GAO to USPS: Your Business Model Is 'Not Viable'

Aggressive cost-cutting measures and Congressional action called for.

By Bill Mickey
Tuesday, April 13, 2010

The U.S. Government Accountability Office (GAO) added to the pile of dire assessments of the state of the USPS with the release of its own report Monday. In its opening remarks, the GAO characterized the USPS's business model as "not viable." In the next decade, the USPS projects a $238 billion loss.

The Postal Accountability and Enhancement Act of 2006 requires the GAO to evaluate the USPS and thanks to the postal service's grim financial state, the GAO added it to its "high-risk" list in July 2009. The GAO is broadly recommending more Congressional involvement through financial relief and the formation of a panel to determine legislative and operational reform.

The recommendations more or less match what Postmaster General John E. Potter has already proposed (reduce compensation, benefits, and operational costs while growing revenues through product and pricing flexibility), except the panel, which the USPS is reluctant to go along with.

In a response to the report, Potter describes the GAO's assessment as "even-handed" and consistent with what the Postal Service outlined in its own assessment in March. But the panel, says Potter, adds a "layer of bureaucracy and delay to the problems that require immediate attention. Our challenges are urgent and well documented. It is time to act."

Panel or not, Congressional involvement is a must, says the GAO, because even if the USPS is able to reduce compensation and benefits costs, which make up 80 percent of total costs, while boosting core competency revenues, "it is unlikely that such changes would fully resolve USPS's financial problems, unless Congress also takes actions to address constraints and legal restrictions."

The report also shines an uncomfortable light on postal products that are not currently paying their way. Among them, the Periodicals class. Magazines and newspapers, says the GAO, have been given favorable rates, but have been steadily losing money for the USPS for the past 13 fiscal years. Losses in FY 1997 were $74 million, ballooning to $438 million in 2008 and an amazing $642 million in FY 2009.

This loss is even more cringe-worthy when you consider that Periodicals top the list of money-losing market-dominant products, accounting for more than a third of the $1.7 billion in total losses for this group. Congressional action in this regard would need to address price cap requirements—adjusting the price cap/inflation ratio for Periodicals, for example, or creating a rate structure based on handling costs. "However," warns the GAO, "such a rate structure could disproportionately affect some small-circulation magazines."

The Dead Tree Edition blog points out 3 other areas where the GAO has trained its eye. Specifically a two-tiered pay system, a more aggressive facilities closure rate, and a caution that exigent rate increases will provide short-term gains, but drive mailers to seek out other delivery alternatives, namely electronic.

You can read the full GAO report here.