GAO Drops USPS from ‘High-Risk’ List - The GAO put the Postal Service on the high-risk list in 2001 because of a bleak financial outlook that included cash-flow problems and heavy debt. But the post office has increased employee productivity while reducing staff — and saved $5 billion since 2001, the GAO said. “It’s a great day,” Postmaster General John E. Potter said. “Going forward, it is incumbent upon us to continue to provide high levels of service” and “make sure every dollar we spend is a dollar that we need to spend.” (Washington Post, 2/1/07)

From GAO:  But some of the Postal Service’s challenges that relate to governmentwide challenges remain on GAO’s high-risk list, such as strategic human capital management and managing federal real property. In the human capital management area, “the [Postal] Service continues to faces challenges related to managing workforce changes due to retirements and network consolidations and implementing performance-based compensation systems.” Read more below….

Here is GAO’s report (PDF) on removing USPS from High-Risk list: 

In 2001, we designated the Postal Service’s (Service) transformation efforts and long-term outlook as high risk because the Service’s financial outlook had deteriorated significantly. The Service had a projected deficit of $2 billion to $3 billion, severe cash flow pressures, its debt was approaching the statutory borrowing limit; cost growth was outpacing revenue increases; and productivity gains were limited. Other challenges the Service faced included liabilities that exceeded assets by $3 billion at the end of fiscal year 2002; major liabilities and obligations estimated at close to $100 billion; a restructuring of the workforce due to impending retirements and operational changes; and long-standing labor-management relations problems. We were also concerned that the Service had no comprehensive plan to address its financial, operational, or human capital challenges, including how it planned to reduce its debt, and it did not have adequate financial reporting and transparency that would allow the public to understand changes in its financial situation. Thus, we recommended that the Service develop a comprehensive plan, in conjunction with other stakeholders, that would identify the actions needed to address its challenges and provide publicly available quarterly financial reports with sufficient information to understand the Service’s current and projected financial condition. As the Service’s financial difficulties continued in 2002, we concluded that the need for a comprehensive transformation of the Service was more urgent than ever. The Service’s basic business model, which assumed that rising mail volume would cover rising costs and mitigate rate increases, was outmoded as mail volumes stagnated or deteriorated in an increasingly competitive environment. We called for Congress to act on comprehensive postal reform legislation.

In our January 2003 high-risk report, we noted that the Service had made progress by issuing a Transformation Plan in April 2002 and was beginning to implement the plan. However, no consensus had been reached on the Service’s future, and we continued to have concerns about its financial outlook. Subsequently, the Service gained some financial breathing room primarily because legislation enacted in April 2003 reduced the Service’s

Since 2003, the Service has continued to make progress in addressing its financial and human capital challenges, it improved its financial reporting by instituting quarterly financial reports, and it updated its Transformation Plan in September 2005. At the end of fiscal year 2005, the Service had paid off its debt. In addition, as of the end of fiscal year 2006, it had achieved 7 consecutive years of productivity gains, positive net income for fiscal years 2003 through 2006, more than $5 billion in cost savings since 2001, and it reduced its complement by 95,000 since 2001. Also, in December 2006, the Service reached tentative compensation contract agreements, subject to ratification by union members, with three of its four major unions. Very importantly, significant progress was also made when Congress enacted comprehensive postal reform legislation in December 2006, which provides a framework for modernizing the Service’s rate-setting processes and addresses the Service’s long-term financial obligations by returning responsibility for employees’ military pension benefits to the U.S. Treasury and establishing a mechanism for prefunding retiree health benefits.

The Postal Service’s management has demonstrated a commitment to implementing the Transformation Plan and addressing many of the financial and human capital challenges it faces. Also, the new postal reform legislation gives the Service additional pricing flexibility and allows it to retain earnings, which provide additional mechanisms to address continuing challenges related to the Service’s increasingly competitive environment, given new and emerging technologies. These continuing challenges include (1) generating sufficient revenues as First-Class Mail volume declines and the changing mail mix provides less revenue contribution than First-Class Mail, (2) controlling costs as compensation and benefit costs rise, (3) continuing work-hour reductions while maintaining service, (4) optimizing its infrastructure and workforce to reduce costs and improve operational efficiency, and (5) providing reliable data to assess performance.

Some of the Service’s challenges relate to governmentwide challenges that remain on our high-risk list, such as strategic human capital management and managing federal real property. In the human capital area, the Service continues to faces challenges related to managing workforce changes due to retirements and network consolidations and implementing performance-based compensation systems. In the real property area, significant challenges remain related to how the Service is planning and implementing infrastructure realignment to reduce excess capacity as well as reflect changes in operations. Further challenges persist related to the Service’s identification and disposal of excess property. We plan to closely monitor these challenges to ensure that they are addressed. We will also monitor the implementation of the postal reform legislation to determine how the results and impacts compare with legislative intentions.

Related link: Selected GAO Reports on USPS