Postal Reform

GAO believes that comprehensive postal reform is urgently needed. The Service achieved notable success in fiscal year 2003, but this respite is likely to be shortlived. The outlook is for continuing declines in the core business of First-Class Mail, while some key costs are rising and productivity gains are likely to slow.

First-Class Mail Volume Growth, Fiscal Years 1984 through 2003

Key postal reform issues that need to be addressed are:

The Service’s Mission and Role as a Self-Financing Federal Entity

The Service has a broadly defined mission that enables it to engage in unprofitable and costly endeavors. In our view, the time has come for Congress to clarify the Service’s core mission and ensure continuity across changes in its management. Key issues include what should be the scope of the postal monopoly, and should the Service retain its regulatory functions.

Governance, Transparency, and Accountability Mechanisms

Better governance, transparency, and accountability mechanisms are needed. Qualification requirements are too general to ensure that board appointees have the experience needed to oversee a large business-like operation. Enhanced transparency and accountability mechanisms are also needed for financial and performance information, such as reporting requirements.

Flexibilities and Independent Oversight

The Service needs additional flexibilities so it can generate needed revenues, contain costs, and provide quality service. Major changes to the rate-setting structure are needed to enhance flexibility, encourage greater cost allocation, provide better cost data, and strengthen independent oversight. Also, current legal and other constraints serve to limit the Service’s ability to rationalize its infrastructure and workforce, including closing unnecessary post offices.

Human Capital Reforms, Including Pension, Benefit, and Escrow Issues Outstanding human capital issues include the Service’s responsibility for pension costs related to military service, funding the Service’s significant obligations for retiree health benefits, and determining what action to take on the escrow account established as a result of the enactment of P.L. 108-18. Other key areas for reform include workers’ compensation and pay comparability.

U.S. Postal Service: Key Elements of Comprehensive Postal Reform, by David M. Walker, comptroller general of the United States, before the Special Panel on Postal Reform and Oversight, House Committee on Government Reform.

Highlights of GAO-04-397T, a testimony before the Special Panel on Postal Reform and Oversight, House Committee on Government Reform Key Elements of Comprehensive Postal Reform Why GAO Did This Study Both the Presidential Commission on the U.S. Postal Service and GAO’s past work have reported that universal postal service is at risk and that reform is needed to minimize the risk of a significant taxpayer bailout or dramatic postal rate increases GAO has testified that Congress should enact comprehensive postal reform legislation that would clarify the Postal Service’s (the Service) mission and role; enhance governance, transparency, and accountability; improve regulation of postal rates and oversight; help to ensure the rationalization of the Service’s infrastructure and workforce; and make needed human capital reforms. The administration has also supported postal reform, outlining guiding principles intended to ensure that the Service: implements best practices with a governing body equipped to meet its responsibilities; enhances transparency of timely and accurate data on postal costs and performance; provides greater flexibility for the Service to meet its customer obligations; ensures accountability through appropriate independent oversight; and keeps the Service financially self-sufficient, covering all of its obligations. GAO was asked to discuss comprehensive postal reform in light of these principles.
What GAO Found
GAO believes that comprehensive postal reform is urgently needed. The Service achieved notable success in fiscal year 2003, but this respite is likely to be shortlived. The outlook is for continuing declines in the core business of First-Class Mail, while some key costs are rising and productivity gains are likely to slow. First-Class Mail Volume Growth, Fiscal Years 1984 through 2003 Key postal reform issues that need to be addressed are: The Service’s Mission and Role as a Self-Financing Federal Entity The Service has a broadly defined mission that enables it to engage in unprofitable and costly endeavors. In our view, the time has come for Congress to clarify the Service’s core mission and ensure continuity across changes in its management. Key issues include what should be the scope of the postal monopoly, and should the Service retain its regulatory functions. Governance, Transparency, and Accountability Mechanisms Better governance, transparency, and accountability mechanisms are needed. Qualification requirements are too general to ensure that board appointees have the experience needed to oversee a large business-like operation. Enhanced transparency and accountability mechanisms are also needed for financial and performance information, such as reporting requirements. Flexibilities and Independent Oversight The Service needs additional flexibilities so it can generate needed revenues, contain costs, and provide quality service. Major changes to the rate-setting structure are needed to enhance flexibility, encourage greater cost allocation, provide better cost data, and strengthen independent oversight. Also, current legal and other constraints serve to limit the Service’s ability to rationalize its infrastructure and workforce, including closing unnecessary post offices. Human Capital Reforms, Including Pension, Benefit, and Escrow Issues Outstanding human capital issues include the Service’s responsibility for pension costs related to military service, funding the Service’s significant obligations for retiree health benefits, and determining what action to take on the escrow account established as a result of the enactment of P.L. 108-18. Other key areas for reform include workers’ compensation and pay comparability. U.S. Postal Service: Key Elements of Comprehensive Postal Reform, by David M. Walker, comptroller general of the United States, before the Special Panel on Postal Reform and Oversight, House Committee on Government Reform. GAO-04-397T, January 28. Highlights The report includes the following:


GAO: Congress Could Consider SEC-Like Rules For Postal Service
WASHINGTON -- The head of the General Accounting Office said Congress could consider mandating Securities and Exchange Commission-type reporting requirements for the U.S. Postal Service if it determines the service's plans to enhance disclosure are inadequate. Comptroller General David Walker, in testimony presented Wednesday to a House subcommittee, expressed pleasure at the Postal Service's recent steps to enhance its financial reporting and noted that the chairman of the Postal Service Board of Governors recently indicated that the service would make further enhancements along the lines of some SEC reporting requirements. "In our view, it will be important for Congress to obtain clarification from the service of how and when it intends to develop financial statements and disclosures comparable to those provided by publicly traded companies," Walker said. "If Congress determines that the service's proposed approach is not acceptable or timely, or if the service does not fulfill the commitment it makes in this regard, Congress could consider mandating SEC-type reporting requirements for the service, or giving a regulatory body authority in this area," he added. GAO is a Congressional watchdog agency. "In addition," Walker said, "there are areas where stakeholders still have little information, such as the service's financial needs for maintaining and modernizing its infrastructure, and the true market value of the service's vast real estate holdings." STATEMENT OF S. DAVID FINEMAN, CHAIRMAN BOARD OF GOVERNORS REGARDING ENHANCED FINANCIAL REPORTING January 6, 2004 The President's Commission on the United States Postal Service stated that the Postal Service should set the standard for financial transparency by which all other Federal entities are judged. In furtherance of this goal, the Commission recommended that the Postal Service voluntarily comply with applicable provisions of the major Securities and Exchange Commission (SEC) reporting requirements. Last August, at the Board's direction, the Postal Service initiated an effort to enhance financial reporting. I am pleased to report that significant progress has been made. The 2003 Annual Report, which is posted on our web site and will be distributed this week in hard copy, includes enhanced disclosures in the footnotes and the Management Discussion and Analysis section. Also, in the First Quarter of Fiscal Year 2004, the Postal Service has begun to publicly report significant events, on our web site, in accordance with SEC Form 8-K reporting requirements. Additional progress will be achieved with the issuance of the Quarter 1, Fiscal Year 2004 Financial Report in February. Consistent with SEC Form 10-Q, this report will include an enhanced Management Discussion and Analysis section and expanded financial statements. Finally, earlier today the Board reviewed with the Postmaster General and his principal officers the topic of annual disclosures as they are reported through SEC Form 10-K. In the coming months we will complete plans to further enhance our annual financial reporting. - end -
Lawmakers warn US Postal Service may need bailout
WASHINGTON, Jan 28 (Reuters) - U.S. lawmakers warned on Wednesday that taxpayers might need to bail out the U.S. Postal Service unless drastic legislative changes are made to allow the embattled agency to withstand attacks from the Internet and private carriers. "A meltdown is inevitable," Rep. Dan Burton, an Indiana Republican, said at a House government reform committee hearing. "Something has to be done otherwise we're going to have a huge government bailout (paid for by the taxpayers), and it won't be a one-time thing." The Postal Service, saddled with $7.3 billion in debt and billions more in other liabilities, such as retirement related benefits and operating leases, said it will become more difficult to cover its operating expenses as mail volume in its lucrative first-class business falls. Last year, the post office saw first-class mail volume, which contributes more than half of its revenue, drop by a record 3 billion pieces to 100 billion, down from a peak of 104 billion in 2001. In an effort to cut $5 billion in costs by 2005, the Postal Service has cut thousands of jobs through attrition, modernized equipment and consolidated sorting facilities. The post office has long pushed Congress to give it greater flexibility to change postage rates when it deems it necessary. "We cannot wait until the Postal Service is in such financial crisis that drastic service or delivery reductions are our only options," David Fineman, chairman of the board of governors, told lawmakers. Efforts to reform the 229-year old agency received another jolt last July after an independent committee established by President George W. Bush questioned whether the Postal Service could continue to deliver mail to every American address as currently required by law. Even with added revenue generated from postage rate increases, the commission report said, "the 15-year outlook for the Postal Service remains grim and makes a powerful case for a far more ambitious overhaul." Postal officials have pledged not to raise stamp prices until 2006 at the earliest. "We should not measure the success of the Postal Service by how long we're able to delay rate increases,' U.S. Comptroller General David Walker, the government's chief auditor, said. "If the results of the delay is to reposition more significant and dramatic rate increases in the future in the face of a competitive (environment), that is not a success." ;
Committee on Government Reform Special Panel on Postal Reform and Oversight Congressman John M. McHugh, Chairman MEDIA ADVISORY FOR IMMEDIATE RELEASE Contact: Brynn Barnett (Rep. McHugh) 202-225-4611 David Marin (Govt. Reform) 202-225-5074 SPECIAL PANEL ON POSTAL REFORM AND OVERSIGHT TO CONSIDER NEED AND PROSPECTS FOR REFORM OF THE U.S. POSTAL SERVICE Panel Begins Work on First President-Backed Reforms in More Than 30 Years Washington, Jan 26- How must the postal industry adapt to ongoing changes in communication technology? What reforms are needed to keep the Postal Service operating as a viable entity? How must the Postal Service prepare for upcoming changes required by the Postal Civil Service Retirement System Funding Reform Act of 2003? WASHINGTON, D.C. (Jan. 26) WHAT: House Government Reform Committee, Special Panel on Postal Reform and Oversight Hearing: "Answering the Administration’s Call for Postal Reform" WHEN: Wednesday, January 28, 2004, 2 p.m. WHERE: Room 2154, Rayburn House Office Building WITNESSES: Brian C. Roseboro, Acting Under Secretary for Domestic Finance, U.S. Department of the Treasury S. David Fineman, Chairman, U.S. Postal Service Board of Governors (accompanied by The Honorable John E. Potter, Postmaster General of the U.S.] George A. Omas, Chairman, U.S. Postal Rate Commission The Honorable David M. Walker, Comptroller General of the United States, U.S. General Accounting Office. BACKGROUND: The United States Postal Service (USPS) is the center of an $871 billion industry employing nine million workers nationwide and representing more than eight percent of the Gross Domestic Product. This industry is in trouble and requires reform legislation to prevent a meltdown. Mail volume has declined during each of Fiscal Years 2001, 2002, and 2003. Conversely, the number of addresses to which the Postal Service delivers has increased by 5.2 million during the same three-year period. Online bill paying, the anthrax mailings, and the sluggish national economy of the post-9/11 era are other factors that have contributed to the Postal Service’s declining revenues. Overall, the Postal Service has lost $2.3 billion in the last three years. Under the Postal Service’s 30-year-old legal framework, the only response to declining volume and revenue is larger and more frequent rate increases, contributing to what GAO has called a "death spiral." The creation of an escrow account by the Postal Civil Service Retirement System Funding Reform Act of 2003 makes passage of postal reform legislation urgent. Beginning in 2006, the Act requires USPS to collect and place into escrow funds equivalent to the amount saved due to the Act. Without a change, the Postal Service will be required to file a rate case in late 2004, raising rates an additional 5.4 percent (on top of whatever rate increases are necessary to fund their operations) in order to fund this escrow account. On July 31, 2003, the President’s Commission on the Postal Service released its recommendations for maintaining the viability of the Postal Service. Roughly half of these require legislative changes, and most of the recommendations concern issues addressed in earlier Postal Reform proposals. New issues raised by the Commission include reform of the collective bargaining process and legislative changes making it easier to close post offices and processing centers. In addition, the Commission recommended that the Postal Service not be responsible for funding the portion of CSRS employees’ pensions that are attributable to their prior military service. Administration Recommendations On December 8, 2003, President Bush met with members of the President’s Commission on the Postal Service. Later that day, the Department of the Treasury released five principles that should guide Congress’s effort to reform the Postal Service. Those principles are: Implement Best Practices: Ensure that USPS's governing body is equipped to meet the responsibilities and objectives of an enterprise of its size and scope. Transparency: Ensure that important factual information on USPS's product costs and performance is accurately measured and made available to the public in a timely manner. Flexibility: Ensure that USPS's governing body and management have the authority to reduce costs, set rates, and adjust key aspects of its business in order to meet its obligations to customers in a dynamic marketplace. Accountability: Ensure that a USPS operating with greater flexibility has appropriate independent oversight to protect consumer welfare and universal mail service. Self-Financing: Ensure that a USPS operating with greater flexibility is financially self-sufficient, covering all of its obligations. Other Special Panel Hearings This hearing is the first of three to be conducted by the Special Panel for Postal Reform and Oversight. The Panel will hold a hearing in Chicago, Illinois on February 5 to hear testimony given by leaders of postal labor and management groups. On February 11, chief executives of USPS clients and competitors will testify before Panel Members. ABOUT THE SPECIAL PANEL ON POSTAL REFORM AND OVERSIGHT: The House Government Reform Committee’s Special Panel on Postal Reform and Oversight is charged with helping reform the outdated postal system, currently mired in almost $15 billion of debt and in the midst of the biggest overhaul since it became an independent government entity under the Postal Reorganization Act of 1970. The panel is chaired by Rep. John M. McHugh (R-NY), and will work closely with the nine-member commission appointed by President Bush. Rep. McHugh and the panel will report directly to Government Reform Committee Chairman Tom Davis, making postal reform a full committee issue. Other Committee members appointed to the panel are: Reps. Dan Burton (R-IN) Edward L. Schrock (R-VA), Candice Miller (R-MI), Tim Murphy (R-PA), Marsha Blackburn (R-TN), Danny K. Davis (D-IL), Major R. Owens (D-NY), Edolphus Towns (D-NY) Carolyn B. Maloney (D-NY), and Wm. Lacy Clay (D-MO). ###
Congress Schedules Hearings On USPS-Overhaul Legislation January 13, 2004 Two key congressional committees will hold a series of hearings through early next month on proposals to change how the USPS operates and treats its workers and customers. The hearings will consider a wide range of recommendations – including those made last summer by the President’s Commission on the U.S. Postal Service – that could be incorporated into legislation and considered for passage later this year. On Jan. 28, The House Government Reform Committee’s Special Panel on Postal Reform and Oversight (chaired by John McHugh, R-NY) will hear testimony from the Postal Service, the General Accounting Office (GAO), and the Treasury Department. APWU President William Burrus will be among those testifying on Feb. 5, in Chicago, where the panel will convene to hear the views of postal employee organizations. A third session has been set for Feb. 11, in Washington, to hear from mailing industry representatives and USPS competitors. The Senate Governmental Affairs Committee (chaired by Susan Collins, R-ME) has tentatively scheduled hearings in Washington on Feb. 3 and 4. The Senate hearings are expected to feature many of the same witnesses – including Burrus – invited by the House panel. Both Sen. Collins and Rep. McHugh have announced that they will draft postal reform legislation for introduction early this spring. (source: APWU)

Majority Members: John M. McHugh, Chairman Dan Burton Edward L. Schrock Candice S. Miller Tim Murphy Marsha Blackburn		Minority Members: Danny K. Davis, Ranking Member Major R. Owens Edolphus Towns Carolyn Maloney Wm. Lacy Clay