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GAO encourages significant changes to ‘not viable’ Postal Service business model

The Government Accountability Office, noting bluntly that the US Postal Service‘s business model is “not viable,” urged the agency to aggressively cut costs and increase revenues, while also encouraging Congress to act.

In a report released April 12, the GAO explained that “given its financial problems and outlook, the USPS cannot support its current level of service and operations.” The Postal Service saw a $3.8 billion net loss for its 2009 fiscal year, which ended September 30, 2009. Postmaster General John Potter has predicted a cumulative shortfall of $238 billion by 2020 if significant changes are not made to the organization’s business model.

“USPS may be able to improve its financial viability if it takes more aggressive action to reduce costs, particularly compensation and benefit costs that comprise 80% of its total costs, as well as increasing revenues within its current authority,” the GAO report noted. “However, it is unlikely that such changes would fully resolve USPS’ financial problems, unless Congress also takes actions to address constraints and legal restrictions.”

The report also suggested Congress set up a group to facilitate reforms at the USPS similar to the Defense Base Realignment and Closure Commission, which oversees Armed Forces base closures.

Specifically, the GAO recommended that the USPS reduce the size of its workforce through retirements and outsourcing; cut back on wage costs through a two-tiered pay system; and reduce benefit costs.

Regarding the USPS’ services, the GAO encouraged the agency to close unneeded facilities, optimize its retail facility network and move more retail services to private stores. It also urged Congress to remove appropriations language requiring six-day delivery.

Phil Herr, director of the physical infrastructure team at the GAO, told DMNews that his agency has no timeline for reviewing a switch to five-day delivery.

“On something like that, we would work with the timing that the Hill would need,” he said.

Patrick Donahoe, deputy postmaster general and COO of the USPS, said that the GAO report “captured a lot of what our problems are,” but uses too slow a timeframe for changes.

“We have a good plan. Every month we delay or put off moving from six- to five-day [delivery] costs us $300 million,” he told DMNews at the National Postal Forum. “GAO means well; they’ve done a nice job, but we need to move faster on this stuff.”

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