territories), subsidies for the transport and delivery of newspapers
and magazines, and subsidies for access to basic banking services through
La Banque Postale, a bank that is part of the La Poste group.
Page 26 GAO-20-385 USPS Transformation
Post Office Limited, a separate entity owned and subsidized by the
national government. 77
Actions Regarding Institutional Each of the five foreign countries we selected changed their institutional
Structure structure following the development of goals for postal transformation that
were tailored to national needs and priorities. 78 Each of these countries
had definitions of universal postal services including provisions for
nationwide delivery and access to postal retail services. As the following
examples illustrate, the national context of each country has been of
central importance to shaping these goals. In addition, postal
transformation in the three selected European countries—Germany, the
United Kingdom, and France—also had an international context in the
broader effort to create and promote a single European internal market.
• Germany: In the 1990s, the German government changed its postal
operator, Deutsche Post, from a government agency to a government-
owned corporation. In 2000, the government changed Deutsche Post
to a privately owned company so it could raise capital, modernize, and
create a sustainable infrastructure. Goals for the newly created
Deutsche Post were to maintain the high level of postal services,
increase efficiency, and enhance profit. The legislation that created
Deutsche Post also gave it more flexibility to respond to changes in
the market. Currently, Deutsche Post remains a private company with
the government holding a minority of its shares.
• United Kingdom: In 1969, the government of the United Kingdom
changed the Post Office, its postal operator, from a government
department to Royal Mail, a government-owned corporation prior to
changing it to a privately owned company. It began privatizing Royal
Mail in 2013 so Royal Mail could become more modern and
competitive by raising private capital, operating with more flexibility,
77According to a representative of Post Office Limited, the United Kingdom has invested
about £1.5 billion (about $1.9 billion as of April 2020) in Post Office Limited, but plans to
eliminate this subsidy by 2021. The government of the United Kingdom provided £70
million (about $87.5 million as of April 2020) to Post Office Limited in 2019.
78USPS has noted that the origin and evolution of the business models of different foreign
posts are deeply rooted in the underlying economic, political, social, cultural, and
geographic history of each country. USPS stated that these models vary according to
national priorities for social and political goals as well as economic considerations. USPS,
Assessment of U.S. Postal Service Future Business Model (Washington, D.C.: November
2009).
Page 27 GAO-20-385 USPS Transformation
and be subject to shareholder scrutiny to drive efficiency. 79 As
mentioned above, the government of the United Kingdom also split off
postal retail units into a new government-owned entity called “Post
Office Limited” that is separate from Royal Mail.
• France: In 1991, the government of France changed La Poste, the
postal service of France, from a government department to a public
industrial and commercial establishment. 80 In 2010, the government of
France converted La Poste into a state-owned public limited
company. This step allowed La Poste to raise additional public capital
for investments to maintain and modernize its network, build a
European parcel and express network, allow acquisitions outside
Europe, and add nonpostal products and services, such as expanding
its banking services.
• Australia: In 1989, the government of Australia changed its postal
operator, Australia Post, from a government department to a
government-owned corporation. It is required to earn a reasonable
rate of return on its assets, maintain its equity, pay a reasonable
dividend to the government, and be liable for the same taxes and
charges as its competitors.
• New Zealand: According to a recent report, New Zealand Post began
as a government department and became a state-owned enterprise in
1987, when legislation (State-Owned Enterprises Act 1986) created
several such entities to address challenges in the national economy. 81
Such corporations are required to be as profitable and efficient as a
comparable business not owned by the state. 82
79Royal Mail was privatized in two stages. In 2013, the government of the United Kingdom
gave 10 percent of shares to employees for free and sold 60 percent of its stake. In 2015,
a further 2 percent of shares were given free to employees and the remaining 28 percent
was sold.
80Specifically, in 1991 La Poste became a government-owned entity with a contractual
relationship with the national government.
81New Zealand Post Limited, NZ Post-Tukurau Aotearoa Integrated Report 2017
(Wellington, New Zealand: Sept. 11, 2017).
82A separate “Deed of Understanding” between the government and New Zealand Post
specifies requirements for universal postal service. Ministry of Communications and
Information Technology and New Zealand Post Limited, Deed of Amendment and
Restatement (Wellington and Porirua, New Zealand: Dec. 12, 2013).
Page 28 GAO-20-385 USPS Transformation
Congress will face difficult choices in fundamentally reassessing the three
USPS’s critical foundational elements of USPS’s business model—level of
Transformation universal postal service, financial sustainability, and institutional structure.
These choices are likely to require changes in laws and will have differing
Involves effects on postal stakeholders. While the specific impacts will depend on
Reassessment of the changes made, some or all of USPS’s stakeholders could be affected
and these impacts should be considered as part of any reassessment. All
Three Critical three key areas are interrelated and significant changes in one area may
Foundational affect another. For example, we have testified that Congress faces a
tradeoff between the level of postal services the nation needs and the
Elements of Its level of postal services the nation is willing to pay for. 83
Business Model
Level of Universal Postal Based on our prior work, a starting point for a fundamental reassessment
Service Needed of USPS’s business model should be determining the level of postal
services the nation needs. While mail volumes have declined since fiscal
year 2006, businesses, governments, and households still pay USPS
billions of dollars annually to deliver more than 140 billion of pieces of
mail, demonstrating a continued nationwide demand for postal services.
We and others—such as USPS, PRC, and USPS OIG—have called for a
fundamental reexamination of what postal services the nation needs now
and may need in the future. In particular, we have testified that USPS’s
growing financial difficulties, combined with changing demand for postal
services, have provided Congress with an opportunity to examine and
potentially redefine what postal services should be provided on a
universal basis and how they should be provided. 84
As mentioned above, there are numerous federal laws and requirements
related to the provision of universal postal service. 85 For example, 6-day
delivery has long been required by annual USPS appropriations acts. 86
Over the past decade, legislation has been introduced, and USPS and
83GAO-17-404T.
84GAO-17-404T.
85See appendix II for a list of selected legal requirements that are applicable to USPS.
86See e.g., Pub. L. No. 116-6, 133 Stat. 180 (2019).
Page 29 GAO-20-385 USPS Transformation
others have proposed reducing the frequency of delivery. 87 However, no
legislation has been enacted that would allow USPS to reduce delivery
frequency.
There is also no consensus on the level of postal services the nation
needs. Changes in service levels face opposition from some
stakeholders, such as labor unions, affected communities, and the
general public. Currently, legislation has been introduced that supports
the preservation of both 6-day and door-to-door delivery for addresses
that have it, and some mailer groups support one or both of these
positions. 88 Representatives from postal labor unions we spoke with
stated that universal postal service is appropriate as currently defined and
could be expanded to provide more products and services. Stakeholders
have also expressed differing views on whether the frequency of delivery
should be reduced to help USPS address its financial problems. USPS
and PRC have estimated that eliminating Saturday delivery would reduce
USPS’s costs but also would likely affect mail volume sent by business
mailers, although USPS and PRC disagreed on the degree to which it
would do so. 89 USPS estimated that it could save $1.4 billion to $1.8
billion a year by reducing the frequency of mail delivery to 5 days while
maintaining 7-day package delivery. To put these potential savings into
context, delivery is USPS’s most costly operation. We reported, however,
that USPS would face challenges in, among other things, how efficiently
USPS would absorb the additional volume delivered in the remaining
delivery days and its potential effect on mail volume. We also described
potential trade-offs, such as possibly reducing the demand and value of
USPS products if customers are not getting their delivery needs met. 90
Further, key postal stakeholders hold opposing views on many other
options that have been proposed. For example, to raise revenues, USPS
and some postal labor unions favor eliminating or raising the price cap on
87See PRC, Advisory Opinion on Elimination of Saturday Delivery, Docket No. N2010-1
(Washington, D.C.: Mar. 24, 2011). See S. 3831, 111th Cong. (2010), S. 1010, 12th Cong.
(2011), S. 1625, 112th Cong. (2011), S. 1789, 112th Cong (2011), H.R. 2748, 113th Cong.
(2013), S. 1486, 113th Cong. (2013).
88H.R. 54, 116th Cong. (2019) and H.R. 23, 116th Cong. (2019). These bills have 291 and
257 co-sponsors respectively.
89See PRC, Advisory Opinion on Elimination of Saturday Delivery, Docket No. N2010-1 at
103-113 (Washington, D.C.: Mar. 24, 2011).
90GAO-20-140.
Page 30 GAO-20-385 USPS Transformation
market-dominant products, which would enable USPS to raise rates more
than the rate of inflation but would require changing the current regulatory
system. 91 Mailers, however, have expressed opposition to increasing
postage rates higher than the rate of inflation.
Postal labor unions also favor increasing revenues by introducing new
postal and nonpostal products and services. 92 We have recently found,
however, that USPS’s nonpostal revenues generated at postal retail
facilities are small and that there are limited opportunities to generate
revenues from nonpostal products and services from USPS’s delivery
network. 93 For example, we reported that nonpostal products and
services offered through USPS’s postal retail facilities generated about
$431 million in fiscal year 2018, accounting for less than 1 percent of
USPS’s total revenue. 94 In addition, we reported several potential
limitations to USPS adding nonpostal services to USPS’s mail carrier
activities, such as checking in on homebound and older residents and
reporting signs of blighted properties. These limitations included, among
other things, limited net revenue potential and a potential adverse effect
on mail service delivery. 95
Financial Sustainability A fundamental reassessment of USPS’s business model would include
determining the degree to which USPS should be financially self-
sustaining, i.e., the degree to which USPS’s operating costs and liabilities
should be covered by ratepayers (such as businesses and individuals
who pay USPS to send mail). If a reassessment concluded that USPS
should be fully self-sustaining, past legislative proposals that would
change elements of USPS’s costs and revenues may be worth
91PAEA required that PRC establish a modern system of regulating rates and classes for
market dominant products and required that PRC review this system 10 years later. Pub.
L. No. 109-435 § 201 (2006), codified at 39 U.S.C. §3622(a),(d)(3). As of April 2020, this
review was ongoing.
92PAEA eliminated USPS’s authority to offer nonpostal services unless they were offered
as of January 1, 2006, and expressly grandfathered by the PRC. Pub. L. No. 109-435, §
102.
93See GAO, Offering Nonpostal Services through Its Delivery Network Would Likely
Present Benefits and Limitations, GAO-20-190 (Washington: D.C.: Dec. 17, 2019) and
GAO-20-354.
94GAO-20-354.
95GAO-20-190.
Page 31 GAO-20-385 USPS Transformation
congressional consideration. 96 Stakeholders, however, have not reached
a consensus on any of these proposals and none has been enacted.
Another avenue is to focus on reducing costs. As we have also reported,
compensation and benefits costs, which comprise about three-quarters of
USPS’s operating costs, are driven by a mix of USPS contracts and
policies, including collective bargaining agreements negotiated with
unions representing 92 percent of USPS employees and statutory
requirements governing USPS employee pay and benefits. 97 USPS
compensation and benefits costs for its active employees increased by
almost $1 billion in fiscal year 2019 despite a slight decrease in the size
of the workforce and declining workload from reduced mail volume.
While USPS has been able to make some reductions in pay and benefits,
its ability to control compensation costs is significantly inhibited by the
collective bargaining process, which results in binding arbitration if an
impasse is reached. According to USPS, all negotiations take place
against the backdrop of binding arbitration (and the arbitrators have
historically been reluctant to deviate from the status quo), resulting in only
incremental changes. We have long supported changing the laws
regarding collective bargaining to require that USPS’s financial condition
be considered in binding arbitration. 98 We have also reported that the
collective bargaining structure, which was established many years ago,
should be reexamined considering the dramatic changes in USPS’s
competitive environment and rising personnel costs that have contributed
to USPS’s losses. 99
Multiple bills have been proposed changing the process and/or criteria for
collective bargaining to a different standard. 100 The 2018 report from the
Task Force on the United States Postal System recommended that
collective bargaining over compensation should be eliminated for postal
96See e.g. S. 3831, 111th Cong. (2010), S. 353, 112th Cong. (2011) and S. 1486, 113th
Cong. (2013).
97GAO-20-140.
98See GAO-19-157SP, GAO-17-404T, and GAO-10-455.
99GAO-10-455.
100For example, S. 3831, 111th Cong. (2010), S. 353, 112th Cong. (2011), S. 1010, 112th
Cong. (2011), S. 1625, 112th Cong. (2011), H.R. 2309, 112th Cong. (2012), S. 1789, 112th
Cong (2012), H.R. 2748, 113th Cong. (2013), S. 1486, 113th Cong. (2013).
Page 32 GAO-20-385 USPS Transformation
employees. 101 While eliminating or revising the collective bargaining
process could potentially provide USPS greater flexibility in employee
pay, there would be trade-offs. For example, we recently found that the
potential annual cost savings associated with USPS implementing cuts
for all current employee pay by 1 percent would be about $321 million; a
10 percent cut would potentially save $3.2 billion. 102 However, we also
reported that while USPS could reduce its compensation costs through
efforts such as reducing mail delivery frequency, USPS would face
challenges in realizing these savings, such as the extent to which
workhours could be reduced. Furthermore, these savings could be offset
by other factors including service or morale issues.
With respect to benefits, we recently reported on a wide range of possible
changes that would reduce or limit costs for postal retiree health benefits,
nearly all of which would require a legislative change. Some approaches
would shift costs to the federal government; some would reduce benefits
or increase costs to postal retirees or employees; and some approaches
would change how benefits are funded. 103 Similar types of legislative
changes could be considered with respect to postal pension benefits. 104
In addition, if Congress decides that USPS should be financially self-
sustaining but makes no changes to improve USPS’s financial condition,
USPS will be unable to address unfunded liabilities for postal retiree
health and pension benefits, an inability that could eventually translate
into higher costs for future postal ratepayers. Ultimately, if USPS’s
expenses continue to exceed its revenues, USPS is likely to continue to
miss required payments, reduce operations, or seek federal
101Task Force on the United States Postal System, United States Postal Service: A
Sustainable Path Forward.
102GAO-20-140.
103See GAO-18-602. Postal retiree health benefits are provided as part of the Federal
Employees Health Benefits Program (FEHBP), as specified by Chapter 89 of Title 5, U.S.
Code. Proposed bills would require alternative approaches for how the benefits are
funded. See e.g., H.R. 2382, 116th Cong. (2019).
104For example, in 2013 USPS proposed converting postal pensions for future employees
into a defined contribution program. See USPS, Statement of Postmaster General and
Chief Executive Officer Patrick R. Donahoe Before the Committee on Oversight and
Government Reform, United States House of Representatives (Washington, D.C.: July 17,
2013), and S. 1486, 113th Cong.
Page 33 GAO-20-385 USPS Transformation
appropriations through the annual appropriations process to cover its
operating costs. 105
If Congress determines that USPS should no longer be expected to be
financially self-sustaining or if actions taken do not restore financial self-
sustainability, Congress could provide financial assistance—not unlike
what happened in other countries or for selected domestic business—to
enable USPS to cover its costs, and to fulfill its obligation to provide
federal health and pension benefits to postal employees and retirees.
Federal financial assistance could be provided in various forms, such as:
• Appropriating funds to help cover USPS’s operating costs, essentially
the same arrangement that was used to finance the former U.S. Post
Office Department.
• Appropriating funds to supplement USPS’s payment of certain costs,
such as to help fund its capital investments. For example, the federal
government provides Amtrak, which is operated as a for-profit
corporation with annual grants to operate and make capital
investments in passenger rail service to supplement the revenues it
generates.
• Assuming some or all of USPS’s unfunded liabilities for retiree health
benefits. This could take different forms, such as direct assumption of
responsibility for unfunded liabilities or, more indirectly, requiring
postal retirees to participate in Medicare which would decrease
USPS’s costs but increase Medicare’s costs. 106
• Assuming some or all of USPS’s unfunded liabilities for pension
benefits.
• Writing off some or all of USPS’s debts to the U.S. Treasury.
Options regarding the federal government providing ongoing financial
assistance to USPS could have effects on both USPS and the federal
105The most immediate policy issue resulting from USPS missing required payments
concerns postal retiree health benefits. We reported in 2018 that based on OPM
projections requested by GAO, the fund supporting postal retiree health benefits is on
track to be depleted in fiscal year 2030 if USPS continues to make no payments into the
fund. If this fund becomes depleted, USPS would be required by law to make the
payments necessary to cover its share of health benefits premiums for current postal
retirees. Current law does not address what would happen if the fund becomes depleted
and USPS does not make payments to cover those premiums. Depletion of the fund could
affect postal retirees as well as USPS, customers, and other stakeholders, including the
federal government. GAO-18-602.
106GAO-18-602.
Page 34 GAO-20-385 USPS Transformation
government as a whole. Notably, this assistance would have to be funded
in some way—either through offsetting reductions in federal expenditures
in other areas, through tax increases, or through an increase in federal
deficits. Moreover, reliance on federal funding could mean that USPS
would be exposed to the uncertainty inherent in the annual appropriations
process. In addition, access to annual appropriations to cover financial
shortfalls could have an unintended consequence of reducing USPS’s
incentives to become more cost-efficient.
At present, there is no consensus on USPS’s level of financial self-
sustainability should be. For example, representatives of labor unions we
spoke with stated that Congress should address issues regarding postal
retiree benefits before any reassessment of USPS’s financial self-
sufficiency can occur. Increased federal financial support of USPS might
also face political opposition, due to concerns about minimizing federal
deficits and ensuring fair competition between USPS and the private
sector.
Institutional Structure The final area of consideration in any reassessment of USPS’s business
model is identifying what institutional structure could best deliver the level
of postal services at the level of financial sustainability that Congress has
determined. As an independent establishment of the executive branch,
USPS must provide universal postal service while being expected to be
financially self-sustaining. Thus, there may be a tension between
attempting to fulfill public service missions while operating in an efficient,
business-like and financially self-sustaining manner. USPS officials told
us that as an entity of the federal government, its primary purpose is the
achievement of its statutory universal service mission, and it has no
incentive to seek to maximize profits at the expense of achieving its public
service mission over the long term.
Therefore, according to USPS, if it were maintained as an independent
establishment of the executive branch or converted into a more typical
government agency, it could continue to prioritize this public service
mission. Additionally, there is widespread support for USPS’s institutional
status as an independent establishment of the executive branch.
Congressional resolutions have been introduced stating that “Congress
should take all appropriate measures to ensure that the United States
Postal Service remains an independent establishment of the Federal
Government and is not subject to privatization.” 107 Likewise, all four of the
107S. Res. 99, 116th Cong. (2019), H. Res. 33, 116th Cong. (2019).
Page 35 GAO-20-385 USPS Transformation
largest USPS unions, both of its management organizations, and a
number of mailer groups and mailers support keeping USPS an
independent establishment of the executive branch.
Nonetheless, considering the depth of USPS’s financial problems and its
poor financial outlook, now may be an appropriate time for Congress to
reconsider what institutional structure will be most appropriate for USPS
in the 21st century. However, any substantial change to USPS’s
institutional status would require changing federal law. Based on our past
work and options identified by USPS and others, Congress has a range of
options it could consider in reassessing USPS’s structure (see table 1).
Table 1: Examples of Potential Institutional Structures for the U.S. Postal Service (USPS)
Structure Financing USPS would receive under Ownership Examples of other Organizations
this structure
Government Agency Postal revenues and federal Federal Federal agencies, such as
appropriations provided through the Department of Energy or the
annual appropriations process Department of Commerce
Independent Postal revenues and appropriations Federal None
establishment of the provided through the annual
executive branch with appropriations process for certain required
fewer legal constraintsa services
Government-owned Postal revenues Federal Tennessee Valley Authority, La
corporationb Poste (France), Australia Post, New
Zealand Post
Government-sponsored Postal revenues Private sector Fannie Mae and Freddie Mac
enterpriseb
Private company Postal and other revenues, such as Private sector Royal Mail (United Kingdom),
logistics or banking Deutsche Post (Germany),
domestic private sector
corporations
Source: GAO reports and analysis of foreign post reports and interviews. | GAO-20-385
Notes: USPS could potentially receive federal appropriations through the annual appropriations
process under all of these structures.
Government-sponsored enterprises are federally established private corporations. They typically
receive financing from private investment, and the credit markets perceive that they are implicitly
financially backed by the federal government. According to CRS, this impression of federal backing
has been encouraged by the federal government’s past actions. See CRS, Government-Sponsored
Enterprises (GSEs): An Institutional Overview (Washington, D.C.: Apr.23, 2007).
a
These could include addressing legal requirements such as on pricing, products, and other
requirements that restrict USPS’s ability to reduce its costs. For more examples, see GAO, U.S.
Postal Service: Mail Trends Highlight Need to Change Business Model, GAO-12-159SP (Washington
D.C.: Oct. 14, 2011).
b
For more information on government-owned corporations and government-sponsored enterprises,
see GAO, Government Corporations: Profiles of Existing Government Corporations, GAO/GGD-96-14
(Washington D.C.: Dec. 13, 1995).
Page 36 GAO-20-385 USPS Transformation
The potential advantages and disadvantages of placing USPS into
alternative institutional structures for USPS have long been debated.
Several options have been discussed:
• USPS could revert to a traditional federal agency. USPS and its
governance would be more consistent with other federal activities that
are dependent on federal appropriations provided through the annual
appropriations process. Many postal stakeholders, however, do not
support such a change. For example, USPS told us that if it became a
typical government agency reliant on federal appropriations to fill any
operating gap, the political constraints that typically apply to
government agencies could reduce USPS’s adaptability. Furthermore,
changing USPS to a typical government agency could reduce its
incentives to increase revenues or reduce costs in response to
changing communication technologies and patterns. Consistent with
this point, the 1968 presidential commission found that when it
operated as a federal agency, the former U.S. Post Office Department
had a lack of innovation, cost-control, and capital investment with
major managerial decisions made through the legislative process.
These and other issues led to persistent operational deficits, low
productivity, and poor mail service. 108
• USPS could remain an independent establishment of the federal
government with additional authority—relative to the status quo—over
certain aspects of its business model. For example, USPS could be
provided more flexibility to raise postal rates, introduce new nonpostal
products, and make various changes to reduce its costs such as
reducing the frequency of delivery or further consolidating its retail,
transportation, and processing networks. 109 USPS has long advocated
for additional flexibility under its current institutional structure—such
as to eliminate the price cap on market-dominant products and have
greater flexibility to offer nonpostal products. Representatives from
postal unions also stated that USPS should be provided additional
flexibility, such as to expand into nonpostal products, which some
representatives stated could help preserve its public service mission
to provide universal postal services. Consensus does not, however,
exist as to what flexibility should be given to USPS. For example,
some mailer groups favor keeping the price cap unchanged, stating
the cap is sufficient and provides incentives for increased efficiency.
108The President’s Commission on Postal Organization, Towards Postal Excellence.
109GAO, U.S. Postal Service: Mail Trends Highlight Need to Fundamentally Change
Business Model, GAO-12-159SP (Washington, D.C.: Oct. 14, 2011) and GAO-10-455.
Page 37 GAO-20-385 USPS Transformation
In addition, some stakeholders have supported further limiting USPS’s
flexibility to reduce service standards, close retail outlets, or
consolidate processing facilities, while other stakeholders noted that
greater flexibilities in these areas would reduce USPS’s costs and
enhance its efficiency.
• If USPS were to become a government-owned corporation or a
government-sponsored enterprise, USPS could be incentivized to
increase efficiency as a federally chartered entity providing a public
service with a predominantly business nature. For example, three of
the four third-party experts we spoke with stated that USPS should
retain its current mission of universal postal service but become more
like a private company with greater freedom to operate in a business-
like manner. The new structure could promote greater incentives
toward cost control and financial success. Government-owned
corporations are federally chartered entities that provide a public
service with a predominantly business nature. These corporations can
have a board of directors that is appointed by the President. 110
Government-sponsored enterprises are federally chartered entities
that are privately owned and, typically, have a board of directors
appointed by private sector owners. 111
• If USPS were to be a private company it would become accountable
to the shareholders of that company. USPS told us that as a private
company, its primary incentive could be to maximize profits and that,
in USPS’s view, private shareholders would be most focused on
short-term financial outcomes. Thus, any such design of a private
USPS would need to balance its profit motive with the nation’s needs
for universal postal service and the affordability of that service. For
example, while Royal Mail is a private corporation owned by
shareholders, the government of the United Kingdom still mandates 6-
day delivery for letter mail (and 5-day delivery for packages) with
specified delivery standards, and some mail types are subject to price
controls. In addition, the United Kingdom monitors the provision of
universal postal service and can take enforcement actions regarding
110GAO/GGD-96-14. USPS’s Governors who serve on its Board are appointed by the
President and confirmed by the Senate.
111CRS, Government-Sponsored Enterprises (GSEs): An Institutional Overview
(Washington, D.C.: Apr. 23, 2007).
Page 38 GAO-20-385 USPS Transformation
regulatory conditions and competition law. 112 Similarly, Germany has
legal instruments to enforce the provision of universal postal services,
although according to German government officials these instruments
have not been used. 113
Although some of the domestic businesses we examined reduced their
costs through bankruptcy, this is likely not an option for USPS. As
detailed in its report (see appendix I), National Bankruptcy Conference
(NBC) found that USPS is not eligible to become a “debtor” under
chapters 11 or 9 of the current Bankruptcy Code. 114 According to NBC, a
court likely would deem USPS to be a “governmental unit”—meaning it
could not file for relief under chapter 11—and a court would deem USPS
not to be a “municipality”—meaning it could not file for relief under
chapter 9. Therefore, legislation amending the Code would be required to
make USPS eligible for relief.
According to NBC, however, even if the Bankruptcy Code were amended
to allow USPS to file as a chapter 11 or 9 debtor, the Code would still not
currently authorize a bankruptcy court to discharge the ongoing statutory
112In the United Kingdom, The Postal Service Act 2011 sets out the minimum
requirements for Royal Mail. These are statutory and can only be amended with the
consent of Parliament. The United Kingdom’s Office of Communications (Ofcom) is an
independent public authority responsible for regulating Royal Mail and has put in place a
detailed monitoring regime focusing on efficiency, financial sustainability, competition and
consumers. Ofcom also defines quality of service standards and maintains the price caps
on certain types of letter mail.
113The European Union (EU) also mandates that its member states deliver mail 5 days a
week. E.U. Directive 97/67/EC (Dec. 15, 1997).
114A chapter 11 proceeding allows a debtor to adjust or reorganize its pre-bankruptcy
obligations to enable it to meet its adjusted obligations, operating expenses and capital
costs after it exits bankruptcy. A chapter 9 proceeding provides a municipal debtor the
ability to adjust unsustainable debt to continue providing public services to its citizens.
Only a “debtor,” defined as either a “person” or a “municipality,” may file for relief under
chapter 11 or chapter 9, respectively. See 11 U.S.C. § 101(13). A “person” is defined to
include corporations but to exclude “governmental units.” 11 U.S.C. § 101(41). A
“municipality” is defined as a political subdivision or public agency or instrumentality of a
State. 11 U.S.C. § 101(40).
Page 39 GAO-20-385 USPS Transformation
obligations that have led to USPS’s current financial situation, 115 and
amending the Code to authorize such court action could raise
constitutional (separation of powers) concerns. Moreover, NBC noted the
bankruptcy process is designed to address obligations that have already
accrued, not to override or amend statutes that apply to a debtor’s post-
bankruptcy operations and obligations. In NBC’s opinion, because
USPS’s pension and health care obligations are imposed by statute
instead of by contract as in most bankruptcy reorganization proceedings,
the bankruptcy process is not an effective or appropriate mechanism to
address USPS’s obligations or potential transformation. NBC thus
concluded that “although the bankruptcy process and bankruptcy tools
raise interesting ideas for restructuring USPS’s existing and future
obligations…all roads for doing so lead back to Congress.”
Implementation Any changes that Congress makes to USPS’s business model will take
Considerations time to implement and will need to be reevaluated as market conditions
evolve. We have reported that fully implementing major transformations of
government agencies can take years, 116 and we also found that to be the
case for the selected domestic businesses and foreign posts noted in this
report, regardless of the changes needed. For example, railroads in the
Northeast, airlines, and automakers took many years to implement a
series of changes to their businesses. It took Germany more than a
decade to fully liberalize and then privatize its postal operator, and the
United Kingdom’s effort to privatize its postal operator took about 5 years.
All of these organizations continue to adapt as they address ongoing
challenges in a changing and highly competitive business environment.
For example, GM recently stated that years after exiting bankruptcy and
restoring profitability, it is closing some factories and focusing on
developing electric and self-driving cars. 117 Several freight railroads facing
115Statutes imposing USPS’s pension and health benefit obligations do not clearly
address who would be responsible for these obligations in the event USPS is unable to
pay them. In NBC’s view, other parts of the federal government would continue to be
obligated to pay current and former USPS employees and the shortfall would need to be
addressed either by appropriations, additional contributions to the funds from other federal
departments and agencies, or reduced benefits for all civil service employees who are
beneficiaries of those funds.
116GAO, Government Reorganization: Key Questions to Assess Agency Reform Efforts,
GAO-18-427 (Washington, D.C.: June 13, 2018).
117General Motors Company, 2018 Report on Form 10-K (Detroit, MI.: Feb. 6, 2019).
Page 40 GAO-20-385 USPS Transformation
a downturn in freight traffic have also decided to run longer trains less
frequently to reduce labor costs and increase efficiencies. 118
Similarly, changes in the use of postal services will continue for the
foreseeable future, necessitating continued adaptation. Some of the
countries we selected are anticipating the need to be prepared for
possible future changes. For example:
• In August 2019, German government officials said they would
consider reducing postal delivery frequency from 6 to 5 days a week
as part of an ongoing review to adapt Germany’s 20-year old postal
law to changing market conditions and customer demands.
• In the United Kingdom, the postal regulator assessed postal users’
needs in 2020 in light of the changes in the postal market and to
prepare for its regulatory review, which is to be concluded by 2022.
• A 2018 consultant’s report to the European Union (EU) recommended
that the EU relax its universal service obligations to accommodate
future changes in the postal market. 119 The EU is currently studying
how postal users’ needs are changing to determine if it needs to
change its framework to allow member states to change their
definitions of universal service obligations.
• In November 2019, the Australian government ordered a review of
Australia Post’s long-term strategy to operate as a sustainable postal
service provider, considering market conditions such as e-commerce,
the regulatory environment and changes in business and consumer
service needs.
• The government of New Zealand is scheduled to revise its
memorandum of understanding with New Zealand Post defining
universal service obligations by 2021.
118For more information, see GAO, Rail Safety: Freight Trains are Getting Longer and
Additional Information Is Needed to Assess Their Impact, GAO-19-443 (Washington, D.C.:
May 30, 2019).
119Copenhagen Economics, Main Developments in the Postal Sector (2013-2016): Study
for the European Commission, Directorate-General for Internal Market, Industry,
Entrepreneurship and SMEs (Copenhagen, Denmark: July 2018).
Page 41 GAO-20-385 USPS Transformation
PAEA required GAO to evaluate strategies and options for the long-term
GAO’s Calls for structural and operational reform of USPS by December 2011. 120 As
Congressional Action USPS continued to face financial challenges, we accelerated this
evaluation, which we issued in April 2010. 121 However, we found that
to Address USPS’s USPS’s business model, which was to provide universal postal service
Solvency Remain through self-supporting, business-like operations as an independent
Unaddressed establishment of the executive branch, was not viable due to USPS’s
inability to reduce costs sufficiently to respond to continuing declines in
mail volume and revenue. In particular, we identified strategies to reduce
compensation and benefit costs, reduce other operations and network
costs, improve efficiency, and generate revenues through product and
pricing flexibility. We also stated that while USPS may be able to improve
its financial viability if it took more aggressive action to reduce costs, it
was unlikely that those actions alone would fully resolve USPS’s
problems unless Congress also took action.
Therefore, we stated that Congress should consider, among other things,
any and all options available to reduce USPS’s costs. While bills on these
issues were introduced and in some cases passed congressional
committees, postal reform legislation to address these considerations has
not been enacted. In addition, in our most recent update to our High Risk
List in 2019, we reiterated the basic elements of our 2010 matter for
congressional consideration by stating that Congress should consider
various options to better align USPS’s costs with its revenues. We stated
that Congress should consider addressing constraints and legal
restrictions that limit USPS’s ability to reduce costs and improve efficiency
through considering a comprehensive package of legislative actions. To
date, such a legislative package has not been enacted.
Furthermore, we reported in 2018 that the financial outlook for the Postal
Service’s Retiree Health Benefits Fund was poor, as USPS had not made
any payments into it since 2010. 122 OPM then forecasted the fund would
be depleted by 2030 if USPS continued to not make payments.
Therefore, we stated that Congress should consider passing legislation to
put postal retiree health benefits on a more sustainable financial footing.
However, legislation has not yet been enacted to address this issue.
120Pub. L. No. 109-435 § 710 (2006).
121GAO-10-455.
122GAO-18-602.
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We have often reported over the past 10 years that USPS’s ability to take
Conclusions actions taken under its current authority is insufficient to fully address its
financial situation. Absent congressional action on critical foundational
elements of the USPS business model, USPS’s mission and financial
solvency are increasingly in peril. USPS’s growing difficulties to provide
universal postal service in a financially self-sustaining matter provide
Congress with the need to consider fundamental reform of the entire
framework of postal services in the United States. In so doing, we
continue to believe that as we stated in 2010, Congress should consider
any and all available options. Comprehensive postal reform has not taken
place in part because of the difficulty in obtaining compromise among
various stakeholders with divergent views. Comprehensive, effective, and
successful reform cannot occur until there is leadership and clarity
around:
• what services should be provided,
• whether USPS is to be fully financially self-sustaining or the extent of
federal financial support, and
• what institutional structure best supports these changes.
Congressional leadership is critical in transforming USPS because
consensus on policy decisions involving value judgments, trade-offs, and
effects on postal stakeholders will be difficult to achieve. In addressing
these issues, while all stakeholders’ interests should be understood and
taken into consideration, the fundamental needs of the nation must take
precedence. Continued inaction will result in deepening financial
problems—putting USPS’s mission to provide universal postal service at
greater risk and minimizing the ability to make the most appropriate or
sustainable policy decisions.
We are making the following three matters for congressional
Matters for consideration:
Congressional
Congress should consider reassessing and determining the level of
Consideration universal postal service the nation requires. (Matter for Consideration 1)
Congress should consider determining the extent to which USPS should
be financially self-sustaining and what changes to law would be
appropriate to enable USPS to meet this goal. (Matter for Consideration
2)
Page 43 GAO-20-385 USPS Transformation
Congress should consider determining the most appropriate institutional
structure for USPS. (Matter for Consideration 3)
We provided a draft of this report to USPS and PRC. USPS and PRC
Agency Comments provided written responses which are reproduced in appendixes IV and V,
and Our Evaluation respectively.
In its response, USPS concurred with our first two matters to reassess
and determine the level of universal postal services the nation requires
and to determine the extent to which USPS should be financially self-
sustaining. USPS noted that the recent COVID-19 pandemic has both
highlighted USPS’s essential role in the nation’s infrastructure and has
caused a significant and sudden decline in mail volume, leading to a
short-term liquidity crisis. USPS stated that while action by Congress is
critical to ensure its ability to operate in the short-term, its financial
situation has long been unsustainable due to statutory and regulatory
structures that limit their ability to increase revenues and decrease costs.
USPS noted that these changes require Congress to adopt reforms to
secure USPS’s long-term financial viability. In addition, USPS concurred
with the National Bankruptcy Conference’s legal analysis that Federal
bankruptcy laws do not apply to USPS and that all roads for USPS
restructuring lead back to Congress.
USPS generally agreed with our third matter, stating that determining the
institutional structure could logically be a part of a comprehensive
congressional examination of its business model. USPS stated that it
does not believe that corporatization or privatization would unlock new
efficiency potential in USPS and that sustainable postal service does not
hinge on the provider’s institutional form. However, as we and USPS
have stated, its current legal and regulatory structure does not provide
flexibility in some key areas. While our report states that a corporate or
privatized institutional structure could provide both the flexibility and a
greater incentive to operate in a more business-like manner than USPS’s
current structure, we also recognize there are advantages and
disadvantages to any institutional structure. As a result, we are not
recommending any particular institutional structure for USPS, but are
urging that Congress identify what institutional structure could best deliver
the level of postal services at the level of financial sustainability that
Congress determines.
In its response, PRC agreed with all of our matters for congressional
consideration. Particularly, PRC noted that the matter to reassess and
determine the level of universal postal service the nation requires must be
addressed as soon as possible. The PRC noted that given USPS’s
severe and worsening financial situation (even before the impacts of the
Page 44 GAO-20-385 USPS Transformation
current pandemic crisis), a clear and specific definition of universal postal
service and how that obligation can be funded must be provided. The
PRC stated that Congress may want to consider mandating that PRC
define and update the universal service definition by regulation.
Both USPS and PRC provided technical comments, which we
incorporated as appropriate.
We are sending copies of this report to the appropriate congressional
committees, the Postmaster General, the Chairman of PRC, and other
interested parties. In addition, the report will be available at no charge on
the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact
me at (202) 512-2834 or rectanusl@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff making key contributions to this
report are listed in appendix VI.
Lori Rectanus, Director
Physical Infrastructure Issues
Page 45 GAO-20-385 USPS Transformation
Appendix I: Reprint of National Bankruptcy
Appendix I: Reprint of National Bankruptcy
Conference’s Report on U.S. Postal Service
Conference’s Report on U.S. Postal Service
Bankruptcy Issues
Bankruptcy Issues
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Appendix I: Reprint of National Bankruptcy
Conference’s Report on U.S. Postal Service
Bankruptcy Issues
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Appendix I: Reprint of National Bankruptcy
Conference’s Report on U.S. Postal Service
Bankruptcy Issues
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Appendix I: Reprint of National Bankruptcy
Conference’s Report on U.S. Postal Service
Bankruptcy Issues
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Appendix I: Reprint of National Bankruptcy
Conference’s Report on U.S. Postal Service
Bankruptcy Issues
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Appendix I: Reprint of National Bankruptcy
Conference’s Report on U.S. Postal Service
Bankruptcy Issues
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Appendix I: Reprint of National Bankruptcy
Conference’s Report on U.S. Postal Service
Bankruptcy Issues
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Appendix I: Reprint of National Bankruptcy
Conference’s Report on U.S. Postal Service
Bankruptcy Issues
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Appendix I: Reprint of National Bankruptcy
Conference’s Report on U.S. Postal Service
Bankruptcy Issues
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Appendix I: Reprint of National Bankruptcy
Conference’s Report on U.S. Postal Service
Bankruptcy Issues
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Appendix I: Reprint of National Bankruptcy
Conference’s Report on U.S. Postal Service
Bankruptcy Issues
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Appendix I: Reprint of National Bankruptcy
Conference’s Report on U.S. Postal Service
Bankruptcy Issues
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Appendix I: Reprint of National Bankruptcy
Conference’s Report on U.S. Postal Service
Bankruptcy Issues
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Appendix I: Reprint of National Bankruptcy
Conference’s Report on U.S. Postal Service
Bankruptcy Issues
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Appendix I: Reprint of National Bankruptcy
Conference’s Report on U.S. Postal Service
Bankruptcy Issues
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Appendix I: Reprint of National Bankruptcy
Conference’s Report on U.S. Postal Service
Bankruptcy Issues
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Appendix I: Reprint of National Bankruptcy
Conference’s Report on U.S. Postal Service
Bankruptcy Issues
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Appendix I: Reprint of National Bankruptcy
Conference’s Report on U.S. Postal Service
Bankruptcy Issues
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Appendix I: Reprint of National Bankruptcy
Conference’s Report on U.S. Postal Service
Bankruptcy Issues
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Appendix I: Reprint of National Bankruptcy
Conference’s Report on U.S. Postal Service
Bankruptcy Issues
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Appendix I: Reprint of National Bankruptcy
Conference’s Report on U.S. Postal Service
Bankruptcy Issues
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Appendix I: Reprint of National Bankruptcy
Conference’s Report on U.S. Postal Service
Bankruptcy Issues
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Appendix I: Reprint of National Bankruptcy
Conference’s Report on U.S. Postal Service
Bankruptcy Issues
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Appendix I: Reprint of National Bankruptcy
Conference’s Report on U.S. Postal Service
Bankruptcy Issues
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Appendix II: Selected Legal Requirements Appendix II: Selected Legal Requirements
Applicable to the U.S. Postal Service (USPS)
Applicable to the U.S. Postal Service (USPS)
Citation(s) Legal requirements
Geographic scope of service USPS is required to provide prompt, reliable, and efficient services to patrons in all areas,
39 U.S.C. §§ 101(a), 403(a) render postal services to all communities, and serve as nearly as practicable the entire
population of the United States. USPS is specifically required to receive, transmit, and deliver
written and printed matter, parcels, and like matter throughout the United States, its territories
and possessions, and pursuant to certain agreements, throughout the world.
Degree of service and post office USPS is required to provide a maximum degree of effective and regular postal services to
closings rural areas, communities, and small towns where post offices are not self-sustaining. No
39 U.S.C. §§ 101(b), 404(d); 39 C.F.R. small post office can be closed solely for operating at a deficit, it being the specific intent of
§ 241.3 the Congress that effective postal services be insured to residents of both urban and rural
communities. Statutory and regulatory requirements specify the process and criteria for post
office closings, including appellate review by the Postal Regulatory Commission (PRC).
Mail delivery quality and frequency In determining all policies for postal services, USPS is required to give the highest
39 U.S.C. § 101(e),(f); see, e.g., Pub. consideration to the requirement for the most expeditious collection, transportation, and
L. 116-6, 133 Stat. 180 (2019) delivery of important letter mail. In selecting modes of transportation, USPS is required to
give the highest consideration to the prompt and economical delivery of all mail.
For many years, provisions in annual appropriations acts have stated “[t]hat 6-day delivery
and rural delivery of mail shall continue at not less than the 1983 level.”
Service standards USPS is required to establish modern service standards for each market-dominant product
39 U.S.C. § 3691, 39 C.F.R. Pt. 121 (e.g., delivery of First-Class Mail within the continental United States in 2-3 delivery days);
these service standards are defined in the Code of Federal Regulations.
Letter mail monopoly USPS’s letter delivery monopoly is codified in criminal and civil laws known as the Private
18 U.S.C. §§ 1693-99; 39 U.S.C. §§ Express Statutes. These laws generally prohibit anyone from establishing, operating, or using
601-06 a private company to carry letters for compensation on regular trips or at stated periods over
postal routes or between places where mail regularly is carried.
Mailbox monopoly Restricts access to mailboxes by prohibiting anyone from knowingly and willingly placing
18 U.S.C. § 1725 mailable matter without postage in any mailbox, providing USPS exclusive access to
mailboxes.
Collective bargaining USPS negotiates collective bargaining agreements with its labor unions. If the parties are
39 U.S.C. §§1004,1206-07 unable to reach an agreement, binding arbitration by a third-party panel will ultimately be
used to establish agreement. USPS is also required to consult with postal supervisory and
managerial organizations concerning changes in pay, benefits, and other programs that affect
their membership.
Benefit programs USPS is required to participate in federal pension and health benefit programs, with specific
39 U.S.C. § 1005; 5 U.S.C. §§ provisions regarding the required level of USPS’s funding of these programs. For example,
8348(h), 8423, 8909a USPS is required to prefund both postal pension benefits and postal retiree health benefits,
each with payments that fully cover USPS’s share of future benefit costs.
Level of benefits The law requires USPS’s fringe benefits to be at least as favorable as those in effect when
39 U.S.C. § 1005(f) the Postal Reorganization Act of 1970 was enacted, unless variation of benefits is collectively
bargained.
Comparability Compensation for USPS officers and employees is required to be comparable to the rates
39 U.S.C. §§ 101(c), 1003(a) and types of compensation paid in the private sector of the U.S. economy. USPS policy also
is required to maintain compensation and benefits for all officers and employees on a
standard of comparability to comparable levels of work in the private sector.
Workers’ compensation USPS is required to participate in the federal workers’ compensation program, which covers
39 U.S.C. § 1005(c) postal and other federal employees and provides compensation to federal employees, as well
as dependents, in the event of an employee’s death.
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Appendix II: Selected Legal Requirements
Applicable to the U.S. Postal Service (USPS)
Citation(s) Legal requirements
Access to facilities USPS is required to establish and maintain postal facilities of such character and in such
39 U.S.C. § 403(b) locations, that postal patrons throughout the Nation will, consistent with reasonable
economies of postal operations, have ready access to essential postal services.
Appropriations restrictions Generally, annual appropriations prohibit USPS from using funding to consolidate or close
See, e.g., Pub. L. 116-6, 133 Stat. 180 small rural or other small post offices.
(2019)
Processing/logistics facilities The law requires USPS to provide public information and opportunities for public input and
Pub. L. 109–435 § 302(c)(5), (2006), comment before closing or consolidating any mail processing or logistics facilities, and take
120 Stat. 3219, codified at 39 U.S.C. § comments into account when making a final decision.
3691 note
Price cap An inflation-based price cap generally limits rate increases for market-dominant products,
39 U.S.C. § 3622(d) including First-Class Mail, USPS Marketing Mail, Periodicals and Package Services such as
Bound Printed Matter, Media Mail, and Library Mail.
PRC review The PRC, an independent establishment of the executive branch, must review USPS
39 U.S.C. §§ 501, 3661, 3622 proposals to change domestic postal rates and fees.
Advisory opinions Whenever USPS proposes a change in the nature of postal services that will have an effect
39 U.S.C. § 3661 on a substantially nationwide basis, it must request an advisory opinion from the PRC on the
proposal.
Debt limits USPS has the authority to borrow up to $15 billion from the U.S. Treasury. The annual net
39 U.S.C. § 2005 increase of obligations for capital improvements and defraying operating expenses is limited
to $3 billion.
Restriction on nonpostal lines of USPS is limited to providing nonpostal services to those offered as of January 1, 2006 that
business PRC has authorized USPS to continue. Nonpostal service is defined to mean any service that
39 U.S.C. §§ 404(e), 102(5) is not a postal service. A postal service is defined as the delivery of letters, printed matter, or
mailable packages, including acceptance, collection, sorting, transportation, or other function
ancillary thereto.
Investment of postal retiree funds Funds set aside for postal pensions and retiree health benefits are required by law to be
5 U.S.C. §§ 8348(c), 8909a(c) invested in U.S. Treasury securities.
Sources: GAO analysis of selected statutes and regulations. | GAO-20-385
Note: GAO identified the selected legal requirements based on past GAO work. Additionally, USPS is
not subject to many federal laws that other federal agencies may be subject to dealing with public or
federal contracts, property, works, officers, employees, budgets, or funds. 39 U.S.C. § 410(a).
However, USPS is required to comply with specific laws that relate to federal purchases of products
and services, such as the Davis-Bacon Act. Under the Davis-Bacon Act, USPS’s contracts for public
buildings and public works in a given local area worth more than $2,000 must require the contractors
involved to pay all the laborers and mechanics they employ on those contracts the prevailing wage for
that area, as calculated by the U.S. Department of Labor. See 40 U.S.C. §§ 3141-3147; 39 U.S.C. §
410(b)(4)(A).
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Appendix III: U.S. Postal Service Financial
Appendix III: U.S. Postal Service Financial
Information for Fiscal Years 1972 through 2019
Information for Fiscal Years 1972 through
2019
Dollars in millions
Fiscal year Net income (loss) Total revenues Total expenses Debt
1972 $-175 $9,354 $9,529 $250
1973 -13 9,931 9,944 250
1974 -438 10,875 11,314 765
1975 -989 11,662 12,650 1,783
1976 -1,176 12,915 14,090 3,030
1976 TQa 15 3,462 3,446 3,530
1977 -688 14,842 15,530 2,468
1978 -379 16,031 16,410 2,405
1979 470 18,174 17,705 1,888
1980 -306 19,253 19,559 1,841
1981 -588 21,874 22,462 1,608
1982 802 23,727 22,925 1,536
1983 616 24,789 24,173 1,464
1984 117 26,557 26,440 1,465
1985 -251 29,016 29,267 2,075
1986 305 31,135 30,830 3,234
1987 -223 32,505 32,728 4,728
1988 -597 35,939 36,536 5,880
1989 61 38,920 38,859 6,476
1990 -874 40,075 40,948 6,971
1991 -1,469 44,202 45,671 8,440
1992 -537 47,105 47,642 9,924
1993 -1,765 47,986 49,751 9,748
1994 -914 49,577 50,490 8,988
1995 1,770 54,509 52,739 7,280
1996 1,567 56,544 54,977 5,919
1997 1,264 58,331 57,067 5,872
1998 550 60,116 59,566 6,421
1999 363 62,755 62,392 6,917
2000 -199 64,581 64,780 9,316
2001 -1,680 65,869 67,549 11,315
2002 -676 66,688 67,364 11,115
2003 3,868 68,764 64,896 7,273
2004 3,065 69,029 65,964 1,800
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Appendix III: U.S. Postal Service Financial
Information for Fiscal Years 1972 through 2019
Dollars in millions
Fiscal year Net income (loss) Total revenues Total expenses Debt
2005 1,445 69,993 68,548 0
2006 900 72,817 71,917 2,100
2007 -5,142 74,973 80,115 4,200
2008 -2,806 74,968 77,774 7,200
2009 -3,794 68,116 71,910 10,200
2010 -8,505 67,077 75,582 12,000
2011 -5,067 65,739 70,806 13,000
2012 -15,906 65,248 81,154 15,000
2013 -4,977 67,342 72,319 15,000
2014 -5,508 67,854 73,362 15,000
2015 -5,060 68,951 74,011 15,000
2016 -5,591 71,530 77,121 15,000
2017 -2,742 69,694 72,436 15,000
2018 -3,913 70,783 74,696 13,200
2019 -8,813 71,306 80,119 11,200
Source: U.S. Postal Service reports. | GAO-20-385
a
1976 TQ represents transition quarter, a period beginning July 1, 1976, and ending September 30,
1976. In a change taking effect October 1, 1976, the U.S. government changed its fiscal year from a
period ending June 30 to a period beginning each October 1 and ending the following September 30.
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Appendix IV: Comments from the U.S. Postal
Appendix IV: Comments from the U.S. Postal
Service
Service
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Appendix IV: Comments from the U.S. Postal
Service
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Appendix IV: Comments from the U.S. Postal
Service
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Appendix V: Comments from the Postal
Appendix V: Comments from the Postal
Regulatory Commission
Regulatory Commission
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Appendix V: Comments from the Postal
Regulatory Commission
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Appendix VI: GAO Contact and Staff
Appendix VI: GAO Contact and Staff
Acknowledgments
Acknowledgments
Lori Rectanus, (202) 512-2834 or rectanusl@gao.gov.
GAO Contact
In addition to the individual named above, Derrick Collins (Assistant
Staff Director); Greg Hanna (Analyst-in-Charge); Amy Abramowitz; Kenneth
Acknowledgments John; Hannah Laufe; Serena Lo; Michael Mgebroff; Joshua Ormond;
Joshua Parr; Susan Sawtelle; Crystal Wesco; and Laurel Voloder made
key contributions to this report.
(103068)
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