GAO: Despite Progress, USPS Faces Challenges

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The U.S. Postal Service is at a crossroads, a General Accounting Office report released yesterday said.

"Its current business model, which relies on increasing mail volumes to mitigate postal rate increases and cover the service's costs, is at risk in today's environment of greater competition and communication alternatives," states the report, "Major Management Challenges and Program Risks."

The USPS ran deficits of $1.7 billion in 2001 and $676 million in 2002 despite cost cutting and multiple rate increases, the report said, "as its volumes declined by the most significant amount since postal reorganization occurred over 30 years ago."

The report, a follow-up to reports issued in 1999 and 2001, outlined historical challenges the USPS faces, including difficulty achieving cost savings in its work force and infrastructure and insufficient cash flow from operations to fund needed capital expenditures and reduce debt pressures.

One key opportunity for the USPS would be to reduce its pension contributions to the Civil Service Retirement System after a review last year by the federal Office of Personnel Management found the fund almost fully funded. With lower contributions, the USPS has said it could save $2.9 billion in fiscal year 2003 and $2.6 billion in FY 2004.

Pension contributions are fixed by law, however, so changing them requires congressional approval. The GAO is expected to release its own analysis of the level of CSRS pension funding today. If the GAO supports the OPM estimate, Congress might change the law to let the postal service lower its contributions.

Yesterday's GAO report said that lower pension contributions would give the USPS "additional breathing room [that] could allow the service to address other financial challenges, such as its outstanding debt, substantial postretirement health obligations, and current capital freeze."

The GAO said the postal service should work with Congress, the presidential commission and stakeholders to implement its transformation plan, develop strategies to realign its infrastructure and work force, continue efforts to cut costs and improve productivity, and improve the timeliness of financial and performance information.

Richard J. Strasser, USPS chief financial officer, said in a statement that while the USPS welcomes the recent review of its challenges, the postal service has made progress implementing its plan, within the boundaries of current law. Accomplishments cited included:

· An increase in output per work hour in 2002 of 2.2 percent.

· A reduction in the projected net loss of $1.35 billion to $676 million during fiscal year 2002.

· A reduction of outstanding debt by $200 million in 2002.

· "We are well on our way to taking $5 billion in costs out of our system by the end of 2006," he said.

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