Post Office needs to cut deeper

By Ben Rooney, staff reporter


NEW YORK (CNNMoney.com) -- The U.S. Postal Service is laboring under an outdated business model and needs to cut salaries, close facilities and take other steps to to aggressively slash costs, the Government Accountability Office said Monday.

"USPS's business model is not viable due to USPS's inability to reduce costs sufficiently in response to continuing mail volume and revenue declines," the GAO said in a report. "Given its financial problems and outlook, USPS cannot support its current level of service and operations."

The GAO study was commissioned after the Post Office submitted a proposal to Congress last month to overhaul its business model that included, among other things, the elimination of Saturday mail service.

Over the last three years, the USPS has lost nearly $12 billion as mail volume plunged 17% due to the weak economy and the increasing popularity of e-mail.

According to the GAO, the Post Office is nearing its $15 billion borrowing limit mandated by the U.S. Treasury and has unfunded pension and retiree health obligations and other liabilities of about $90 billion.

The report said the recently proposed turnaround plan recognizes that immediate actions are needed, but added that the Post Office has made "limited progress" on some options, such as closing facilities.

If steps are not taken to overhaul the Post Office, the GAO warned that "risks of larger USPS losses, rate increases, and taxpayer subsidies will increase."

To help relieve the pressure, Congress should allow the Post Office to revise its retiree health benefit plan, while continuing to fund its obligations over time, the GAO said. Lawmakers should also require that any binding arbitration resulting from collective bargaining with employees would take the Post Office's financial condition into account.

John Potter, the postmaster general, wrote in an April 2 letter to the GAO that he is "pleased" with the audit and that his office agrees with many of its findings.

"There is no question that the Postal Service's business model is not viable and that swift action must be taken to avert a financial crisis," said Potter.

Potter cited revenue declines and the growth of costs. "There is no reason to believe that this situation will improve without structural changes," he wrote.

The Post Office has already made draconian cost cuts over the past several months. It chopped 40,000 positions through early retirement packages and attrition in fiscal 2009 alone.

The agency expects to suffer a record loss of more than $7 billion in fiscal 2010 due to ongoing declines in mail volume, stagnant revenue and growing workforce costs. The agency expects losses to balloon to $33 billion over the next decade if nothing is done to stop the bleeding.

In addition, the Post Office expects to borrow $3 billion in fiscal year 2010, which would bring its total outstanding debt to $13.2 billion, according to the GAO. That would push the agency close to its $15 billion statutory limit.

Although it's an independent government agency and does not receive taxpayer dollars, USPS is overseen by the Postal Regulatory Commission, whose five commissioners are appointed by the president. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,098.45 18.88 0.11%
Nasdaq 4,580.27 22.57 0.50%
S&P 500 2,003.37 6.63 0.33%
Treasuries 2.34 0.01 0.39%
Data as of 4:43pm ET
Company Price Change % Change
Bank of America Corp... 16.09 0.08 0.50%
Apple Inc 102.50 0.25 0.24%
Intel Corp 34.92 0.27 0.78%
Facebook Inc 74.82 0.96 1.31%
General Electric Co 25.98 -0.03 -0.12%
Data as of 4:04pm ET

Sections

Tesla shares hit a new all-time high Friday after the company announced plans to build 400 charging points in China. More

Gas prices are falling to nearly $3 a gallon in some parts of South Carolina, and that will soon be common in much of the country. More

Netflix told the FCC that its speed on the Comcast network became so slow that customers began dropping their service. More

Whether you've got wanderlust or an airline grievance, here are some apps to pack onto your phone. More

Five CNNMoney readers share stories about saving that you can learn from: What they would do differently if they had another chance. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.